(New York)

Something very interesting is going on in the junk bond market—things are good. The market for risky corporate debt has seen a resurgence over the last couple of months, and even as benchmark yields have risen, returns for junk bonds have been positive. The spread between high yield and benchmark Treasuries has shrunk from 369 basis points to just 333 basis points since February 9th.

FINSUM: This is a very important move as it it is a positive sign about the business cycle. Junk bonds and other credits have often been leading indicators, and the fact that investors are still showing faith in them is very positive.

(Washington)

One of the elements that has been weighing on technology companies this spring has been the threat of regulations. To judge that risk, Barron’s interviewed a number of Wall Street Analysts to get their views. Overall, the consensus was that future regulatory risk for fangs was muted. One managing director for Canacord Genuity commented that, “Facebook management addressed important data and privacy issues head-on, outlining new disclosure standards for political ads and hiring aggressively against privacy initiatives.…For the time being, the worst is very likely behind Facebook stock.”

FINSUM: We tend to agree here. We do not see the government taking major action, and the worst seems to be behind tech companies, for now.

(New York)

Barron’s has just put out a strong warning telling investors that they should stay away from long-term bonds. If you step back from the day-to-day movements, the picture is clearly that yields are moving higher. For instance, they started April at 2.7% and are now at 3% for the ten-year. The longer the bond, the more its value is affected by yield movements, a concept called “duration risk”. Therefore, when markets are this volatile, it is best to stick to the short end of the curve.

FINSUM: Most advisors will know that investors have been pouring money into short-term bonds, probably because they seem like a great buy. For instance, two-year Treasuries are yielding around 2.5%.

(New York)

Talk about a mega merger. In a deal with huge regulatory implications, T-Mobile announced an acquisition of Sprint for $26.5 bn. The deal would be all stock, and is a bet that the 3rd and 4th largest mobile providers in the US can team up to create a rival to the leading players, AT&T and Verizon. The two companies, which are owned by Deutsche Telekom and SoftGroup, respectively, tried to merge 5 months ago, but the deal collapsed.

FINSUM: This is a big play to capture the next generation of data, or 5G, which is being heralded as a sort of holy grail for mobile providers.

(Washington)

Just when you thought it was all over, it isn’t. The DOL technically only has until Monday to try to appeal its court loss in March, but one of the risk factors cited in the case just came to pass. The AARP, a big proponent of the DOL’s version of the fiduciary rule, has just asked the courts if it can step in as the defendant in the 5th circuit court case the DOL has already lost. It is doing so in an attempt to appeal the verdict and keep the rule alive given the agency’s reticence to ask for an appeal itself. According to the AARP, “AARP is not giving up on our fight to make sure that hard-earned retirement savings have strong protections from conflicts and hidden fees”.

FINSUM: This is one of the eventualities we warned about. We would not be surprised if this attempt was successful and the DOL fiduciary rule saga went on. In reality, the AARP was probably just waiting to see how strong the SEC’s proposals were before launching this effort.

(Atlanta)

There are a lot of investors worried about the US housing market at the moment. As rates rise, and a potential recession looms, some think housing could falter. On the flipside, however, it is often considered that home supply is low and demand is high, which has been pushing up prices and shows no signs of abating. Now, there is another factor to consider—US building materials prices are surging. Everything from lumber (up 16%) to insulation is jumping in price. Homebuilders say that despite the rise in costs, they have been able to offset the increases by hiking their prices, which they say consumers have been willing to pay.

FINSUM: The appetite for homes and new construction seems very strong at the moment, and certainly good enough to carry the market for a while yet.

(Washington)

In what will likely lead to a sigh of relief from Congressional Republicans, Trump made clear yesterday that he will not take any action to shut down the DOJ investigation into his administration’s ties to Russia. The comments came shortly before the Senate judiciary committee passed a bill to protect special counsel Robert Mueller from being fired. That bill has very little chance of becoming law, however, because of the composition of Congress and the position of Senate majority leader Mitch McConnell.

FINSUM: We think this is a very wise move from Trump. No only does it make him appear more innocent of any wrongdoing, but it also makes him look more committed to the investigative process.

(New York)

Ten-year Treasuries are currently hovering around the 3% yield mark. This has alarmed some investors, but the market seems to be more bullish following yesterday’s moves. Now, with the move higher in yields stalling, Citigroup is calling for a huge rally in the notes, saying they will return to 2.65% yields. According to the bank’s strategists, “Equity markets are reacting negatively to increases in Treasury yields … A further sell off in rates will be held in check by the feedback loop from equity markets”.

FINSUM: A rally is possible, but Citi is saying this will occur because of a sell-off in stocks sparked by fears over inflation and rates. Not as bullish as it sounds.

(Seattle)

Anyone in Amazon should be a little bit nervous today. While the stock’s performance should speak for itself, we think an announcement by the company could be a risk factor. Amazon has announced that it is increasing the price of its Prime service from $99 to $119, or a 20% rise. The company has not raised the price since 2014, but the changes will come into effect next month. Amazon notes that it has greatly expanded the services included in Prime, including bringing the total items covered by Prime to over 100m.

FINSUM: How much might this keep new subscribers from joining? Going over the $100 mark seems like an important mental threshold. The price hike appears to indicate Amazon needs more revenue to invest in another big venture.

(New York)

One of the main mistakes that retirees make is that they underestimate the amount of money they will need for spending in retirement. Accordingly, one of the main jobs of financial advisors is to adjust their thinking on this and make sure that does not happen. Here are some of the reasons people underestimate what they will need. They discount the likelihood of needing to help family members who might get into a precarious financial situation, or even paying for things like weddings. Retirees also forget to budget for one-time big ticket items, even though they are mostly predictable, such as a new car or a new roof. People also underestimate how much more they spend on entertainment, as they will have a great deal more time. Healthcare is also chronically underestimated.

FINSUM: While advisors deal with this frequently, it is never a bad idea to revisit the key “problem” areas.