(New York)

Evercore put out an interesting prediction today. The bank, which has a strong research team, says that the market is likely to be “violent” in the near term. They also added a twist—that it would be “violently flat”, meaning it would have sharps up and downs on but the whole remain around the same levels. Evercore highlights the upsides and risks this way, saying “A significant COVID second wave would continue to drive asset prices lower, but with vaccine development continuing, little correlation between economic re-openings and increased case growth and hospitalization data at the national level”. That said, longer term, they are quite bullish, arguing that there will be a “sharp rebound”.

FINSUM: The news flow is going to mean that stocks are very volatile for the foreseeable future. Increased case growth one day, and then a big jump in retail sales the next.

(New York)

If you are upset about the market’s mini-correction last week, don’t worry, it is going to fall more, says Morgan Stanley. In what comes across as almost an insult to regular investors, Morgan Stanley’s research team says stocks may fall another 7% from opening levels today, but that such a fall was “healthy”. On the whole, Morgan Stanley’s position was positive, saying “We maintain our positive view for U.S. equity markets because it’s early in a new economic cycle and bull market. Last week’s correction was overdue and likely has another 5-7% downside. It’s healthy and we are buyers into weakness with a small/mid-cap and cyclical tilt”.

FINSUM: We have definitely entered a new economic cycle, and with it, perhaps a new market cycle. However, the pace with which stocks came back makes one worry the market cycle has not actually reset itself.

(Atlanta)

Airlines had a pretty good run headed into last week’s downturns. Other travel stocks did too. However, the markets really seem to have gotten ahead of themselves, because the big rallies appear to forget some fundamental changes that might be taking place under the COVID lockdown. While a knee-jerk rise in share prices alongside the lifting of lockdown orders might be logical on the surface, it ignores the fact that a great deal of domestic US travel is for business, and attitudes towards business travel have changed remarkably since March. Many companies have found remote work even more productive than office work, and no longer see the need for travel. Also, it is easier to cut travel budgets by 50% than it is to lay off more people.

FINSUM: We think there is going to be serious changes to the business travel paradigm that prevailed pre-COVID. It has now been demonstrated that similar levels of sales can be achieved by videoconference, and when you count the cost and time of travel, it is clear that companies are going to permanently cut budgets.

(New York)

Stocks are tumbling today on worries that a second wave, and a prolonged economic downturn, are becoming a reality. The Dow opened down 2.4%. Several US states have seen their weekly COVID cases spiking, and total US cases are now over 2 million. Coupled with some not-great economic data from around the world, all 11 S&P 500 sectors are down today. One asset manager in London summed up the situation nicely, saying “The timeline for the virus is being extended. It’s becoming clear that it’s a choice of allowing economies to open and take the public health hit, or lockdown countries and take the economic hit”.

FINSUM: This is tough for investors, but it is hard to argue that markets are not being rational.

(Washington)

While the actual language of the new DOL Fiduciary Rule has not been released to the public yet, its contents are growing more and more clear. According to numerous industry insiders, it looks overwhelmingly likely that the new DOL rule will not even attempt to touch the $10 tn pool of IRA assets and will instead leave those under the oversight of the IRS—which is exactly what the industry wants to happens. That means the DOL is only going after 401(k) assets, which at $9 tn, constitute a little under half of the total pool of assets the DOL could have tried to stake its claim on.

FINSUM: This is good news for those worried the new rule would govern IRA assets as well. Another interesting sign from the DOL came last week—the department announced it would now allow 401(k) assets to be invested in private equity deals.