(New York)

It has been a long, long, time since value stocks really had a shining moment. Growth has been outperforming value for over a decade now. However, strategists at JP Morgan say that value stocks may start to shine very soon. This underlying parts of this economy—weaker but still improving—are the exact conditions where value stocks traditionally shine. These pre-requisites for success seem likely to stay in place. There does not appear to be a second wave of infections brewing, there is ample government support for the economy, and economic data is trending more positively than negatively.

FINSUM: The typical rotation into value (such as in 2008-2009) takes over 100 days and has 18% upside. The logic here is sound, but we still wonder if value will outperform growth.

(Washington)

A whole squad of industry players are trying to stop the SEC’s new Reg BI in its tracks. From individual firms (like Michael Kitces’) to trade groups, many are filing lawsuits to stop the implementation of Reg BI. One of the critical arguments seems to be that the new Reg BI does not sufficiently protect investors under the rules of the Dodd-Frank Act. One principal at XY Planning Network says, simply, “Reg BI makes it more difficult for customers to differentiate between financial planners who are bound by fiduciary obligations and for broker-dealers who may consider their own financial interests”.

FINSUM: Both broker-dealers and RIAs are against this rule. For the former, it complicates life, and for the latter, it muddles some of their “fiduciary” thunder. Nonetheless, it seems the rule is likely to implemented on schedule.

(New York)

Investment bank research teams all over Wall Street have been sounding the alarm about how untether from reality markets seem to be. Many are warning investors of another big fall in stocks, and at the same time are telling corporate customers to tap markets for funding as much as they can before another fall. Now hedge funds are joining too, saying it is time to pull back. One manager said “The markets are priced to perfection … The stability in equity markets does not reflect the job losses and the insolvencies ahead of us globally”. Paul Singer of Elliott Management made a specific call, saying “our gut tells us that a 50 per cent or deeper decline from the February top might be the ultimate path of global stock markets”.

FINSUM: In principal a big fall seems warranted, but it is hard to fight the Fed.

(New York)

Morgan Stanley says the big gains in travel stocks are way overblown and will likely prove dangerous to investors. Carnival, Royal Caribbean, and Norwegian have all seen their shares rise in the double digits recently as investors have grown increasingly optimistic about their prospects and their cash reserves. However, Morgan Stanley threw cold water on those sentiments, saying “The cruise industry will take longer than almost any other form of travel to return to normal” as it downgraded the stocks to Underweight (two of them were already Underweight). UBS also pointed out that there will likely be no meaningful cruise activity until next year.

FINSUM: Even once cruises get running again, all it will take is one minor flourish of COVID—and the associated news cycle—for the whole sector to freeze up again. Too risky to invest in at this point.

(New York)

In a recommendation that speaks volumes to clients about the bank’s position on the markets, Citi put out a note to corporate clients this week which instructs them to tap markets for as much funding as they can get right now because the market is totally unrealistic. According to the co-head of investment banking at Citi, “We definitely feel that the markets are way ahead of reality. We really are telling every client to tap the market if they can because we think the pricing now couldn’t get any better”. He continued, “Markets are pricing a V [shaped recovery], everyone’s coming back to work, and this is going to be fine … I don’t think it’s going to be that easy quite frankly”.

FINSUM:A V-shaped recovery is highly unlikely at this point. We think the Nasdaq being where it is isn’t illogical because of how many of its constituents benefit from COVID. But for everyone else, this level of optimism seems disconnected from reality.