(New York)

JP Morgan’s head of research, famed analyst Joyce Chang, published some very interesting views this week. She argues that the pandemic has forever changed financial markets, and highlights what she says are four “paradigm shifts” that COVID has caused. The biggest of those from a market direction perspective is about the Fed. She contends that the huge and extraordinary measures central banks have undertaken in the last few months have fundamentally changed the role of central banks towards financial stability (something they were arguably already focusing on).

FINSUM: In our mind it has become very obvious over the last few years, and especially during the pandemic, that the Fed’s most important mandate is financial stability.

(Washington)

The reality of the political situation in the US is that markets and the media are betting that Biden is going to win the presidency. Many also think the Democrats have a fair shot at sweeping Congress and the presidency. If either eventuality happens, especially the latter, tax hikes look likely. Biden formally announced his plan to do so recently. Therefore, a rise in corporation tax and a hike in the top tax bracket back to Obama-era levels seems highly probable.

FINSUM: The tax hikes that seem most likely will create a host of considerations for high earners. For instance, a reversion to previous tax levels would change the utility of certain pass-through entities versus other types of businesses.

(Washington)

On Friday we ran an article covering which sectors and stocks would do well if the Republicans swept the election. Today we are doing the opposite side of that coin—the stocks that will win big if the Democrats sweep. Democrats are currently leading in the presidential poll and seem likely to keep ahold of the House, while the Senate looks like much more of a stretch. That said, if a sweep happens, infrastructure may be a key sector to surge as a large infrastructure bill would seem likely. Other sectors likely to gain are renewable energy, semiconductors, consumer staples, and oddly, gun stocks (since sales will likely surge on fears of regulation).

FINSUM: The infrastructure play seems like a good one, semiconductors also (like Western Digital). We still think a more likely scenario is a split Congress.

(New York)

The huge market volatility that accompanied COVID has laid the state of American retirement very bare. Not only are countless people under-capitalized for retirement, but many pulled money out in March, missed the big recovery and are now sitting with considerably smaller portfolios. This has led even the most ardent anti-Annuities advisors—mostly RIAs—to start recommending the products to some clients. Annuities can lock in income that is very hard to get elsewhere right now given ultra-low rates. Annuities ae complicated products and there are many different varieties, ranging from immediate income to variable annuities to fixed income annuities with income riders. For fixed index annuities, check out joint-life policies from Protective Life, Minnesota Life, and Delaware life. For variable annuities, look at Jackson National Life, Transamerica life, and Brighthouse Financial.

FINSUM: Annuities can be a good choice right now depending on the state of a client’s preparedness for retirement and the other assets in their portfolios. Just pay attention to the fact that most annuities providers have significantly cut payouts recently because of the Fed’s actions on rates.

(New York)

It is a great time to be an investment bank. That fact became very clear last week when Goldman Sachs and Morgan Stanley earnings destroyed those of more traditional lenders like Bank of America, JP Morgan Chase, and Wells Fargo. Goldman, for instance, may be a great buy. It has much less main street lending exposure than regular banks, and has booming underwriting and trading businesses that are benefitting from low rates and market volatility. Some nice summary comments from an analyst at JMP Securities, saying “Goldman had a phenomenal quarter that allowed the firm to pad its legal reserves and conservatively position itself on loan losses … The bigger story is where the firm is going … Goldman is the biggest transformation story in finance, and the pandemic hasn’t derailed that”.

FINSUM: Firstly, these earnings came with all their employees working from home. So a 50% outperformance versus expectations with home-based traders. To us that is a sign of excellent management. More generally, their business mix—with a majority of institutional and growing, but not huge, consumer-facing revenue lines—seems ideal for the current environment. The stock is also priced below book value.