The market and investors are in an odd juxtaposition. For the most part, the media and analysts remain pretty bearish, yet the market continues to rise. Fears of an economic slowdown are persistent. With all this in mind, what is the best way to play the market? Barron’s says you should sell puts, cashing in on investors’ fears and desire to buy puts. For instance, one could sell puts on the Financial Select SPDR (XLF), which is at a high water mark but is still quite vulnerable to a downturn because of fears over the economy and rates.
FINSUM: Granted, this is a nickel and dime strategy but it sure beats fearful money sitting in a money market account not earning much.
Breaking away is a tense process for advisors. Not only is there the emotional “fear gap” about venturing into the unknown, but even considering the move is difficult. One of the major reasons why is that it is hard to know how much your comp might increase or what kind of deal you might get for moving. Advisors often ask themselves “what does my business need to look like in order to make a successful move?”. Well, here is some insight. Larger firms, say with $5m+ plus in revenue can easily afford to make the transition and hire all the consultants necessary to make a successful switch. However, the less known reality is that even solo advisors with between $50m to $100m in AUM can be very successful in moving. Payouts for such advisors can approach 80%, meaning those bringing in $500k of revenue can reasonably hope to keep $400k of it. As a rule of thumb, advisors’ take-home pay usually jumps 10-15 percentage points when breaking away from a wirehouse.
FINSUM: This is very useful information. We drew it from a number of sources, including Kitces.
JP Morgan finished 2019 on a bang and was a great stock all year. It rose by a market-beating 42% over the course of the year despite worries over the economy and declining interest rates. This has led some to think the bank’s stock is overpriced, but many, like RBC believe it will continue to rise. The bank has what is considered a “fortress” balance sheet and it has done a great job diversifying its revenue streams so that its earnings are smoother. Jamie Dimon has no plans to retire.
FINSUM: Aside from its well balanced revenue streams (47% from consumer and community banking, 31% from its corporate and investment bank), the bank is also making a bigger push into wealth management, which could start helping the stock.
Goldman Sachs was the stock of the year in 2019. It was the best performing stock in the Dow, gaining more than 37% in the year. The bank started the year poorly with its 1MDB scandal, but as the year went on, David Solomon’s (the bank’s new CEO) leadership started to help the stock. The bank settled the issues and its earnings improved. It also made a large push into consumer finance as part of an effort to diversify its business and become a “modern, digital consumer bank”. The bank, through “Marcus”, its new consumer lending unit, is offering consumer savings products, while Goldman itself is partnering with Apple on the company’s new credit card.
FINSUM: In our view, Goldman’s stock price outlook is very linked to the big new push it is making in consumer finance. Its core business will likely continue to perform as it has, so the real difference maker will be its new business lines and the success of its “modernization”.
For around a year now, the yield curve has been scaring investors. The inversion of the curve sent a grave warning sign to the market that a recession may be on its way. Many investors fled the market for fear of a big reversal. However, as we enter 2020, the yield curve is sending a very different signal—optimism. The curve is at its steepest level since October 2018, showing investors’ increasing confidence in the US economy. One CIO described the situation this way, saying “If the stock market is right that everything is amazing, I don’t see how long rates can stay as low as they are … The stock market is rallying on hope. Hope that things will inflect higher with this trade deal and Fed accommodation”.
FINSUM: If there is one thing we have learned in the last decade, it is that the Fed does not want to over-hike on rates. Overall, we think this is a very healthy direction for yields.