Despite all the worries that plagued the market this year, things have actually been very strong. Exceedingly so. But don’t expect that any longer, says Blackrock. The world’s largest asset manager expects returns in 2020 to come way down. The firm says that the big changes in monetary policy this year outweighed the geopolitical issues and caused huge returns, which won’t happen next year. Blackrock thinks returns in the mid single digits in 2020 seem realistic.
FINSUM: This is sort of a middle of the road call in terms of forecasted numbers, but we like the summary of what happened this year and how next year’s performance is not likely to be duplicated.
Expectations of higher compensation and more “freedom” usually top the list of articles that discuss why advisors are breaking away from large brokers. However, there is more to it than that. An interesting piece in Financial Planning tells the story of a team breaking away from Merrill Lynch. In reality it is not just comp that is an issue, and it s rarely the sole reason for breaking away. Often times it has to do with institutional limitations, like corporate bureaucracy, a bad branch manager, or small clients getting funneled to call centers. Other times it is because advisors are offering tons of service, like tax planning, cash flow management, loan refinancing etc that they just don’t get paid for.
FINSUM: This is a good piece that goes deeper than usual in exploring the real reasons advisors leave and whether doing so is a good idea.
Small cap stocks are starting to have their day in the sun. The Russell 200 has started to catch up to large cap indexes this autumn, and some stocks look ready to surge. The index is now up 21.2% for the year, just a few points behind the S&P 500’s 25.5%. According to Merrill Lynch, economic recoveries “tend to be the best phase for small-caps …That’s one key reason we think we could be poised for a shift from large to small”. According to a Jefferies analyst, “I think small is primed to outperform as the economy and earnings improve in 2020 … That’s going to be the whole ballgame”.
FINSUM: It is hard to imagine the US is going to enter an “economic recovery phase” at the end of a ten-year bull run, but the market’s perception of the current economy is exactly that, so these forecasts might be spot on.
If one thing is for sure about markets at the moment, it is that investors are less worried about the economy and less stressed about the chances of a bear market. That is exactly why the market is at risk. The market’s fear index, the VIX, jumped a whopping 16% yesterday, signaling some underlying anxiety building after a calm and positive stretch. One of the factors that is looming over markets is whether the tariff deadlines on China get delayed or not, which will be a sign of progress or failure on the trade deal. Further, fears over the election, and higher rates, are likely to dampen corporate spending and slow the economy.
FINSUM: Our worry is that the anxiety level at the moment does not seem to be matching the real risk, which ironically is when the chance of a market downturn is at its highest.
One of the first big changes under new Goldman CEO David Solomon is becoming clear. That first major move is in wealth management, where Goldman is attempting to push much more broadly into the market. The bank plans to launch a robo advisor to get people with as little as $5,000 to invest to join its offering. Goldman has traditionally gone after very wealthy clients ($10m+), so this is a major change of pace for the the bank and is more in line with its recent increased focus on mass market savings products. A senior figure at Goldman explained “It’s a pipeline for future clients” to allow them to “experience the Goldman Sachs’ way”.
FINSUM: Goldman seems to believe it has stretched the high end of its market (big corps and UHNWIs) as far as it could go, and this is just the next logical area for growth. The challenge here is that we don’t think the Goldman name has the same cache with the mass market that it does with the HNW market.