Equities

(New York)

Something very odd is happening in the stock market. Despite the fact that rates look likely to rise and yields are rising sharply, financial stocks are losing ground. This is the opposite of what one would expect, as higher rates boost profit margins for banks and the like. No one is quite sure why, but it seems that instead of boosting hopes for earnings, higher rates have investors worried about a weaker economy to come, which would be negative for banks, which are quite tied to economic performance.


FINSUM: To us this is a quite a bearish view, as it indicates that investors see stagflation coming on (higher rates with zero or negative growth.

(New York)

Go back a few years and the big fear of the wealth management market was robo advisors, especially upstarts like Betterment and Wealthfront. Fast forward to 2018 and fears of robos have largely receded as they seem to have found their niche in the industry alongside human advisors. Now the big worry is about large tech companies pushing into wealth and asset management. The anxiety most commonly manifests in worrying that Amazon might launch a digital wealth management platform of its own. However, Charles Schwab’s CEO just sent out a warning to the FANGS, saying that “If you’re a FAANG-type company and you decide you want to come into our space in a manner consistent with the way we operate, you will invite the Federal Reserve into every single thing you do”.


FINSUM: It is true that if the FANGS were to become full-fledged financial service providers they would suddenly be subject to much stricter regulations. It could be an obstacle that holds them off, at least for a while.

(San Francisco)

For all the worries about tech companies and the threat of regulations, one of the best supporting points for the stocks was the strength of their underlying businesses. Despite suffering some losses in share price over the last couple of months, Facebook showed yesterday why the FANGS still look like a good buy. Net income in the first quarter was up 63% versus last year to $5 bn. Earnings per share was up 25% versus estimates. Revenue also jumped 49% versus last year.


FINSUM: Despite all the controversies, Facebook’s advertising business continues to rake in cash by the truckload.

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