Displaying items by tag: S&P 500

(New York)

A lot of investors may be asking themselves whether stocks will be directly impacted by a trade war. In the last several trading days, the market seems to have shrugged off the increasing trade tensions. However, JP Morgan is warning that the burgeoning trade war may wreak havoc on the market. The rising tariffs now occurring globally follow 50 years of increasing free trade, so there is little modern precedent for what is occurring.

FINSUM: In our view, the market does not have a good feel for pricing the risk of a trade war because it has been so long since investors have seen anything like it. Beware.

(New York)

US financial shares might be in for a quick ride higher. Bank of America’s earnings came in 33% higher than last year, leading to a blowout for the sector. The news followed strong earnings from JP Morgan and Citi. BAML’s shares rose over 4% on the news with one analyst commenting that the numbers were “almost all you could have hoped for”. Rising interest rates were a key factor in the increasing earnings, as banks earned more from net interest margins.

FINSUM: These are great numbers, but they may only be temporary. Consumers have not yet started demanding higher interest payments on savings, but once they do (and we think they will), then banks’ net interest margins will start shrinking again.

(Washington)

Something very odd has been going on in markets for the last few weeks—investors are completely tuning out politics. The political situation both domestically and internationally has grown steadily worse in recent weeks. The US has a growing trade war with China, Brexit is a complete mess, Trump is meddling with allies etc., yet markets continue to move higher. Even emerging markets have rallied.

FINSUM: On top of politics, recession fears are also growing. Accordingly, it is slightly concerning markets are rising. Markets have learned to not take Trump’s comments too seriously, but that lack of sensitivity might be serving investors poorly right now. The Wall Street Journal says it best: “Markets are notoriously bad at pricing changes in the political weather until they are forced to”.

(New York)

The market is currently facing a large number of headwinds: higher rates, a flattening yield curve, a growing trade war, and a high degree of international political tension. Yet, according to Barron’s, the path of least resistance for the S&P 500 may be higher. The reason why? Despite all the hovering the market has done this year, one big thing has fundamentally changed very recently—market breadth is increasing. In other words, the number of stocks which are advancing versus declining is improving. When the market does so, it is often a sign of better things to come.

FINSUM: We do take increasing breadth as a positive sign, as it reflects that investors across all sectors are feeling better and not just a handful hiding out in a few places.

(New York)

Advisors need to be aware. In less than 8 weeks, everything you know about the market make up of the tech sector is going to change. Both MSCI and S&P are shifting the way they group technology companies. Netflix, Google, and Facebook will be the biggest movers, and the changes are expected to have a material affect on prices. Those three stocks will be moved to the newly formed “Communications Services” sector, and away from the two sectors they are currently split into. That will greatly lower the total weight of the Information Technology sector from 26% to 20% of the S&P 500.

FINSUM: This could really change prices as it will have a significant effect on ETF demand and other funds linked to specific indexes/sectors.