Displaying items by tag: bank of america

Earlier last week, the SEC and the Commodity Futures Trading Commission disclosed that they levied fines of more than $1.71 billion on several Wall Street firms. The regulators issued penalties to 16 financial companies for the failure to monitor the use of unauthorized messaging apps. The banks that were penalized include some of the largest firms on Wall Street, including Bank of America, Goldman Sachs, Citigroup, Morgan Stanley, Credit Suisse, and Barclays. The SEC’s probe revealed that between January 2018 and September 2021, employees of the aforementioned firms used WhatsApp, personal email, and other unauthorized services on their personal devices to communicate work-related matters. Personal devices can pose risk to an organization's data since it may not be as protected from cyberattacks as a secure company device, which enforces corporate security policies. Making matters worse, the 16 companies also failed to adequately maintain records of the communication, which hindered the investigation. In fact, the firms were not charged for the lax security, but their negligence in the documentation.


Finsum: The SEC and Commodity Futures Trading Commission fined 16 Wall Street firms a combined $1.71 billion for not maintaining documentation on the use of unauthorized messaging apps.

Published in Wealth Management

(New York)

Bank of America put out a stern warning this week. A team of Bank of America equity strategists led by Ohsung Kwon says that the current market looks eerily like the one in the fourth quarter of 2018, when stocks fell 20%. The market is experiencing some concerns on near-term earnings as companies cut back forecasts. According to Kwon, “The nearest memory of early cycle companies' impact on the market is almost exactly three years ago when companies warned about tariffs and slowing macro conditions during 3Q18 earnings … Those warnings and a hawkish Fed resulted in a 20% decline in the S&P 500”.


FINSUM: 2018 came within a hair of a full bear market. That feels too bearish given the overall trajectory of growth. If Congress doesn’t get the debt ceiling raised, though, all bets are off.

Published in Eq: Total Market

(New York)

Bank of America just put out a big warning that advisors need to pay attention to. The bank is warning that earnings growth could get “vaporized” across a couple of sectors. The reason why is tax hikes. BofA's Savita Subramanian posits that in a scenario where taxes rise to 25% next year (from 21% this year), 5% would be wiped off earnings growth, a huge margin in a year that is already set up to see some cooling after the red hot earnings growth of 2021.


FINSUM: Investors don’t seem to be adequately accounting for this risk. Despite the fact that Biden’s proposals will likely get watered down, there appears a high likelihood that taxes will rise next year.

Published in Eq: Total Market

(New York)

While most banks try to stay bullish on market, Bank of America just couldn’t help but get gloomy this week, very gloomy. The bank says that record high prices and placid volatility mean a big correction looms. They believe the market is underpricing the risk of a Fed policy change, and when that comes, it will hit like a hammer. They even gave a name to these bouts of volatility/correction: “fragility shocks”. According to the bank, “We believe the US equity market is underpricing the risks of a looming tapering cycle. After all, the equity market has feasted on record monetary support post-COVID, and the Fed's outlook remains impaired by the extreme uncertainty in the macro forecasts on which they base their decisions”.


FINSUM: This unfortunately makes quite good sense. However, the opposing force here is that the buy-the-dip mentality is strong right now, which could provide support in any short-term sell-off.

Published in Eq: Large Cap

(New York)

Bank of America put out a very refreshing outlook today, reminding investors of an asset that has traditionally thrived in times of high inflation. And no, it isn’t gold or other commodities. That asset is…small caps. BAML says that small caps, and value stocks as well, have traditionally performed well in high inflation environments, such as in the 1960s. According to the firm, “Our US Regime Indicator has shifted to Mid-Cycle, a phase where inflation is typically strongest. In this phase, small caps and Value have typically outperformed large caps and Growth - further supported by the profits recovery and economic rebound we expect this year. Small caps and Value stocks were also some of the best-performing assets during the inflationary period of the late 60s”.


FINSUM: History aside, we cannot really agree about the idea that small caps will thrive. Relative to large caps, small caps have a higher employment cost base because their employees are more often in the US. Their supply chains are more domestic too. That means all their costs will rise alongside their revenue. Take a larger multinational—Apple for example—most of its manufacturing and supply chain costs are offshore, which means it can enjoy rising inflation-driven revenue, but take advantage of lower inflation rates in its cost base.

Published in Eq: Small Caps
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