Displaying items by tag: stocks

(New York)

A lot of investors are worried about the stock market. The market has been essentially flat this year, but given fears over a looming trade war, a potential recession, and higher rates, there is much concern about the potential for falling prices. All that said, here is a factor that may boost markets, but doesn’t seem to be fully priced-in by the market: growing buybacks. Goldman Sachs forecasts that companies in the S&P 500 will buyback a record $650 bn worth of stocks this year, far outpacing the record set in 2007. This should lead to a buyback yield of about 3% for investors, which combined with the dividend yield should net investors about 5%.

FINSUM: A record setting year for buybacks would be a big boost for markets that are lacking a growth story at the moment.

(New York)

Advisors considering putting client capital into smart beta funds need to be prepared for what to expect. The reality is that smart beta strategies tend to accentuate the returns of the market, or run counter to them altogether. In up times a smart beta strategy playing into the market’s strengths can do much better than the index overall, the opposite can happen in down markets. However, even in decent markets, many smart beta strategies can perform terribly because of the nature of the rise.

FINSUM: If you are just getting into smart beta funds, it is really important that you understand the strategy inside and out to make sure you understand how it will sit within your portfolio.

(New York)

Bloomberg has published a thoughtful and interesting article arguing that there is a little-known sign in the market that prices are likely to fall. This year’s trading activity has been in major contrast to the last few years, and not just because of more volatility. Rather retail investors have come back en masse. In the March of this year, retail trades from TD Ameritrade’s and E*Trade’s platforms accounted for more than 25% of all trading volume. Historically, investors coming back to the market is such fashion has been negative for prices.

FINSUM: If you combine this view with the reality that stocks have not really gained despite the best earnings season in many years, you do start to worry the bottom might be ready to fall out.

(Washington)

President Trump made what may turn out to be a landmark move yesterday when he announced a proposal to reign in drug prices. The plan is a blueprint to drive down costs, and it transfers more power to health insurers to compete on pricing. Medicare is also involved, as the huge US health care service has a major influence on drug prices. Critics say the plan falls well short of what Trump promised during his campaign, when he said drug companies were “getting away with murder”.

FINSUM: We do not fully have the expertise to comment on the potential effectiveness of the plan, but it certainly seems a step in the right direction, and one in which drug company shareholders don’t need to be too worried.

(New York)

The financial media and the research side of Wall Street both seem to have completely succumbed to bearishness over the last couple months. Alongside rising rates, inflation, and yields, as well as some signals about the potential end of the cycle, commentary has become decidedly negative. However, the CIO of Evercore Asset Management has just put out a contrary opinion, arguing that stocks are not overvalued and could return 7% for the next ten years. The crux of his thinking is that P/E ratios are not a good metric of valuation. Rather we should be looking at real earnings yield, which is yields minus inflation. By this metric, stocks are only at average valuations.

FINSUM: Basically this approach tries to take account of the fact that we are in a low-yield, low-inflation environment, and it does make some sense.