(New York)

Rising rates are good for financials, right? Well, not always, especially for asset managers. The sector is not as directly impacted by rate rises as banks, and investors need to be on the look out for losses. The whole sector is experiencing a grave fee war, with fund pricing recently hitting zero. All managers are now in an effective race to the bottom on fees and only a handful of winners will emerge, all reliant on increasing scale massively to make the low fees viable.

FINSUM: Asset managers are in a nasty and long-term fight. The damage to shares would have been much worse, but the rise in stocks and other assets has boosted AUM, which has offset a lot of the lost revenue from lower fees, helping to insulate the sector.

(New York)

Something very odd happened in markets yesterday—the reaction to a stimulus had gotten so bad, that it reversed the original stimulus. We are of course referring to the fact that the stock sell-off, itself seemingly a response to the rise in bond yields recently, became so bad yesterday, that bond yields finally turned around and moved lower. In other words, bonds scared stocks so much that bonds themselves got scared. The stock market has fallen more than 5% in two days.

FINSUM: This was an interesting, albeit easy to forecast, move. It makes one wonder, which is the cart and which is the horse?

(New York)

The amount of data pointing to recession is growing strongly. Not only are rates and yields rising quickly, but housing has been showing much weakness. Now there is another major leading indicator flashing red—commodities. Commodities are often seen as a key economic bellwether as they tend to show aggregate demand ahead of actual economic figures. By that measure, things are looking bad. Bloomberg’s commodity index has dropped 5% this summer, with both agricultural commodities and metals performing poorly. One factor hurting commodities is the Dollar, as the currency is strong and because commodities are priced in Dollars, it tends to hurt foreign demand.

FINSUM: Everything we are seeing seems to point to a peak. Housing has turned negative, commodities are weakening, and rates are rising. Did the stock market see its bull market peak last week?

(New York)

The Wall Street Journal says the conventional logic as to which stocks are safest during periods of rising rates is wrong. The traditional play is to buy into large, safe, dividend-payers. However, over the last thirty years, those are exactly the stocks to avoid during rising rate periods. A better decision, if history is any guide, is to put your money into small caps and cyclical sectors. Small caps have outperformed large caps by a wide margin in rising rate periods, as have growth investments and cyclical sectors.

FINSUM: Straight dividend payers are not the best choice. Dividend growth stocks are likely a much better choice, and small caps seem like a good idea as well as they tend to see the biggest gains in strengthening economies.

(New York)

Not only did the stock market fall 3-4% yesterday, but something very unusual happened alongside it—yields rose. Historically speaking, it is rare for yields to rise when there is a big stock selloff, as investor generally flee to the safety of Treasuries. Selloffs can portend economic weakness to come, which makes bonds seem more attractive.

FINSUM: This is quite a worrying development and is reflective of the current environment. No one can get comfort from the “safe haven” of Treasuries because it seems very likely yields will keep rising on the back of the strong economy. In other words, there is no place to hide (other than in hedged investments).