Eq: Large Cap
(New York)
Goldman Sachs is going on the record warning of “extreme” optimism in markets after stocks’ torrid start to the year. The bank says its cross-asset measure of risk appetite is the highest it has been since 1991 (!). The bank says the risk of losses is higher now, but that in their experience, signals from the macro economy tend to trump signals from risk appetite. Therefore, given that the world’s economy is moving nicely, the market may have more room to run. That said, Goldman is nervous about markets, saying “Risk appetite is now at its highest level on record, which leads to the question of what future returns can be”.
FINSUM: We think this grey-haired bull market still has some juice in it, but our big fear is how hard a recession might hit the markets (given high valuations), not just the economy.
(New York)
While value investing is one of the most famous forms of the discipline, it has been outshined over the last several years by growth and momentum strategies. Subsequently, there has been much less coverage of it. Well, Barron’s has just put out a piece picking what it says are five good value stocks that look inexpensive in this very rich market. The names discussed in the piece include Magellan Midstream Partners, SunTrust Banks, Kansas City Southern, Thor Industries, and Owens Corning.
FINSUM: This piece offers quite a mix of sectors and companies. Definitely some names to check out here.
(San Francisco)
While the press around it has not been nearly as hyped as the iPhone, Apple has finally released its new HomePod. The company’s version of the very popular smart speaker could end up being a major profit source for Apple, if not for the device itself, then because it could facilitate a significant source of service based revenue within Apple’s ecosystem. The device will offer similar functionality to other smart speakers, but apparently will have immensely better sound quality, and will, unsurprisingly, be priced significantly higher than competition, at $349, or more than triple the price of the newest Amazon Echo.
FINSUM: We think this is a very smart area for Apple to get involved in, and frankly, they should have done it sooner. However, being first is often less important than executing perfectly, so if this device is really great, then it won’t matter that it came out late.
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(New York)
The stock market is very highly priced at the moment and many think we are in the middle of a “melt up”. With that in mind, many are constantly on the lookout for warning signs that the market might be ready to tumble. Well, some are appearing. The big warning sign is that credit spreads are widening and implied volatility is picking up. It is very unusual for this to occur during a rally, as it usually happens during corrections. This warning comes on top of other red flags, such as stretched investor sentiment, and very positive earnings revisions.
FINSUM: The bond market has long been known for leading the stock market, and credit spreads are one of the indicators we tend to take very seriously. Definitely something to pay attention to.
(Seattle)
In a sign that should make all retail employees shudder, Amazon has finally launched its staff-less store. The store has no staff and no checkout, a development the company calls “just walk out” shopping. Shoppers are tracked by sensors all over the store, and the system allows Amazon to just automatically charge them when they leave. The concept is technically called Amazon Go, and this newest convenience store is Amazon’s thirteenth brick and mortar location in the US.
FINSUM: In our view, this is absolutely genius. While we hate the idea of fewer retail jobs, and don’t support that, Amazon is basically developing a way to get rid of the tedious checkout line.
(Detroit)
The Wall Street Journal has published that we consider an important and engaging piece about the US auto industry and its disconnection with the direction of the rest of the world. While other major markets, like Europe and Asia, are moving to an ever-cleaner, ever-smaller, ever more electric paradigm, the US is moving further into the “bigger is better” mantra and cutting fuel standards. The disconnection has at its heart two components—the first is Trump’s very different view of climate change and environmental regulation, and the other is cheap gasoline.
FINSUM: We don’t think this disconnect is any cause for alarm in the near-term, but investors should consider that if political winds change (such as in the mid-term elections), then regulations could change quickly, leaving US automakers with a bad product mix.