Displaying items by tag: stocks

(New York)

Investors turned heavily towards income-producing stocks prior to Trump’s presidency. With yields so low, they offered income which was very hard to find elsewhere. More recently, though, high yielding stocks have been losing out as rates move higher. This has caused an exodus from some areas, such as telecoms, which have lost 16% over the last 18 months. However, one important thing to bear in mind as one watches yields fall on stocks is that this is often caused by rising prices. For instance, yields have fallen in six S&P 500 sectors over the last 18 months, but the market has returned 25% in that time frame—a nice pay off for losing some yield.

FINSUM: The key point of this very basic article is to remember that falling yields in equity can mean that the sector is doing very well.

(New York)

If you are nervous about markets, you aren’t alone, as tensions seem to be steadily building about the future of equities. While trade war and higher rates dog the market, there are some tangible manifestations of worry starting to appear. High net worth Americans are increasingly focusing only on short-term investments. Only 17% of US millionaires surveyed said they planned to add to their stock exposure over the next year.

FINSUM: Investors still seem to be reeling from February, which saw the fastest peak-to-trough correction since 1950. Couple that with the threat of higher rates and a tumultuous trade war and it is easy to see why everyone is nervous. On the other hand, corporate earnings continue to be strong.

(New York)

You have heard it before, and while you might not want to, you need to hear it again. All signs point to the fact that ETFs will likely be the epicenter of the next big market blow up. Investors will be familiar with the argument that the “liquidity mismatch” between ETFs and underlying bonds is a big problem, but the reality is that this is also the case in stocks. While small caps and other less-liquid stocks pose a big threat to ETFs which track them, in a market downturn, even quite liquid shares might be set alight by forced panicked selling by ETFs. Bloomberg gives and an example “Imagine that one big investor in an ETF with, say, a 10 percent stake is forced to sell a large part its holding in a single day. There might not be ready buyers for such a large holding, causing the ETF to fall to a price below the value of the assets it owns. This price impact may be exaggerated, as ETF activity intensifies both upswings and downswings”.

FINSUM: The fact that there are also big risks in equities really opened our eyes. We knew about the bond liquidity issue, but the fact that it extends to both small and large cap equities is quite concerning. Then again, there is a fatalistic logic where this all makes sense: ETFs have been the big growth driver since the Crisis, so it makes sense they would be the epicenter of the next one.

(New York)

Everyone is feeling it, but no one is sure when it might actually come. The big question is when will this bull market end and finally reverse into the bear market everyone fears. While a solid case could be made that it has already happened, Barron’s says it will be in 2020. The logic is that in 2020 the US will be facing genuinely higher rates, and the short-term benefits from tax cuts will have faded from earnings and the economy.

FINSUM: There is a serious argument to be made that the market may have already peaked, but the idea of a 2020 downturn sounds quite compelling too.

(San Francisco)

In what is a very odd and counterintuitive change, in just a matter of weeks, both Facebook and Google will be removed from the S&P 500’s “tech” sector. Indexes are changing up their alignments, and Google and Facebook, along with Netflix and Comcast, will all now move to a new group called “communications-services”. The changes are due to take place on September 28th and will force investors to trade in and out of billions of Dollars of holdings to realign their portfolios.

FINSUM: What this means is that the “tech” sector, and in factor no sector, will now be such a dominant component of the S&P 500. It may also reshape trading patterns, and according to some, boost volatility.