(Washington)

The SEC issued a pretty stern warning (or reminder, depending on how you look at it) to brokers this week. SEC chairman Jay Clayton issued a very direct statement addressing broker-dealers and saying that they needed to take “special care” when making 401(k)/IRA rollovers because form CRS, as part of Reg BI, would cover such transactions. Clayton also emphasized that 401(k)/IRA rollovers are considered a primary feature of the rule, saying that it was one of the “most significant enhancements over the status quo … should be approached with care”. He concluded “Firms should recognize that these recommendations are subject to Reg BI and ensure that their policies and procedures meet the requirements of Reg BI, the Advisers Act and Form CRS, as appropriate”.

FINSUM: Just in case anyone wasn’t clear, the SEC just made it abundantly obvious that there is no wiggle room here. The most interesting thing to us in this statement is how he seemed to indicate this will be the key focus of the SEC (which will likely be reflected in enforcement).

(New York)

Morgan Stanley made a bold call this week. Their research team has officially adopted what seems like a fairly risky position on the economic recovery: they are saying it will be of the much sought after v-shape. The bank has been calling for a short and sharp recession for some time, but this is the most optimistic outlook they have published. According to Morgan Stanley’s chief economist, “Recent upside surprises in the incoming growth data and policy action have increased our confidence that this will be a deep V-shaped recession”.

FINSUM: We still don’t think this is going to be a v-shaped recovery. More like a U-shape or more likely a Nike swoosh shape. The depth of firings combined with the probable corresponding slow pace of consumer spending will hold back the pace of the recovery.

(New York)

Evercore put out an interesting prediction today. The bank, which has a strong research team, says that the market is likely to be “violent” in the near term. They also added a twist—that it would be “violently flat”, meaning it would have sharps up and downs on but the whole remain around the same levels. Evercore highlights the upsides and risks this way, saying “A significant COVID second wave would continue to drive asset prices lower, but with vaccine development continuing, little correlation between economic re-openings and increased case growth and hospitalization data at the national level”. That said, longer term, they are quite bullish, arguing that there will be a “sharp rebound”.

FINSUM: The news flow is going to mean that stocks are very volatile for the foreseeable future. Increased case growth one day, and then a big jump in retail sales the next.

(New York)

If you are upset about the market’s mini-correction last week, don’t worry, it is going to fall more, says Morgan Stanley. In what comes across as almost an insult to regular investors, Morgan Stanley’s research team says stocks may fall another 7% from opening levels today, but that such a fall was “healthy”. On the whole, Morgan Stanley’s position was positive, saying “We maintain our positive view for U.S. equity markets because it’s early in a new economic cycle and bull market. Last week’s correction was overdue and likely has another 5-7% downside. It’s healthy and we are buyers into weakness with a small/mid-cap and cyclical tilt”.

FINSUM: We have definitely entered a new economic cycle, and with it, perhaps a new market cycle. However, the pace with which stocks came back makes one worry the market cycle has not actually reset itself.

(Atlanta)

Airlines had a pretty good run headed into last week’s downturns. Other travel stocks did too. However, the markets really seem to have gotten ahead of themselves, because the big rallies appear to forget some fundamental changes that might be taking place under the COVID lockdown. While a knee-jerk rise in share prices alongside the lifting of lockdown orders might be logical on the surface, it ignores the fact that a great deal of domestic US travel is for business, and attitudes towards business travel have changed remarkably since March. Many companies have found remote work even more productive than office work, and no longer see the need for travel. Also, it is easier to cut travel budgets by 50% than it is to lay off more people.

FINSUM: We think there is going to be serious changes to the business travel paradigm that prevailed pre-COVID. It has now been demonstrated that similar levels of sales can be achieved by videoconference, and when you count the cost and time of travel, it is clear that companies are going to permanently cut budgets.