(New York)

Few remember how this very long bull market started, but it happened with some very badly blown earnings forecasts. At the grim bottom of the Financial Crisis in 2009, analysts were expecting double digit declines in corporate earnings. Instead, earnings rose, starting what is a bull market entering its tenth year. Now, Bloomberg says, blown earnings forecasts will be what turns this bull into a bear. Analysts tend to be comically wrong on earnings forecasts at the most pivotal moments, and with sentiment looking very strong, it may very well be a similar miss to 2009 that sends the bull market off its lofty perch.

FINSUM: A big earnings miss right when the economy looks strong would be very jarring for investors and sow a lot of doubt about the future. This call seems plausible to us.

(New York)

It as another solid year for RIA M&A. Just as in 2016, there was strong deal flow, and the number of transactions closed was exactly the same in 2017 as the year prior. That said, deal size and total AUM declined. The first half of 2017 was significantly stronger than the second half, with the majority of the year’s 94 deals getting done in the first half. TD Ameritrade says distraction from tax reform in the second half of the year was partly to blame for the decline in momentum. Total AUM acquired was $106 bn, and the average transaction size was $1.13 bn.

FINSUM: These look like pretty pretty strong numbers to us. The market still seems to be ripe for further consolidation.

(New York)

Advisors need to be very mindful of an old regulation that is taking on new relevance in light of the fiduciary rule. While the DOL’s rule may not be fully enacted, one concept it adopted, which is based on precedent from the ERISA and IRS codes, could be a thorn in the side of advisors. That concept is “reasonable compensation limits”, and is of particular concern to high earning advisors as they will need to look hard at the services they provide and come up with justifications for their pricing. According to a top industry lawyer, this rule will not be undone by a new SEC or DOL rule, so it is here to stay; “Even if the DOL, SEC or Finra roll back the fiduciary rule so that lots of advisor reps and insurance agents are no longer fiduciaries, the reasonable compensation limits would still apply”.

FINSUM: The argument is that this rule’s new relevance will lead to a clearing out of highly priced and highly paid advisors.

(New York)

Many who are worried about the future of the stock market take solace in the fact that the US economy looks strong. If the economy is doing so well, the market is less likely to fall, or so the logic goes. However, looking at history, that understanding is unwarranted, as stocks lag well in advance of economic downturns. In fact, the market usually tops out well before any economic downturn begins, and by the time a recession actually starts, stocks will have long since been in a bear market.

FINSUM: This is an excellent point. Just as the current bull market started during the fallout of the Financial Crisis, the bear market will probably start when the economy looks like it is in full swing.

(New York)

Aside from the general tensions over rising rates and what they mean for the economy, investors need to pay attention to another important consideration. That consideration is that with each basis point of increase, stocks are looking less attractive as the allure of dividends fades. While for years the view has been that “there is no alternative” to investing in equities because of weak bond yields, that perception is now fading as yields rise to a place where they start to offer acceptable returns. “Investors now have a viable alternative to cash with yields finally above inflation levels”, says the chief investment strategist at BlackRock.

FINSUM: It might not a recession, but the simple emergence of a viable alternative might be what ultimately unwinds this bull market.