(New York)

Whether investors like it or not, it appears a real trade war has begun. While the US-China spat is getting the most headlines, including President Trump enacting blockages to Chinese investment into the US, we are also putting tariffs on other major trading partners like Canada and the EU. With this new reality taking hold, here are four ETFs that will thrive in the trade war. The first two are the Financial Sector SPDR and the SPDR S&P Regional Banking ETF because Financials are a “screaming buy” according to BNY Mellon Investment Management. Bank revenues are very healthy and the sector is insulated from trade war. The final choice is the Invesco S&P SmallCap Industrials, which will prosper as the economy expands and whose constituents have much lower international exposure versus their larger cap peers.

FINSUM: These seem like well-thought and diversified choices. We are slightly nervous about financial stocks at the moment because of the yield curve, but small caps definitely seem like an excellent choice.

(San Francisco)

Many investors are currently worried about the potential for a tech bubble. Between high valuations, data breaches, and a growing call for more regulation of the sector, it is easy to feel bearish. However, Barron’s is telling investors to not be too worried. The opinion is based on analysis of tech price movements and outperformance against a new Harvard study. Historically speaking, a bubble can be referred to as at least a 100 percentage point outperformance of a sector versus the market as a whole over a two-year period, followed by at least a 40% drop over the following two years. By that metric, the tech sector isn’t even close, as it has only outperformed the market by 36% over the last two years.

FINSUM: So this was a valuation-based study, but it could theoretically also be applied to individual stocks. When you do that, both Amazon and Netflix look vulnerable, as both have satisfied criteria for a bubble.

(Beijing)

If we think the trade war is being rough on our markets, just take a look at China. The country’s benchmark Shanghai Index is down 22% since its peak in January, and the yuan is dropping as well. In addition to Trump’s rhetoric and the threat of a trade war, China is also seeing weakening domestic economic data.

FINSUM: China is a lot more exposed to the trade war than the US. It has less broad and deep financial markets, so there are not as many places for investors to hide, and its economy is much more export-reliant, making it more vulnerable to tariffs.

(New York)

One of the biggest arguments of the junk bond market is this: one needs to be careful of junk bond indexes because they automatically skew investors to the companies with the most debt, making portfolios inherently more risky. The argument has a seemingly sound logic which is similar to the “skew” often referred to in equity ETFs. However, the reality is the complete opposite, as the companies with the most debt actually tend to be larger and have more conservative levels of leverage. The larger companies with the highest total debt in the high yield market tend to have lower default rates, so there is actually no correlative relationship between more debt and higher risk. The analysis is from S&P Global Market Intelligence.

FINSUM: This is very useful analysis, because the more debt = more risk fallacy is an easy-to-fall-into mental trap.

(New York)

The Volcker Rule was one of the more divisive aspects of the Dodd-Frank legislation. The rule virtually outlawed proprietary trading, but arguably led to less liquidity, especially in fixed income markets. Now the rule has been partially pulled back, and there are is a view to gutting it entirely, but some warn about the dangers of doing so. According to the Financial Times, there are big risks to repealing the rule as it would arguably bring back the casino mindset that dominated big bank trading before the Crisis.

FINSUM: Banks are doing very well and the trading system has operated quite smoothly since the introduction of the Volcker Rule. We see no legitimate reason to overturn it.