(New York)

Investors beware, US stocks may be in for a real summer storm. On the surface things have been looking better. Despite a week in which many geopolitical events went wrong (e.g. trade war, Trump and North Korea, Italian bonds/government), the markets stayed strong. However, underneath the positive surface, there is some real bearishness. The average stock in the S&P 500 is underperforming the market as a whole by almost a whole percent. The S&P 500 is up 3% this year, but the average stock has gained just 2.1%, showing that market breadth has narrowed.

FINSUM: We do not think the current market breadth figures show much of anything, but then again, we are more concerned about the overall economy than the signals the market is sending.

(Rome)

We do not cover too much European news. This is mostly because our readers don’t pay much attention when we do. However, we thought the crisis going on in Italy warranted special attention. Stocks are plummeting and bond yields soaring on the back of a political uproar over the future of leadership. In particular, two big parties (i.e. the Five Star Movement and the League) who are leading in the polls both propose lavish tax cuts and spending increases which look on the surface to possibly lead Italy to a default, which has bond investors and the European establishment worried.

FINSUM: We feel for Italy, we really do. We think the country has really been crippled by the Euro and now there is no easy way out. We expect positions will moderate, but this could cause some volatility.

(Washington)

Brokers who want to publish more of their own research will now find it easier. For the last several years, publishing research on individual funds has been a complicated and risky endeavor for brokers as rules meant some research work could be seen as a sales material, subjecting it to stricter scrutiny. The SEC is harmonizing rules to allow brokers to publish research on ETFs, mutual funds, registered closed-end funds, and business development companies under the same rules that govern other types of research.

FINSUM: This delineation had existed too long and we think this is a good change of rules.

(Washington)

The Trump administration may be on the verge of a large regulatory pullback in wealth management products. In particular, Trump is considering dropping the rule which limits variable annuities. The products have widely been considered too complicated for retail investors and have been limited alongside the DOL rule. Sales of variable annuities fell to $98 bn last year, the lowest figure in two decades.

FINSUM: These products only seem likely to rise again if any fiduciary-type rule disappear. As one advisor put it best, saying “If you are required to put clients’ interests first, they [VAs] almost never make sense”.

(Washington)

In what could be could news for those worried about the Fed hiking us into a recession, one of the Fed’s top leaders has just come out with a very dovish tone. St. Louis Fed chief Bullard says the Fed needs to slow its pace of rate hikes to preserve its credibility. “Inflation expectations in the U.S. remain somewhat low, suggesting that further normalization may not be necessary to keep inflation near target”. He suggests that the best policy going forward may be to freeze hikes.

FINSUM: One of the things that has worried us about the Fed is that they seem to be viewing rate hikes as some sort of automatic pre-determined path towards normalization rather than basing it on actual inflation numbers.