(San Francisco)

In an eye-opening piece of data, Apple is about to break its own record for profitability. The company is about to report fourth quarter earnings, the first quarter which will include the new iPhone X, and revenue growth is supposed to be in the double digits for the first time in years. Apple is supposed to have sold 81m iPhones, boosting revenue 11%.

FINSUM: So what we like about these forecasts is that (if they come true) they are a profitability record and not a valuation record. They will help reinforce the stock’s price.

(New York)

Goldman Sachs has a taken a lot of hits lately. After the Financial Crisis the bank decided to go against the direction of its rivals and keep its large trading and fixed income businesses robust. The logic was that the market cycle would return and Goldman would mint money as they would have the only major division intact. The short story is that it never happened, as FICC revenues have plummeted. Goldman still sticks to their mindset on trading, which has hurt the stock. The but the truth is that the business is much more diversified than ever before and profits are rising, hitting an almost 11% return on equity in 2017. “If they can do almost an 11% return on equity in a bad year, I’ll take that”, says a major fund manager.

FINSUM: The gloom over Goldman’s weakness in fixed income is helping create a good buying opportunity for what is a thriving bank.

(New York)
So across the wealth management industry there has been a gnawing and anxious debate that may be keeping advisors up at night—does the fiduciary rule mean that advisors need to always offer the lowest cost funds to clients? Well, one lawyer’s opinion is a resounding “no”. Citing the rule itself, the DOL says “Adviser and Financial Institution do not have to recommend the transaction that is the lowest cost or that generates the lowest fees without regard to other relevant factors”. That other relevant factor could be a myriad of things, such as the other holdings in a portfolio or whether one fund has higher performance than another or a different fee structure and so on.

FINSUM: We have personally seen a lot of debate on this issue, and while many do realize that they do not have to offer the lowest cost investments, fear of regulatory trouble pushes them to do so.

(New York)

Bank of America has just gone on the record warning investors of a pending S&P 500 meltdown. The bank runs a “Bull & Bear” indicator, and the measure has just reported the strongest sell signal since 2013. The bank says the rush into risk assets this year means a first quarter pullback in the S&P 500 is likely. Investors have been pouring money into stock funds this year, but the excitement has not helped bonds, as they have seen net outflows.

FINSUM: Take this indicator with a heavy grain of salt, since last time it signaled this strongly the stock market went on to gain more than 19% in the following year.

(New York)

In a sign of both the changing nature of retail and the epidemic that seems to have gripped the sector, Amazon will very likely surpass Macy’s to become the largest US retailer of clothing this year. The truth is Amazon might already be the largest, but it does not disclose an exact figure. Analysts say clothing could be a $45-$85bn business for Amazon each year, and it is growing its presence quickly. One of the attractions of the segment is that margins in clothing are higher than in electronics or food, which will help fund the company’s other endeavors.

FINSUM: Compare this to Macy’s, which is dramatically cutting back its physical location as it revamps its strategy.

(Washington)

Those close to the investigation report that the Mueller special counsel, or “the probe”, is pushing hard and is close to wrapping up the obstruction of justice element of their investigation. Now, there are reports that Donald Trump will meet and speak to Robert Mueller under oath. Additionally, the Senate Judiciary Committee has requested to speak with Jared Kushner, who Bloomberg reports is spooked and won’t agree to be interviewed. The Senate is now planning to release transcripts of other conversations held during its investigations, conversations which apparently made many potential interviewees fearful of speaking.

FINSUM: Whether you think the investigation is a witch hunt or a warranted inquiry, it appears that the whole situation is building towards a climax.

(San Francisco)

If you were an advisor at Wells Fargo who wanted to move to its independent arm you would face a big barrier—a so-called “tax” on compensation for two years. The tax was faced by brokers who wanted to move to the Wells Fargo Advisors Financial Network, or FiNet. The system is unique among brokers in that it lets brokers go without Wells Fargo totally losing them. However, the two-year tax on compensation was a big barrier. Now, the bank is considering getting rid of the tax so long as advisors sign a two- to three-year contract to stay at FiNet.

FINSUM: This seems a smart move to us as the tide of advisors going independent is only going to grow stronger.

(New York)

Here is an interesting buy. Bill Ackman, found of hedge fund Ackman, has just taken a big stake in Nike (unclear how big). However, the activist investor does not plan to agitate for change, unlike he usually does, because he believes the company is already on the right path. The company is currently changing its strategy from selling its goods at wholesale to a nationwide network of “mediocre retailers” and towards a more consolidated model of selling to only very top stores. It is also trying to be more direct-to-consumer oriented by selling directly through its website.

FINSUM: Nike had been lagging the competition in terms of share price as it seemed to have lost its “cool” edge among the young. It also largely missed out on the athleisure trend. We always maintained it was a good buy and still think so.

(New York)

Many investors are constantly on the look out for the next bubble. Well there is a new one right before their eyes, but many are not seeing it. Leave stocks and bitcoin aside for a moment, and look at private equity. Many say the current market is just like the Dotcom bubble, with valuations way too high and way too much optimism on growth and business models. “It is quite amazing that there is no collective memory that goes beyond five years” say an Oxford professor. Part of the problem is that fundraising has been really strong, which has led to more money flowing into companies, pushing up multiples. The other is the broad availability of debt funding for buyouts, with one industry specialist saying “These are unashamedly incredibly attractive conditions to borrow money. Will that debt be available to buyers in five years’ time? Probably not. Buyout groups are bullish to take the risk in 2018. It’s a ’risk-on’ environment”.

FINSUM: Aside from the reasons cited, the valuation of the stock market is another factor that is pushing up valuations. The sector looks likely to have a reckoning.

(New York)

Small cap stocks are off to a good start this year, up over 3% this month. Furthermore, a strong start tends to signal good gains for the whole year. There is a lot of reason to be positive—the economy is good, regulations are being rolled back, and the bull market for small caps is much younger (less than two years since a big correction). However, risks abound, according to Barron’s, especially in the long-term. Valuations are still high by historical standards, and are actually higher than they first appear. Smaller companies are also more in-debt and more exposed to interest rate rises than many realize.

FINSUM: We think small caps will keep rising so long as the broader market does. Also, the fact that they had a 25% correction which ended in February 2016 gives them a bit more breathing room than their large cap peers.