(New York)

In a recommendation that speaks volumes to clients about the bank’s position on the markets, Citi put out a note to corporate clients this week which instructs them to tap markets for as much funding as they can get right now because the market is totally unrealistic. According to the co-head of investment banking at Citi, “We definitely feel that the markets are way ahead of reality. We really are telling every client to tap the market if they can because we think the pricing now couldn’t get any better”. He continued, “Markets are pricing a V [shaped recovery], everyone’s coming back to work, and this is going to be fine … I don’t think it’s going to be that easy quite frankly”.

FINSUM:A V-shaped recovery is highly unlikely at this point. We think the Nasdaq being where it is isn’t illogical because of how many of its constituents benefit from COVID. But for everyone else, this level of optimism seems disconnected from reality.

(New York)

Don’t be fooled by this rally. Many research analysts, including those at Citi, say that this big rise in markets is not being driven by bulls, but by bears. One of the odd parts of these gains has been that money has been continuously flowing out of equity funds since March, but prices have risen despite that. The reason why may be that instead of bulls buying stocks, the gains have been driven by short-sellers buying back short positions they opened at the start of COVID.

FINSUM: This is good, simple analysis from Citi. Their additional comment could not have summed it up better: “From here, a move higher will need new longs and inflows”.

(New York)

For the better part of a decade now, major socio-political disruptions never seem to rattle markets. Think back to Occupy Wall Street, the events in Hong Kong over the last year, or the protests in the US over the last week. The question is why? The main reason is that historically speaking—think the entire 1960s and up through the 1992 riots—markets and the economy were never particularly affected by social unrest in the months following big social disruptions/protest.

FINSUM: Essentially the argument here is that there is no precedent for needing to worry about social unrest. That approach only makes sense until protests do cause a big problem.

(New York)

Goldman Sachs put out a pretty serious statement today. The bank said the surprising and “unloved” rally since stocks bottomed in March will not continue. The bank thinks that the market has set very high expectations for the recovery, and that waters are currently troubled with China. Furthermore, the huge gains have largely been driven by 5 stocks, and their needs to be much broader-based price increases for the market to rise. This will be tricky because the other 495 stocks in the index are more economically-sensitive. “Broader participation in the rally will be needed for the aggregate S&P 500 index to climb meaningfully higher. The modest upside for the largest stocks means the remaining 495 constituents will need to rally to lift the aggregate index”, said the bank.

FINSUM: This makes complete and total sense and helps explain why the rally has slowed in recent weeks.

(New York)

If you survey advisors—which many have done—they will tell you that the hardest part of the forthcoming Reg BI rule from the SEC is how to handle all the requirements of the new Customer Relationship Summary form (Form CRS). With that in mind, Pershing has just launched an interesting new end-to-end Form CRS product that helps advisors comply with the rule, as well as a Tracking and Reporting Solution. According to Pershing, “We recognize that account opening is not the only [thing used], so we’ve rolled out a new forms management system where the CRS can be directed and stored digitally, and married that system with a number of trigger points that require the delivery of a Form CRS … We’ve given our clients the opportunity to both deliver forms in paper where it’s still necessary, or digitally to the extent that the investor has opted into electronic delivery”.

FINSUM: Compliance with Form CRS is a challenge, and one that is being exacerbated by COVID and people working from home. This sounds like a great solution.