(San Francisco)

One of the surprises in the Big tech space has been that top names have not moved as much on news of various antitrust and other probes as one might have expected. Here is why: investors just don’t think any current actions will have a material impact on business models. For instance, Facebook agreed to pay a $5 bn fine last week, but that sum is small enough that it does not change Facebook’s incentives in any way, it can just keep on doing what it has been.

FINSUM: We think this is a woefully optimistic view. Regulating Big Tech is one of the few areas of strong bipartisan agreement between Trump and the Democrats. The likelihood of it having a material impact on the sector’s business model seems high to us.

(New York)

How might retail stocks react to rate cuts? That question hasn’t gotten much air time lately, but is a good one considering how much investment there is in the sector. Generally speaking, low rates should be good for the sector as they would technically stoke consumer spending. However, the logic there gets skewed based on the underlying economy (i.e. how it is trending). For the current environment, the answer is that some retail stocks will benefit handsomely, while others will struggle. The “haves” will do well, while the “have nots” will continue to suffer. The “haves” include Amazon, Lululemon, Costco, while the “have nots” include cash strapped retailers like Gap and J.C. Penney.

FINSUM: So basically a rate cut will help those who are already doing well, but won’t do much for the rest of the sector. This makes sense, as it is hard to see consumer spending changing much at the current stage of the cycle.

(New York)

Rate cuts are going to send shares higher and bond yields lower, right? A win-win for portfolios. Not so fast, as the effect a Fed cut will likely have on portfolios could be anything but predictable. The truth is that monetary easing is not the economic steroid it once was, and investors know it, so the odds of a pop in the market seem low. This is doubly true because much of the possible gain from rate cuts has already been priced in by the market due to how well the Fed has telegraphed this move. If any stocks should do well, it would be small caps, which are more reliant on borrowing and thus would gain the most from lower rates.

FINSUM: This cut has been so anticipated that it will likely be greeted by a shrug. If anything, we think there are more downside risks.

(New York)

The broad expectation is that rate cuts will boost all bonds. To some degree this is likely true. However, not all bonds will be affected to the same degree. For instance, safe bonds—think investment grade corporates and Treasuries—have likely already seen most of the gains they will. But high yields are a different story, as they are much more likely to see a decent rally, as lower borrowing costs are a bigger boon to those companies and the cuts themselves will help sustain the economic cycle, which is more important for them than for ultra-safe companies.

FINSUM: This seems to be pretty good analysis. This rate cut has been widely projected and safe bonds have already seen gains, so junk may be the biggest beneficiary.

(New York)

High yield companies have been big beneficiaries of the tumble in yields this year. But not in the way one thinks, not in the form of a big rally. Instead, highly indebted borrowers have been using the tumble in yields as a way to refinance their debt and lengthen out maturities. The practice has been very widespread. According to one portfolio manager, “It’s a recipe for disaster in the longer term … As an investor, it means you are lending to fairly risky companies at fairly low rates at the end of the cycle. It might not be three months from now or six months from now, but at some point these bonds are going to be pretty challenged”.

FINSUM: Kick the can down the road for as long as you can. That has been the mantra of junk bond markets since the Crisis. When will the musical chairs stop?