(New York)

The Nasdaq is behaving very oddly and it should give investors pause. It is very rare for the Nasdaq and the Dow to be this out of sync. A couple days ago the Nasdaq outperformed the DJIA by 3.5%+, something it had not done in 20 years. Some take this as a sign of bullishness, but in reality, historical precedents say that when the Dow and Nasdaq are out of sync it is bad news. In fact, the only other time the two indices were this out of sync was the dotcom bubble.

FINSUM: The bottom line here is that major Nasdaq volatility in excess of Dow moves are not good. That means days like last Friday should be feared rather than celebrated. Stay vigilant.

(New York)

One of the challenges with annuities, whether as an annuities salesman or as an advisor explaining them to clients, is how to position them. The most fundamental utility of an annuity is the idea that it can provide income for life. In other words, the client can have peace of mind that they will have income even if they live to be 120. In this way, an annuity is not a market-based investment in the traditional sense, but rather it is an insurance contract. For advisors this concept will be second nature, but for clients this is not as clear. Accordingly, the main value of the annuity is not specifically in the income it provides, but in the risk mitigation it offers against very long lifespans for clients.

FINSUM: If you are active in annuities this might sound like a broken record; if you aren’t, it is a useful line of thinking. Either way, everyone needs to be reminded!

(New York)

Yields have been moving all over the place. And while there are daily moves higher or lower, there is a definitive bias towards sharp moves upward. Accordingly, investors need to be thinking about rate hedging. Investors are in a tough place as Treasury yield rises have been causing losses, but the bonds themselves still don’t have high enough yields to be attractive. With that in mind, there are a couple ways investors can go about protecting themselves. Firstly, they can buy floating rate bond-focused ETFs, which give protection but have very low yields. The other opportunity is to buy into bond funds that access riskier corners of the markets, where yields are much higher and durations are shorter, giving less rate sensitivity.

FINSUM: Our favorite ETFs for this purpose are from ProShares, specifically IGHG, which hedges rate risk but still offers the yield income.

(New York)

The market has been highly unpredictable of late, with big swings in both directions. While no one knows where the market is headed, one thing is pretty clear: there are a handful of big stocks that look very risky and should probably be avoided. Here is a full list: Carvana, Expedia, Norwegian Cruise Lines, Lyft, Restoration Hardware, Beyond Meat, FirstSolar, Zendesk, BioMarin Pharmaceuticals, and Advanced Micro Devices (AMD).

FINSUM: Carvana and Expedia are the most interesting for us. Carvana is considered disruptive in auto buying and is up 535% in the last year. It is also losing money hand over fist, and its digital-first method of buying and delivery looks less and less effective as the economy reopens (especially because Carvana’s prices for consumers are high). Expedia is more simple: it is up big this year on hopes that travel bookings will recover strongly this year and next. But why is it currently trading at a 40% premium to the S&P 500? Doesn’t make sense to us.

(Houston)

Oil has been on a great run this year. Underlying crude oil, as well as ETFs like XLE, have been on fire of late, and most will have noticed the higher prices at the pump. A number of forces—like rising demand and tight supply—have been supporting the market, including OPEC lowering output. All of this has led one prominent bank, Piper Sandler, to say that oil is headed back to $100 per barrel, a level it has not seen in years. According to Craig Johnson at Piper Sandler, “I could actually see a number that could be north of 100 in the next, say, six to ... 12 months from here … To us, it looks like you could have more than 40% upside to get back to the old highs in 2018”.

FINSUM: It is worth noting that this is by far the most bullish call on the street. BAML and Goldman Sachs have their calls for this year at $67 and $75, respectively.

(New York)

High yield bonds are in an interesting place. After yields fell very low during the core of the pandemic, the bonds looked relatively less attractive. Now, jumping Treasury yields have hit the asset class, but junk credit is relatively less affected because of its shorter maturities and higher yields. The reality though, is that even with things starting to look better given the recovery in the economy, it is a risky time. Therefore, junk debt is an area where active management might be the right choice. Individual credits can react very differently to market forces, and it takes a good deal of research to really understand the companies.

FINSUM: High yield managers are known for resisting the excesses of their asset class, something that index funds cannot do. Therefore, in risky times, it might be a good idea to stay active.

(New York)

Even before the pandemic and subsequent crisis, the high-yield Muni market failed to deliver the returns after taxes that the corporate bond market…view the full story on our partner Magnifi’s site

(New York)

Bond market investing hasn’t seemed so attractive recently as rates on even long-term government debt such as the 10-year Treasury hit lows…view the full story on our partner Magnifi’s site

(New York)

The Premier of the state council of China, Li Keqqiang, announced plans to increase oversight and regulation in the country’s financial and fintech sectors…view the full story on our partner Magnifi’s site

(Washington)
Every year around this time, advisors can get a special look at what the SEC’s policy priorities are likely to be for the rest of the year. This takes on special significance this year since we have a new administration in place. The way to get the insight is to look at what focus the SEC applies to their regulatory exams, and this year they are quite interesting. SEC exams for 2021 will focus on Reg BI (not such a surprise), but also climate, ESG, and Crypto, among other topics.

FINSUM: Quite an interesting list, but one very notable absence: meme stocks/social media. This is important because some think the SEC will turn its gaze to that area, which might have delayed focus on Reg BI.