(Washington)

Investors are wondering how we are going to escape this exhaustingly choppy market. Markets are fighting higher generally, but it seems like 2 steps forward, 1.9 steps back. So how we will we break out of this mode? The answer might be another $1 tn+ stimulus package from the government. Some are skeptical this will happen because many believe Demcorats in the House don’t want another package because it might help Trump’s chances. That seems to be short-sighted analysis, as Democrats need another package to help avoid layoffs in key states they want to win, which could jeopardize their odds. Republicans want more stimulus to aid in their various reelection bids.

FINSUM: Both sides want a package. The big issue seems to be the continuation and size of expanded unemployment aid. Rumor is a deal might come before July 31st.

(New York)

Markets were up big yesterday. Most of the reason why seemed to be some great indications from an ongoing COVID vaccine study. Moderna seems to have reached a breakthrough in its COVID vaccine trials, and the promising results ensured a bigger study at the end of this month. All stocks that are considered COVID-sensitive, such as airlines and cruise lines, rose on the news. According to Invesco, “The way it’s looking at the moment, it really looks as though a vaccine is the only hope. This thing is not going away”.

FINSUM: That Invesco quote is sad, but appears entirely accurate. COVID does not seem to be fading whatsoever on its own, so a vaccine is the only thing that is going to return the world, including markets and the economy, to normal.

(Los Angeles)

In what comes as a possibly worrying sign for the nascent economic recovery, California has announced that it is reversing its re-opening process. Note that this is not merely a “pause” to re-opening, but a reversal, with restaurants, bars, and cinemas closing. The renewed rules were probably the most sweeping and decisiveness action taken to re-lockdown a state. COVID cases have been surging across the Sunbelt, but so far California’s measures to contain the second wave are the most stringent. This has investors worried other states may follow suit.

FINSUM: Two thoughts here. The first is that California is a huge state and highly influential, which makes it more likely other states will follow suit. That said, it is a very liberal state, so larger conservative states (e.g. Texas and Florida) are less likely to follow California’s lead.

(Washington)

Brokers all over the country have been nervous about enforcement of the new Reg BI rule since its implementation a couple weeks ago. While the law itself is understood, enforcement of its particulars is not, as there is no precedent or real world examples to go on. For its part, FINRA recently made comments about its forthcoming enforcement policy. According to the Associate General Counsel of FINRA, “by and large, we're going to be looking at the compliance obligations of policies procedures and training, and we're not looking at it to say
‘did a firm do everything the way that we would have done it,’ or ‘did they do everything perfectly.’ We're looking to see do they understand the obligations, and do they make a good faith effort to implement the changes that needed to be made and incorporate those in their policies procedures and training.”

FINSUM: This is generally what firms have been expecting because it is what has been broadcast, but this is a little more comforting than previous efforts out of other regulators.

(New York)

There has been a quite a bit of consternation over the current labor market, and with good reason. Over a million people have applied for unemployment assistance ever week for over 4 months. All told, over 30 million people have lost their jobs. However, there is an encouraging trend: unlike in past recessions, there is still plenty of hiring going on. New job postings have not plunged the way they did in the past. In previous recessions, including after the Crisis, a lot of unemployment had to do with a combination of attrition and a lack of hiring-much more so than outright layoffs. However, that does not appear to be happening now as job postings are still holding strong at their 2015 levels.

FINSUM: This is an encouraging sign for the economy and for individual job seekers. There is still a chance that demand hollows out—especially if we have another full scale lockdown—but for now things look positive.

(New York)

Where do you stand on airlines? Your opinion is worth about as much as the whole market’s—nobody is quite sure what to make of the future of air travel right now. Airlines had seen rising passenger numbers, but that has been tapering off as COVID cases have been rising again. Delta announced dreadful earnings yesterday, with revenue down 88% and net losses worth $4.33 per share. Thy also announced they were cutting their flight additions for August in half because of the rise in cases. The earnings come alongside a bleak announcement from United, which said “it's increasingly likely that travel demand will not return to normal until there is a widely available treatment or vaccine."

FINSUM: Have airline stocks come back too far? It looks there is likely to be at last another ugly 18 months as we await a vaccine.

(New York)

The market is split over dividend stocks. On the one hand, about half the market thinks the huge wave of dividend cuts are over and that most of the damage has been done. One the other, many worry that not all the deleterious effects of COVID have manifested themselves on corporate behavior and that further cuts may still be in the works. The overall picture seems to be one where caution is due given the big jump in valuations and the continued possibility of further cuts. For instance, bank and credit card companies look likely to cut further as high unemployment leads to worsening credit quality and more delinquency. Wells Fargo just announced a dividend cut, for instance.

FINSUM: Our thinking here is to be careful. Even if the economy does not have another lockdown, the full effects of this recession may take a little time to fully show themselves in dividend cuts.

(Washington)

The SEC’s new Reg BI rule has been in full force since June 30th. However, many brokers are still nervous about complying with the rule as the whole industry is still waiting on more practical guidance. Many firms feel reasonably comfortable following the principals of the rule, but certain items—rollovers being key among them—are still a little uncertain. The SEC has said it will take “good faith efforts” into account in this initial enforcement period, but that is not nearly as comforting as knowing you are following the letter of the law.

FINSUM: Given this is a whole new regulatory package and there is no historical precedent, anxiety is high. We expect new guidance will be issued soon.

(New York)

Investors are doing a lot of economic data analysis these days. As the economy picks up (for the most part) after the COVID lockdown, everyone is trying to guess the trend of the expansion. Well, in our search for new economic data, we found something that really stuck out to us as a positive: lumber demand. The whole lumber sector got hurt very badly in the first quarter as COVID shut down real estate construction. The collapse in demand led to a halt in production in the lumber industry. However, lumber demand for construction projects has come back faster than anyone anticipated and the supply chain cannot even keep up. Lumber prices rose 60% in the second quarter alone.

FINSUM: We think it is an excellent sign that builders and consumers have enough confidence in the economy and their financial positions to be able to create this kind of demand. V-shaped recovery?

(Washington)

It has not gotten much major media attention yet, but there is a big battle brewing between asset managers and the Trump administration. The reason why is a new rule proposal by the DOL which seeks to require private pension plan administrators to prove that they are not sacrificing client returns by putting money into ESG-oriented investments. The proposal was not some by-product or unintended consequence of a larger regulation, it was the point. In the words of Eugene Scalia, head of the DOL, “Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan”.

FINSUM: In our opinion, this rule by the DOL is very out-of-step with current market trends. We totally understand the need for the DOL to protect retail investors, but Millennials and Gen Xers love ESG and will be the ones inheriting wealth soon. This seems heavy-handed.