(New York)

Charles Schwab has some advice for investors: don’t buy stocks. This is a sharp contrast to Bernstein Research (see our other story today). Schwab says the market just doesn’t have enough upside momentum yet to warrant buying the dip. The custodian says that once you get two solid up days in a row, then it is time to buy. Schwab argues that two good consecutive up days signals a shift in momentum that warrants buying, and given how down the market has been, there will still be plenty of margin to the upside.

FINSUM: We like Schwab’s call better than Bernstein’s, and given today’s performance, it also appears much more accurate.

(New York)

Markets are on a brutal run. At their peak, they were off 15% last week, and the worst news is that it is likely not over. According to Citigroup, the market is still positioned to fall considerably. Despite the big losses, futures are positioned as a net long, which means there is plenty of room for the market to fall. “There is not capitulation yet, not at all”, says Citigroup. According to the bank’s quantitative analysis team, stocks would have to fall 23% for the long bets to be cleared out. “The futures market has got less long [or positive on] equities but it’s still not short and that’s the problem”.

FINSUM: This makes pretty good sense. Markets were very overbought before the fall, and with Bernie in the lead, there is little to calm investors right now.

(Boston)

Variable annuities have been going through a difficult period recently. Fixed and fixed index annuities have been grabbing market share in the year since the DOL rule got canceled. However variable annuities just escaped an important new regulation. Massachusetts just implemented the first state fiduciary rule—which may become a template for liberal states all over the country. However, variable annuities have officially been categorized as insurance products, not securities, so do not fall under the purview of the best interest rule.

FINSUM: This is a major development for the variable annuities industry because there were a lot of fears the rule would consider them securities. It seems like the Massachusetts rule will become the standard template for state adoption all over the US, so this is a big victory.

(Washington)

The OECD sounded a big alarm this week about the threat of coronavirus to the economy. The group of rich countries announced that coronavirus may have a devastating effect on the economy, cutting growth in half. The organization said that growth this year could shrink to 1.5% from its previous forecast of 2.9% growth. It said the outbreak and actions taken in China would cut global growth by 0.5 percentage points alone, not even factoring in the rest of the world’s outbreak and response.

FINSUM: So long as the virus keeps spreading and negative headlines keep coming, more and more economy-shrinking actions will follow. Markets will react in kind.

(New York)

Stocks are in a very dark place right now. At the bottom last week, indexes had seen a 15% fall. What comes next is the big question. Have we seen bottom, or are we settling in for a long period of weakness? Analysts from BNY Mellon say you should not buy stocks until you see a certain signal. That signal is clarity on when the virus threat might be abating. “If you think it is essentially a short-term problem, a hit to growth, but then it is over by the summer, then you’re fine going into the market. But if you think it is worse than that, then you have to play that out”.

FINSUM: Here is our view—coronavirus is unlike the other threats indexes have seen since the Crisis. This is not something that can go away instantly (like rate fears), and not something in the Fed’s control. It is an ongoing threat that creates uncertainty. Because of this, worries could linger and stock prices could stay lower for some time.

(Washington)

Bernie is a long, long way from the White House. He has not even won his party’s bid. Yet, his odds of winning the Democratic ticket, and thus his effect on markets are growing. The reality is that even if you think Trump is likely to win the election, Bernie is probably going to have a big effect on markets this year because of how tight polls are likely to be. With that in mind, here is some advice to protect your portfolio. Analysts are still working through how Bernie might impact specific sectors, but there is one area where all agree he will be devastating—defense. Bernie favors heavy cuts to the defense budget—a position unique to him among the Democratic field of candidates. Therefore, selling defense companies or buying puts on the defense sector seems smart. Such puts are still quite cheap, so not a bad time to prepare.

FINSUM: If Sanders wins the bid he is going to have a stronger impact on markets every week (provided the polls stay close). Best to start thinking about this now as it may be a theme for the rest of the year.

(New York)

A new report shows that fixed index annuities sales have been surging. FIAs saw sales jump 57% in 2019, and there appear to be two reasons why. Firstly, the defeat of the DOL’s fiduciary rule completely reopened the market to a product that had been in serious trouble in the period leading up to the rule. Additionally, due to de-risking, variable annuities have become less attractive, and more money has been moving into fixed index annuities, which also offer higher rates than fixed annuities. Generally speaking, “Broker-dealers have embraced the solution as products become more transparent and consumer-friendly”, says Cerulli Associates.

FINSUM: The whole sales process for FIAs has really cleaned up its act and the marketing materials and structures are more accessible now. We expect this market to keep rising.

(New York)

Many have been wondering when junk bonds were going to start feeling pain. Despite the previous risk of recession, junk bonds did quite well over the last several months. However, since the big flare up over coronavirus, they have started to be seriously wounded. On Friday, junk bond spreads to Treasuries were at 366 bp—very low. As of yesterday, they were at 418 basis, a 50bp+ rise in two trading days, showing how much investors fear the economic impact of coronavirus.

FINSUM: We think these spreads are going to keep moving higher, even if stocks level out. Bond investors are a suspicious bunch and an economic slowdown would hit high yield companies harder than average.

(New York)

Global and US stocks are teetering on the brink of a major correction right now. US indexes fell around 3.5% and fears over the spread of coronavirus and its impact on the economy continue to rattle the psyche of markets. One analyst summarized the deepening fears of the virus’ potential impact this way, saying “When countries are closing borders, the threat of an outbreak is becoming more pronounced in Europe and the Middle East and supply chains are just going to be more disrupted, how do we model risk when we can’t even model economics with any confidence?”.

FINSUM: There was an early morning bounce in Asian markets that fizzled. The news today is not any better than yesterday. It is easy to imagine the bottom temporary falling out of markets.

(New York)

Very high stock market prices and the continual threat of major downturn has sent fixed index annuity sales surging lately. Fixed Index Annuity sales accounted for 57% of all annuities sales in 2019 and amounted to $74 bn. “The high number of fixed-index annuity sales are a response to investors observing that the market continues to go up and this is a strategy to put a safety net under their portfolio if the market fails”, says one advisor in Pittsburgh. Fixed Index Annuities guarantee your principal while still offering limited upside, so they present a compelling case for people worried about a big downturn who need the peace of mind of principal protection and a steady income stream.

FINSUM: This is a perfect market for FIAs because of sky high prices and falling bond yields (which sap income). Just make sure you completely understand the contracts.