(New York)

We don’t want to say that we told you so, but we have been broadcasting that bond markets had overreacted to the Fed’s change of tune. This week, bond investors have started to correct themselves as yields on the ten-year have jumped considerably on better economic news. With that in mind, limiting rate risk on bond holdings has taken on renewed importance. Accordingly, where better to be that in short-term, less rate-sensitive, bond funds. For options here, take a look at the Vanguard Short-Term Bond ETF (BSV), yielding 2.8%, and the PIMCO Enhance Short Maturity Active ETF (MINT), yielding almost 3%.

FINSUM: We think there could be some significant yield volatility in the next few months, and therefore feel it is best to stay rate hedged/defensive.

(New York)

Residents of many high tax states are likely feeling the pinch. The reality of much higher tax bills is trickling through for residents in states like New York, New jersey, Connecticut, Oregon, and California. In the New York area, there seems to be a particular downturn in real estate. Many large suburban properties are seeing their prices slashed. Some selling prices for luxury properties are 50% below what they were just a few years ago. While the downturn is partly a product of changing real estate preferences (i.e. buyers wants smaller urban homes), the new SALT limit is a major headwind.

FINSUM: This important for advisors to pay attention to as many clients may have much less value in their home than they anticipate.

(New York)

The economic picture is growing increasingly gloomy for the US. While there has been sporadically good data, the general trend is downward across many areas. Today, more information on the labor market is signaling a further deterioration. ADP hiring data has been released and it shows that sector hiring has fallen to an 18-month low. The private sector hired 129,000 new workers, missing expectations. “The job market is weakening”, says Moody’s Analytics, bluntly.

FINSUM: The job market seems like a good leading indicator right now. Company’s may be tightening purse strings, which could be a sign that everything is slowing.

(New York)

The fiduciary rule’s journey has been a seemingly endless saga. Opponents of the rule thought they had finally defeated it when the fifth circuit court ruled against it last year. However, its path is far from over and is showing an interesting parallel: marijuana. Fierce proponents of cannabis legalization have taken a different tact after a federal level push failed—they have gone to the state level. As most will have noticed, marijuana has been legalized in many states as part of a grassroots push for cannabis. The fiduciary rule is now playing out the same way, as new state-level rules have been popping up all over the country, threatening to bring patch work regulation.

FINSUM: One would not naturally think to compare the fiduciary rule and marijuana, but the regulatory path for both is looking quite similar. This would not be a good outcome for broker-dealers.

(New York)

Gold is an interesting asset class right now. Everyone knows it has been in the doldrums for many years, but with recession fears brewing, and rates falling, the outlook is an interesting one. Goldman Sachs thinks gold is headed higher. Their thesis is that late cycle worries and falling rates will combine to push up the shiny metal. Falling rates will weaken the Dollar, further helping overseas buyers purchase gold.

FINSUM: In general, we like this thesis. However, we think gold would do better if there was more worry about a huge downturn/crisis, which there doesn’t seem to be. Fears right now are about a standard recession, which would help gold, but maybe not be ultra bullish.

(New York)

In another sign of a weakening economic landscape, new retail sales data was released for February, and it was not pretty. The data didn’t just slow, it actually reversed, with retail sales falling 0.2% month over month in February. The data was a big shock as economists were expecting a gain, especially after a revised 0.7% increase in January. The numbers suggest the economy may be in line for a contraction in Q1, as December also saw a big 1.6% decline in retail sales.

FINSUM: There are a lot of economic indicators looking negative right now. We are still optimistic, but the signs are getting harder to ignore.

(New York)

We wanted to write an article about a new fund we discovered in our regular course of business, but that got us excited. One of our gripes with ETFs is that there always seems to be a dearth of ways to express short-term tactical opportunities, or own a fund that does so. That is why we were excited to find a fund in New York Life’s IndexIQ ETF lineup. The fund, the IQ Merger Arbitrage ETF (MNA), seeks to gain capital appreciation by buying companies that have had public takeover announcements. The fund also includes a short on global equities as a partial hedge. Merger arbitrage is a common hedge fund strategy.

FINSUM: This is one of those area where we often wish we had exposure, but don’t have the time to actually enact a strategy, so this IndexIQ fund is very useful. The fund has a 75 basis point expense ratio.

(New York)

It has been a long time since value stocks had a chance to shine. A LONG time. Growth stocks have handily outperformed their growth cousins, so much so that even some diehard value investors have talked about giving up on the practice. Value stocks took a pounding in March following the Fed’s dovish turn and spreads versus the market’s most expensive stocks are at their widest in 70 years. This means it may be a good time to buy, says Bernstein’s equity research team. If you look away from financial value stocks, the sector did not actually get wounded much last month. The reason why it may be time to buy is two-part: the first is that value stocks tend to outperform when the economy is slowing, but not in outright recession. The second is that high value stock spreads are seen all across the economy, and not just in challenged sectors, which means they are less likely indicative of real challenges and are more likely just a market symptom.

FINSUM: We understand this analysis, but have to disagree. We just don’t think the old precedents for value stocks hold much water at the point. Our view is that as growth slows, investors will buy the stocks with the most growth, not the cheapest ones.

(Washington)

The fiduciary rule saga has been long and confusing. Firs the DOL Rule fell flat, then the SEC proposed its own rule, only to face harsh criticism from everyone but the brokerage industry. Now there is a new piece of news that we find encouraging: the SEC is apparently working directly with states as part of an effort to craft a new framework that will eliminate any conflicts with state-level fiduciary rules. The SEC is consulting with states like Maryland, Connecticut, Nevada, and New Jersey to make sure there aren’t grey areas or loopholes that create nightmares for advisors and their clients.

FINSUM: There are two positive developments here. On the one hand, it is great that the SEC is trying to iron out any conflicts with state-level rules, but on the other, it is even better that this consultation might actually lead to the dissolution of those state rules.

(New York)

Headline fourth quarter growth got downgraded this week to just 2.2% (from 2.6%). That may not seem like a devastating fall, but if you take a closer look at the figures, they are worse than at first glance. In particular, it becomes clear that growth was actually weakening all throughout 2018 (versus 2017). While the fourth quarter especially showed weakness, it was really only two one-time quirks that kept growth as high as it was for the year: increased military spending and higher spending by non-profits. Neither of those factors are very tied to the underlying economy and consumers.

FINSUM: This is pretty eye-opening and does sap our confidence a bit. Consumer spending also barely rose in January, which is another negative sign.