(Chicago)

Tech stocks and large caps have been getting all the headlines this year. There is increasingly a fear that only a handful of high-powered large stocks are driving the market. However, the reality is different, as small caps have been doing great. In fact, small caps have actually outpaced even the tech giants in appreciation this year. That is a very healthy sign for the market as it shows expanding breadth, which is typically a sign of a strong bull market that will continue. According to Bob Doll, famed portfolio manager from Nuveen, “Bull markets eventually end, and typically by the time you get to the peak, breadth is gone … This is a broad market move. It’s a good thing. It’s healthy.”.

FINSUM: We agree that this is very good news for the market. Even better, strong earnings growth has tempered high valuations, making things just a bit more reasonable.

(New York)

We run a lot of bearish stories in FINSUM, and with good reason—there are a lot of them out there and we feel the need to share those views with advisors and investors. However, when there is a credible bullish story, we jump at the chance to run it. Today we have one. Robert Shiller, perhaps the godfather of doom and gloom with his CAPE ratio, has just made an uncharacteristic statement: he says that stocks may rise much higher before eventually falling. The Nobel laureate says “The stock market could get a lot higher before it comes down … It’s highly priced, but it could get much more highly priced”. Shiller had previously been warning (last year) about how overpriced the market was. Shiller says the reinvigorated market has to do with President Trump’s pro-business drive.

FINSUM: It is interesting to hear someone as typically bearish as Shiller saying that stocks may rise a good deal more. Something to pay attention to.

(New York)

The truth is that most everyone loves dividend stocks. Nowhere is that statement more true than among the US’ retirees, who have a major reliance on dividend income for their everyday expenses. Thus, here are three stable dividend stocks that investors should consider: Scotts Miracle-Gro (~3%), IBM (4.3%), and AT&T. The latter two are well-understood and have strong market positions, with AT&T essentially benefitting from an oligopoly. Miracle-Gro is an interesting choice as it has a good underlying business, but has been hammered this year by a handful of short-term issues, but thus offers a good chance at price growth and a solid dividend.

FINSUM: IBM is almost in the dividend aristocrat club, having raised its payout 23 years in a row. AT&T looks quite stable too.

(Washington)

The SEC’s best interest rule has been giving brokers headaches almost since the demise of the DOL rule. Many groups have commented on the rule’s failing, including its governance on the use of titles and its deeply confusing attempt at delineating between brokers and advisors. However, one of those gripes now seems to have played out in practice, as early results from the SEC’s testing of its Customer Relationship Summary form (CRS) has essentially failed. According to the chief of the firm hired to do the study for the SEC, “Overall, participants had difficulty throughout the proposed CRS with sorting out the similarities and differences between the broker/dealer services and investment advisor services, and integrating this information across sections”.

FINSUM: This supports exactly what everyone in the industry has been saying—the rule is totally confusing and does nothing to help consumers. The SEC is going to have to do a major rewrite.

(New York)

There are a lot of anniversaries to pay attention to this month, not least of which is the 10-year anniversary of the Financial Crisis. This has unsurprisingly sparked a whole wave of articles portending the next crisis. However, another kind of anniversary might be even more troublesome—that stocks are now higher priced than in the dotcom era. While the S&P 500’s P/E ratio is still not quite as high as then, rich valuations are more pervasive now, and price to sales valuations are higher, according to one market analyst. Actually, price to sales is the more worrying metric as stocks in the S&P 500 are now trading at 2.7x revenue versus just 1.2x in 2000.

FINSUM: Stocks are very richly valued right now, that is certain. However, that does not, in itself, portend any immediate problem for the market.

(San Francisco)

The market has periodically started to worry about the regulation of the tech industry. For a while that felt a bit premature, but given recent events, it is starting to feel more real. For instance, the FTC has just begun a marathon of hearings, which will run through November, into the state of competition and consumer protection in the digital economy. The hearings are about more than tech though, as they are fundamentally about inequality and worker’s rights across the whole of the economy. The head of the FTC said “In my view, basing antitrust policy and enforcement decisions on an ideological viewpoint (from either the left or the right) is a mistake”.

FINSUM: These hearings seem like the first stage of what might prove to be big changes for anti-trust policy in the US. If changes do happen, we believe they will be much more far-reaching than just for tech.

(New York)

Rates look to be rising quickly. The economy is red hot and the Fed is hawkish, meaning two more rate hikes this year look very likely. With that in mind, investors need to protect themselves from rate risk. That means a lot of sources of income, like dividends stocks and bonds, could become sources of losses. However, fortunately there are numerous ETFs that can help investors earn income while protecting against losses. One such is Pimco’s 0-5 Year High Yield Corporate Bond (HYS). The ETF has a yield approaching 5% and has a duration of just over 2 years, putting it in the low duration category (meaning it has low rate risk).

FINSUM: This seems like a good option if you want to earn high rate-protected income. Given the current rate environment, funds like these should probably be a fixture of most portfolios.

(New York)

JP Morgan just published what could be the most well-documented financial crisis forecast ever written. The bank’s quant team put out a 143-age report chronicling how the next crisis will unfold which features the opinions of almost 50 of Wall Street’s top analysts and strategists. The consensus is that there will be a major “liquidity crisis” with huge selloffs in major asset classes, and no one to step in to buy. The losses will be exacerbated by the shift to passive management and the rise of algorithmic trading. JP Morgan says that the Fed and other central banks may even need to directly buy stocks, and there could even be negative income taxes. The bank thinks the crisis will hit sometime after the first half of 2019, most likely in 2020.

FINSUM: Assessing the validity of these kinds of predictions is always hard. While we have no idea about the timing, or whether this will actually happen, the argument is well thought out and quite logical.

(New York)

Advisors need to prepare themselves for a nasty eventuality that looks like a near certainty when the market next crashes. According to a top wealth management lawyer, there are likely to be a great deal of lawsuits filed by clients against their advisors whenever the next big crash comes. The lawsuits will be focused on claims of reverse churning, or that advisors put client money in fee-baseds account in order to collect fees without offering significant advice or trading. Since switching clients into fee-based accounts (versus commission-based accounts) has been a very common practice over the last several years, the atmosphere is ripe for a massive wave of lawsuits.

FINSUM: This article is worryingly insightful. The big switch to fee-based accounts, which preceded but also corresponded to the DOL rule, might have set up advisors for some major legal headaches in the next downturn.

(New York)

The Fed seems almost certain to hike later this month, as well as in December. Rates heading higher looks like a certainty. So what does that mean for high yielding equity sectors which many Americans rely on for dividend income? The answer is a mixed picture. Pure rate-driven sectors like utilities, real estate, and telecoms will likely be hurt, but high-yielders like healthcare and and consumer staples should hold up better because their businesses can generate a lot of cash that can be returned to shareholders via dividends and buybacks.

FINSUM: Pharma has returned over 12% this year while real estate is just around 2%, showing how the former can outperform in rising rate environments.