(New York)

Since their low in 2017, retail stocks have been on a great run, rising about 35%. The question for investors is where the market goes from here. After easily outpacing the market, retail could face some headwinds, though analysts are still generally positive. Some say cost pressures are rising quickly and will hurt earnings, while others say such assumptions are overstated and that earnings should be fine.

FINSUM: Rising consumer confidence has really helped lift the sector out of its doldrums, but any economic peak could also prove the high point for retail. If you think this cycle has already peaked, then retail would seem vulnerable.

(New York)

There are a lot of bear market and recession indicators to make an investor nervous right now. There are also a wealth pf positive points. However, one area that really caught our eye was an industrial commodity that says a lot about the direction of the economy. Copper is in the middle of a big fall, and according to the Financial Times, the metal “is telling us not to worry a bit: the metal is telling us to panic”. Copper is down about 18% this year, and most of that fall is since May. Copper is used in a wide range of industrial applications across all regions in the world, it is utterly ubiquitous, so demand for it is a good leading indicator of economic performance.

FINSUM: This seems like a worrying sign, but we must say that some of the loss could be because of the trade war with China. That said, the sharp drop in prices is a very worrying sign.

(New York)

One of the big worries in the market right now regards the idea of peak earnings. The market has been doing quite well, all underpinned by seemingly super-powered earnings. However, many see this quarter or next as the peak of the earnings boom, with the benefits of the new tax package starting to wane from here. “How will markets respond?”, many wonder. According to Barron’s, “just fine” is the answer. Historically speaking, the peak of earnings had little do with market peaks, so the two seem to have no clear correlation. In other words, there is no historical precedent that should make one worry.

FINSUM: Part of the reason this is so worrying is that the bull market is so old that people are constantly looking for something new to power it. In that regard, peak earnings do seem concerning.

(Chicago)

Small caps have been having a great run this year. Ever since Trump was elected with his America-first mantra, small caps have done well, but the trade war has pushed them ahead of their large cap peers his year. So how to find the undervalued small caps with a bright future, ones that are valuable but currently misunderstood? A team at William Blair tries to do just that. Their picks are: Ligand Pharmaceuticals, Codexis (oil industry), Varonis Systems (security software), and Boot Barn Holdings (western clothing retailer).

FINSUM: All of these names have a unique story and catalyst which should help them become much more valuable.

(New York)

2017 was a terrible year for the retail sector. It was nothing short of an apocalypse. Thousands for stores were closing, dozens of brands going bankrupt, and big stock sell-offs. It was the first phase of the predicted meltdown to be caused by the shift to ecommerce. However, this year retail stocks have soared, with the leading retail ETF (XRT) up 35% from its low last year. That said, there are still some great buys. The sector’s overall P/E is still just 16.4, well below its historical average of 18.8. Store closings have stabilized margins and consumer confidence and spending are rising, a strong proposition for the sector. Some good names to look at are Kohl’s, Gap, and Michael Kors.

FINSUM: Retailers are starting to figure out how to navigate the new ecommerce-driven paradigm, and the sector’s future is looking much brighter than it did 18 months ago.

(New York)

It is no secret that credit has expanded mightily in the last several years. The investment grade corporate bond market has completely ballooned, but leveraged loans have been another important area of growth. And while the risk of IG corporate bonds is well understood, the risks of the latter are less apparent. Leveraged loans are popular right now because they have floating rates, but those rates are a big risk. The reason why is not in the extra payments themselves, but because most leveraged loans are issued to refinance existing debt. The issue is that when corporate borrowers come back to the market to refinance, they might find many less lenders and much higher rates. The is so because as rates rise, other safer asset classes become more attractive.

FINSUM: The whole corporate sector has been binging on low rates for years, and there is bound to be a reckoning. The scale of that reckoning is the big question.

(New York)

One of the big problems in our growing era of algorithmic trading is herd behavior. For instance, when many trading algorithms are all geared to trade on the basis of momentum, then you tend to get a ton of it at the same time. Well, the problem might be set to get worse as UBS is debuting a new product to help active managers with trade selection using AI. UBS is launching an AI-based product which recommends trade ideas to active managers, something being referred to as the Netflix of asset management. In other words, UBS’ AI recommends a trading strategy which it thinks will suit the manager.

FINSUM: So now even active managers are trying to be enticed into using AI-recommended strategies. The problem with this is that many managers will end being recommended the same strategies, leading to more trading in the same direction.

(New York)

There was a great deal of anxiety over the fiduciary rule, and now there is mounting consternation about the SEC’s Regulation Best Interest. But within that story, there is a lost narrative—the fate of the US’ small broker-dealers. Mounting regulatory pressure continues to dwindle their ranks. The number of Finra-registered broker-dealers has fallen 10% since 2013, and last year the number fell to a total of 3,726, down 109 from 2016. One industry commentator summarizes that “It is getting to the point that the many firms under 10 advisors dread Finra audits and are positioning themselves to be under a larger broker-dealer in order to simplify their life”. “This used to be a fun business, but not anymore”, says the commentator, citing a B-D owner.

FINSUM: We can personally testify to the difficulties that smaller B-Ds face, and not just in terms of direct regulatory costs. Additionally, factors like limits to markups constrain revenue, so there is pressure on both sides.

(New York)

If you are interested in getting some strong dividends in your portfolio, and don’t mind adding a little risk, then we have a story for you. Generally, dividend stocks are seen as a steady and low-risk strategy, but this group of 7 stocks, are high risk, high reward. The dividends of all 7 look solid (no cuts seem likely in the near-term), but all have some significant risks in their long-term outlook. The stocks, with their yields, are: Ford (6%), Steelcase (3.9%), Ethan Allen Interiors (3.4%), Macerich (5.0%), Stage Stores (9.7%), ABB (3.6%), and IBM (4.3%).

FINSUM: This is a quite a mix of stocks, each with their own very particular story. Ford seems like an interesting bet.

(Istanbul)

Following a diplomatic spat with the US that has thrust Turkey into an economic tailspin, the country is entering full-blown crisis mode. Turkey’s Lira is down more than 35% this year and fell another 5% overnight. Bond yields are soaring alongside the losses, with the country’s ten-year yielding over 20%, a move exacerbated by Istanbul’s large budget deficit. The crisis is going so badly that the EU is seeking to limit the Eurozone’s banks from exposure to Turkey’s meltdown. BBVA, UniCredit, and BNP Paribas have the most exposure to Turkey.

FINSUM: There is no end in sight to the selloff. The big hope is that Turkey is supposed to unveil a new economic model today that will show how it plans to cut debt and shrink its budget deficit. That would be a start.