(New York)

On Tuesday markets seemed to reverse course. Even as stocks plunged, it appeared that for the first time in recent memory, they were the asset class driving bonds rather than the other way around. Yesterday, the idea of equities taking on a life of their own seemed to reinforce itself, as stock rose modestly even as bond yields jumped higher and stayed steady above 3%.

FINSUM: This is a very tenuous time for markets. Something is definitely happening in bonds, but no one—Wall Street included—knows exactly what.

(New York)

Bloomberg has just made a bold call—they say the bull market ended yesterday. While stocks dropped sharply, 1.7% for the Dow, which basically eliminates all the progress they had made over the last couple of weeks, it is hard to say that it means the end of the bull market. The reason Bloomberg argues so is that the market has been stuck in a rut for three months, and yesterday, investors digested a dark survey which showed that Americans, on average, expect stocks to be lower 12 months from now, a sharp turnaround in sentiment. One portfolio manager from Stifel Nicolaus summarizes where the market is now, ”Investors have this understanding that equity markets are at lofty levels and we are in a low-return environment, so as the risk-free rate moves higher, even in a gradual manner, that becomes more of a competitive asset class”.

FINSUM: We are not particularly bearish, but do concede that if rates keep moving higher it is going to be hard for equities to do the same.

(Washington)

Many advisors seem to be confused about the new SEC fiduciary rule proposal, and we can commiserate. While the rule is called a new fiduciary rule, by all accounts, it really is not. While it does compel additional disclosures to clients and efforts to minimize them, it does not try to eliminate conflicts entirely. It has no best interest contract, and no capacity for clients to sue advisors they are unhappy with. It also has no uniform standard for brokers and advisors and maintains the distinction.

FINSUM: This rule is very different than many were expecting. Perhaps its biggest impact will be in reforming and restricting who can use the word broker, which in our opinion does a great deal to make the market more transparent to clients.

(New York)

The ten-year Treasury rose to just above 3% for the first time in years yesterday, possibly signaling the start of a new era for fixed income. Therefore, one would be forgiven for thinking the bond market drove the big losses in stocks yesterday. However, the opposite may be true, as for the first time in a while, it seems that worries over earnings and new measures of investor sentiment sent the market sharply downward. In a total reversal from January, investors are now very bearish on the market according to economic surveys. This news appeared to spook investors and then in turn disturb the bond market.

FINSUM: Yesterday might be the start of a poor cycle, where stocks and bonds take turns scaring one another to steeper losses. Perhaps that is just a manifestation of a changing cycle.

(New York)

If anything is becoming clearer in financial markets, especially after yesterday, it is that rates and yields are bound to rise. Thus many might be worried about how to protect their clients from the changing market. Barron’s has some suggestions. The key is to hold a fixed income portfolio for several years, a minimum of six, and to make sure to reinvest proceeds in higher yielding bonds. To achieve the targeted five-year maturity sweet spot, consider Vanguard’s intermediate Treasury fund, while also mixing in some Treasury Inflation Protected Securities (TIPS) to provide further protection.

FINSUM: This seems like a good strategy for a long period of gradual rate hikes.

(Seattle)

Amazon is starting a new service. For the last year, the company has been trying to convince consumers that letting the company’s delivery people in their homes via a special service was a good idea. Now Amazon is taking that one step further with the launch of a program to deliver packages to customers’ cars. Like the home deliveries, and broadly under the same program, named Amazon Key, Amazon’s delivery people will deliver packages to cars parked in publicly available areas. The car will be unlocked by an OnStar (or similar) service and relocked after the delivery is completed.

FINSUM: We think this could be a very convenient feature for many people and may be an enticement to get more consumers to sign up.

(Chicago)

There has been a lot of consternation over the last week about whether the Vix is being manipulated. In one incident last week, the Vix jumped significantly with no corresponding move in the stock market. The culprit apparently was a large options trade deeply out the money which shocked the benchmark. Following an investigation, the Cboe says that it was not market manipulation, but rather an order imbalance that caused the jump in the VIx’s measure. Speaking on whether the move amounted to market manipulation, the Cboe commented that “We reiterate that we believe these claims are without merit”.

FINSUM: Whether or not the market was being gamed, the bigger question is whether the the way the Vix is calculated is too fragile/sensitive. If a single trader with a moderately sized order can move the Vix this much, what does it say about the index?

(Washington)

The wealth management industry will likely find itself pleased this week, as many may sense victory in the long battle against the DOL’s fiduciary rule. The SEC has now released its own proposal for a new fiduciary rule, and the rule looks favorable. The new rule would place less onerous restrictions on brokers and advisors. It will not ban any single conflict of interest, but would place a responsibility to disclose certain conflicts of interest to clients and take steps to mitigate their effects. The rule does not contain a specific provision allowing clients to sue their brokers for misbehavior. The SEC would also disallow the use of blurred titles, such as “financial advisor”. The SEC approved the rule by a 4-1 vote and it will now have an official comment period.

FINSUM: The one dissenting vote blasted the rule as a continuation of the status quo. To be honest, the proposal sounds quite favorable to the industry, with many saying it is not really a fiduciary rule (it doesn’t seem to be), and we were not expecting such a mild outcome. We think Congress will likely come down hard on the SEC. This is far from a done deal.

(New York)

Those close to Michael Cohen and the situation say that the lawyer seems poised to turn on his friend, Donald Trump, if put under pressure by investigators. At least that is what long-time Trump legal advisor, Jay Goldberg, is telling the president. Goldberg was a former prosecutor who has advised Trump since the 1990s. Trump reportedly called Goldberg asking for advice, and the Wall Street Journal quotes Goldberg as saying “On a scale of 100 to 1, where 100 is fully protecting the president, Mr. Cohen ‘isn’t even a 1,’”. He explained that if Goldberg were faced with criminal charges, he would tell all.

FINSUM: So it looks like Goldberg is going to tell all, but what nobody knows is how much of value he might really have to say.

(New York)

This was supposed to be the year when stockpickers would finally have their way, grabbing control of the fund management market away from passive ETFs as correlation fell away and analysis of individual stocks paid off. So much for that. No sooner than investors imagined a different market, correlation has returned in a big way. Correlation has once again surged, and markets are moving more in-sync than they have at any time since the stock market crash of 1987.

FINSUM: The rise of passive investment vehicles seems relentless, and the one thing that seemed like it might get in its way has evaporated. In many ways the rise of correlation makes sense though, as when the market worries about macro issues, stocks tend to move in the same direction.