The stock market is very highly priced at the moment and many think we are in the middle of a “melt up”. With that in mind, many are constantly on the lookout for warning signs that the market might be ready to tumble. Well, some are appearing. The big warning sign is that credit spreads are widening and implied volatility is picking up. It is very unusual for this to occur during a rally, as it usually happens during corrections. This warning comes on top of other red flags, such as stretched investor sentiment, and very positive earnings revisions.
FINSUM: The bond market has long been known for leading the stock market, and credit spreads are one of the indicators we tend to take very seriously. Definitely something to pay attention to.
In a sign that should make all retail employees shudder, Amazon has finally launched its staff-less store. The store has no staff and no checkout, a development the company calls “just walk out” shopping. Shoppers are tracked by sensors all over the store, and the system allows Amazon to just automatically charge them when they leave. The concept is technically called Amazon Go, and this newest convenience store is Amazon’s thirteenth brick and mortar location in the US.
FINSUM: In our view, this is absolutely genius. While we hate the idea of fewer retail jobs, and don’t support that, Amazon is basically developing a way to get rid of the tedious checkout line.
The Wall Street Journal has published that we consider an important and engaging piece about the US auto industry and its disconnection with the direction of the rest of the world. While other major markets, like Europe and Asia, are moving to an ever-cleaner, ever-smaller, ever more electric paradigm, the US is moving further into the “bigger is better” mantra and cutting fuel standards. The disconnection has at its heart two components—the first is Trump’s very different view of climate change and environmental regulation, and the other is cheap gasoline.
FINSUM: We don’t think this disconnect is any cause for alarm in the near-term, but investors should consider that if political winds change (such as in the mid-term elections), then regulations could change quickly, leaving US automakers with a bad product mix.
Apple debuted its most important product in years just a few months ago—the iPhone X, but it may be closing in on what could not only be a great new product, but a new segment. That new device would be Apple’s version of the smart speaker business led by Amazon’s Echo and Google’s devices. Apple’s version is called the HomePod, and had its debut delayed from late last year to early this year, missing the holiday season. Of course, the device itself may be secondary the the digital personal assistant system, in Apple’s case Siri, as it is this bit of software which keeps users in the company’s ecosystem, which means higher spending.
FINSUM: The devices are merely vehicles for the digital assistants, which are in turn genius products for keeping consumers spending on services.
Most of the market’s panic over retail centers on the threat from Amazon and the shift to ecommerce from brick and mortar (admittedly related threats). However, there is more out there to be worried about than just those. In particular, the apparel market is not growing very quickly, as it is losing market share to other areas of consumer spending, such as restaurants, entertainment and wellness. Staffing costs are also rising at the same time as price pressure is growing, putting a strain on margins.
FINSUM: Amazon’s growth in apparel sales is also well-outpacing the overall industry’s growth rate, which means it is already stealing market share on top of these other challenges.
Goldman Sachs has stuck to its guns with its trading division despite numerous changes to the industry and its competitors revamping. However, the bank finally appears to be changing its strategy. Since 2009, Goldman’s fixed income trading revenue has shrunk from over $23 bn in 2009, to just over $5 bn in 2017. Now the bank is changing its focus away from serving hedge fund clients, whom it has become overly reliant on, and towards big corporate clients, who offer a different sort of “flow” business based on interest swaps and other corporate needs.
FINSUM: We think it is smart for Goldman to diversify the focus on its fixed income unit. Especially since the $20bn plus revenue days don’t look like they are coming back.