Eq: Large Cap
(New York)
October is usually associated with market panics and gives investors a general sense of anxiety. Many of the greatest market meltdowns occurred in October, including 1929, 1987, and 2008. However, this October seems likely to be different, says Barron’s. In fact, good Octobers are not infrequent. It may surprise investors to learn that October has the highest average return of any month in the last 20 years. But the reason this year might be good is that there is a midterm election in November, a factor that has historically made October a strong month for returns.
FINSUM: When you put together the numerous factors supporting markets with the midterm elections next month, it seems like this October will be a good one.
(New York)
In a sign that is setting off alarm bells on Wall Street, the market’s safest stocks have been surging of late. Investors are increasingly demanding “quality” stocks as a buffer against a potential downturn in the market. “Quality” stocks usually refers to to companies with a range of positive characteristics like high profitability and low debt. However, market strategists point out that such stocks are so well bought that they might not have their intended effect, “Quality factors are well bid so may not be as defensive as people expect”. ETFs that track “quality” stocks have been surging.
FINSUM: One can understand the flight to quality given very high valuations and the hawkish Fed, but it is still a worrying sign that so many feel the need to take cover.
(New York)
That is quite a counterintuitive headline, but in an odd way, it could not be more true. Bloomberg has put out a piece, which echoes many advisors, that the current bull market could actually end up hurting many retirees. The reason why is that many have experienced hefty gains in the last decade and feel comfortable retiring. However, after such a sharp run higher, the market is likely to experience a steep correction. For retirees seeking to steadily withdraw money from their accounts, this could pose a major problem, as a drop in the market could cause such significant damage to portfolio value that even outperformance in subsequent years may not make up for it.
FINSUM: This is a valuable point that all retirees and their advisors need to bear in mind. Portfolio construction and planning definitely need to take this threat into account.
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(New York)
The junk bond sector feels like it is on the precipice right now. After years of great performance, valuations and yields are at lofty levels. At the same time, there has never been more BBB bonds, or bonds just one notch up from junk. All of that means the market looks fragile. However, one of the lesser discussed risks in the high yield market regards a sea-change in accounting practices. Just as with startups, the high yield sector has seen major growth in suspicious accounting practices, such as inflating EBITDA to make debt multiples look lower. Often times this is done on a highly speculative basis that misleads investors.
FINSUM: This is just one of the many growing risks in the high yield market. It seems like the SEC needs to crack down on this sort of creative accounting.
(New York)
US dividend stocks are in a curious, if tenuous, positon at the moment. They have done well recently, but rate rises seem poised to bring prices down. Overseas dividend stocks, however, are not in the same predicament, as the rate environment in many other parts of the world is more benign. Accordingly, here are six overseas dividend stocks to consider: Allianz (4.1%), Hang Lung Properties (5%), Heidelberg Cement (2.8%), Nestle (2.9%), Royal Dutch Shell (5.3%), and Sanofi (4.1%).
FINSUM: Not only are these stocks attractive because of the good yields and mild rate environment, but they mostly have very attractive P/E ratios as well.
(New York)
US stocks have simply blown away the world this year. The S&P 500 is up around 9% while global shares are down 6%. The outperformance has been driven by a supportive tax policy, great economic performance, and a pro-business attitude out of the White House. However, JP Morgan says that the outperformance of US stocks relative to the globe is set to stop. US stocks and global ones will move towards parity in coming quarters as the stimuli helping American shares wanes. The parity will not come from global stocks catching up as much as the US will stagnate or fall.
FINSUM: When we take everything into account right now, we are feeling increasingly positive about the the next year. We think Democrats winning the House would be favorable for shares as it would calm money managers’ worries about some of the GOPs more extreme positions (e.g. trade war). This could bring on a “goldilocks” scenario, where the economic and political conditions are just right for stocks to move strongly higher.