(New York)

Bank of America put out a stern warning this week. A team of Bank of America equity strategists led by Ohsung Kwon says that the current market looks eerily like the one in the fourth quarter of 2018, when stocks fell 20%. The market is experiencing some concerns on near-term earnings as companies cut back forecasts. According to Kwon, “The nearest memory of early cycle companies' impact on the market is almost exactly three years ago when companies warned about tariffs and slowing macro conditions during 3Q18 earnings … Those warnings and a hawkish Fed resulted in a 20% decline in the S&P 500”.

FINSUM: 2018 came within a hair of a full bear market. That feels too bearish given the overall trajectory of growth. If Congress doesn’t get the debt ceiling raised, though, all bets are off.

(New York)

Firstly, some good news for advisors, Morningstar has announced it is doubling its analyst coverage of models next year from a current 250. Within that coverage, advisors can also find the top 15 models according to Morningstar. Here are those ranked 15-11. Number 15: T. Rowe Price Active, number 14: Dimensional Tax-Sensitive, number 13: Dimensional Core Wealth, number 12: Fidelity Target Allocation Index-Focused, number 11: BlackRock Target Allocation Tax-Aware ETF.

FINSUM: A nice diverse group of models with a lot of different focus areas. Great start for further research.

(New York)

If the trend is your friend, then ESG is a bandwagon all investors should be getting on. Coming of a pandemic year where ESG funds outperformed conventional offerings, ESG has been red hot in 2021, gathering up mountains of assets. There appear to be two major reasons for this. The first is that more and more investors care to be socially-conscious in their portfolios, and secondly, because a long-held thesis that ESG funds would outperform is coming true. Over recent periods, ESG has had less volatility and more upside than traditional funds.

FINSUM: One can play with the time frame and other variables to produce the results they want, but logically speaking ESG is making more sense as the risks in the market are increasingly aligned with ESG: politics, natural (and other) disasters, social changes etc.

Large financial firms have dedicated research teams that construct portfolios. Individuals or even sub-teams dedicate to different factors, and smaller firms previously had a hard time competing. However, technology is shifting the balance, as tools like machine learning and artificial intelligence can augment current labor to boost productivity. These measures can enhance productivity without increasing one of the largest input costs in finance: labor. Magnifi’s powerful artificial intelligence can amp up your research department by providing detailed analytics, and powerful search features that navigate thousands of portfolio opportunities without the large teams. Technology is leveling the playing field and giving small firms the edge in labor output.

(Houston)

Energy prices are rising from the U.S. to Europe, and while that might spark a good upside for energy companies it’s causing a crisis for those reliant in Europe. BSF SE and Aurubis AG are the continent’s number one producers in chemicals and copper respectively, but energy prices are eating at their margins. Major U.K. fertilizer companies are shutting down plant production in Norway. Gas prices are up nearly 200% in Europe and input costs have doubled as a supply crunch ravages the West. This shortage is painful on the frontside with high input costs but on the sell-side as well. Higher energy costs are eating up a larger percentage of home budgets and curtailing retail spending. Goldman Sachs expects the calamity to continue into the winter and warns of blackouts if consumption isn’t curbed. Finsum: This is the time to up the stakes in American energy prices. Energy shortages aren’t good for anyone but oil and gas are release valves.