Joe Rennison reports for the Financial Times that "fallen angel" downgrades could test the high yield debt market. He writes: When S&P withdrew General Motors’ top-quality credit rating in May 2005, sending $41.5bn of debt crashing into junk territory and creating the largest ever “fallen angel”, it triggered the biggest sell-off in corporate bond markets since the dotcom bust. Along with the simultaneous downgrade of Ford, which remains the second-largest fallen angel after its $40.8bn of debt was docked, the bedrock of corporate America shook. “It is not just they that have a … [Read more...]
About Jeremy Jones, CFA
Is Commission Free Trading Feeding the Frenzy in Speculative Stocks?
Lu Wang and Vildana Hajric suggest at Bloomberg that commission free trades are driving an explosion of trading from retail investors. They write: Their fingerprints are on Apple Inc.’s staggering rally. They piled into Tesla Inc. as it tripled, and turned speculative fliers like Virgin Galactic Holdings Inc. into some of the most heavily traded shares in the country. Why the enthusiasm? Some see a link to decisions by brokerages to cut commissions on trades to nothing. While it’s tough to know what’s causing what -- bull markets are fueled by new converts but also lure them -- trading … [Read more...]
Is there a Bubble in Socially Responsible Investing (ESG)?
Patrick Temple-West reports on the wide premium being given to the best ranked "environmental, social and governance" stocks. He writes: Companies with the best environmental, social and governance scores have opened up what one analyst calls a “monstrous” valuation premium, in a sign of rampant demand for the hot investment theme. Investors last year ploughed a record $21bn into socially-responsible investment funds in the US, almost quadrupling the rate of inflows in 2018, according to Morningstar, the data provider. Now, companies with strong ESG credentials are starting to show the … [Read more...]
A Bird in the Bush is Worth Two in the Hand
Yeah, you read that right. In today’s stock market where tall tales can ignite a speculative frenzy in individual names reminiscent of the dotcom bubble, companies that return cash to shareholders have been eschewed. Generating revenue and profits and paying dividends is apparently out of fashion in 2020. The chart below shows the YTD performance of three different groups in the Russell 1000 index (largest 1000 stocks). The first group is the highest 50% of dividend payers not counting companies that don’t pay dividends. The second group is the bottom 50% of dividend payers not counting … [Read more...]
Germany Preparing for Hit from Coronavirus
Myles McCormick explains in the FT that Germany, Europe's largest economy, is preparing to take a hit from the effects of the coronavirus on China's economy. He writes: Investor sentiment in Germany dropped sharply in February as the effects of the coronavirus outbreak weighed on exporters, a survey revealed, adding to an increasingly gloomy picture for Europe’s biggest economy. The Zew survey of financial market experts found that sentiment about the outlook for the German economy fell 18 points this month to a reading of 8.7. This is well below January’s score of 26.7 and significantly … [Read more...]
The Fed is Slowly Strangling Insurance Industry Profits
The prolonged low interest rates fostered by the Federal Reserve are slowly strangling the insurance industry. Nicole Friedman and Leslie Scism report for The Wall Street Journal: Insurance is a cyclical industry. During periods without catastrophic claims, insurers compete for customers by lowering prices. Following large natural disasters or other big losses, they typically raise prices or reduce exposure to certain risks. The current price increases are partly due to hurricanes, wildfires and other catastrophes in 2017 and 2018 that cost the global industry more than $200 … [Read more...]
Here’s Why Most Americans Don’t Even Know They Got a Tax Cut
In every income category surveyed recently by the New York Times collaborating with the Tax Policy Center, a majority of Americans thought they had not received a tax cut from the Tax Cuts and Jobs Act of 2017. The reality is, the majority of Americans in nearly every category received a tax cut. Bill Bischoff at MarketWatch explains why so many Americans haven't noticed their tax cuts. He writes: An online survey conducted for The New York Times and published in April of 2019 (after most returns for the 2018 tax year had been filed) found that only 40% of Americans believed they had received … [Read more...]
Small Deals by Big Tech Coming Under Increasing Scrutiny from FTC
Federal Trade Commission regulators are taking a closer look at small deals by big tech companies that may have harmed competition. John D. McKinnon and Deepa Seetharaman report for The Wall Street Journal: Federal regulators opened a new front in their investigation of big tech companies, seeking to determine whether the industry’s giants acquired smaller rivals in ways that harmed competition, hurt consumers and evaded regulatory scrutiny. The Federal Trade Commission on Tuesday ordered Amazon.com Inc., Apple Inc., Facebook Inc., Microsoft Corp. and Google owner Alphabet Inc. to provide … [Read more...]
Investor Exuberance Soars
The signs of investor exuberance are too many to list, but here Bloomberg points out soaring option volume as a sign of excessive optimism. The volume of options has soared to levels where the underlying shares each option contract controls are now almost equal to the total shares traded in the market. Bloomberg's Joanna Ossinger reports: A frenzy of bullish bets on the biggest U.S. tech names is captivating Wall Street and powering equities to all-time highs. It’s also sending waves through options markets. Volumes for contracts tied to single stocks have surged by 77% in the past six … [Read more...]
Are Most ESG Funds Just Tech Funds in Disguise?
At The Wall Street Journal, Akane Otani explains the tendency of ESG Funds (funds focused on investing for environmental, social or governance preferences) to invest in certain types of stocks that may not actually be the best match for the mandate they have been given. The end result may be that these funds are just closet tech funds. He writes: Companies focused on issues that the environmental, social and governance movement has come to be associated with, such as renewable energy, clean water, and racial and gender diversity, are relatively underrepresented among such funds. For instance, … [Read more...]
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