Category: Markets

The Market and Management Seem to be at Odds on Earnings Projections

As of February 12, 70% of S&P 500 companies had reported earnings results for the fourth quarter and 2019 year.  While the reporting season is still young, the initial reports are somewhat disappointing.

•  Fewer companies are beating estimates.  72.2% of the companies reporting beat expectations.  This may seem like a high percentage, but it is below the 12-quarter average of 77.9%.  It is not unusual for most companies to report results above expectations as company management and analysts take a conservative view when making projections.

•  Earnings growth is low.  Net income for the fourth quarter rose 0.9% y-o-y on average for the companies that have reported.  This is significantly below the trailing 12-month average of 11.8% but above recent quarterly growth numbers that have been negative.  John Butters of Factset reports that if earnings growth in 2019-4Q ends up in the negative, it would be the first time the index has reported four straight quarters of y-o-y declines since 2016.  Earnings per share growth has been slightly better due to share buybacks, but the overall growth remains anemic. 

•  Market is not rewarding favorable earnings.  According to Factset, companies reporting positive surprises have seen an average price increase of 0.5% in the four-day window before and after the report date.  This compares to a 1.0% increase for companies reporting earnings below expectations.

•  Earnings estimates are being revised
  downward.  2020-1Q estimates have been lowered to reflect the impact of the Coronavirus.  The latest estimate is for 2020-1Q earnings to grow 1.2% year over year.  This is down from a growth rate of 4.5% as recently as December 4, 2019, shortly before the outbreak of the Coronavirus.  Even with the revision, such projections look rosy compared to negative growth in recent quarters and in light of the effects of the virus.

•  The technology sectors have been strong while
  manufacturing has been weak.  The technology sector reported earnings that have been 9.4% above expectations while the manufacturing sector has reported results 3.7% below expectations.  The technology sector has been buoyed by favorable results at Intel and Microsoft while the manufacturing sector can point to a large loss at Boeing to explain the negative surprise.  Other sectors reporting favorable results include communications and consumer discretionary while results for the energy, utility and real estate sectors have been disappointing.

•  Valuation multiples are high.  The S&P 500 is trading at 18.4 times forward earnings versus a 10-year average of 15.0 times.  The S&P 500 trades at 25 times trailing 12-month earnings versus an average P/E of 19.4 times since 1971.  High valuation multiples are partly due to historically low interest rates.  However, the fact that stock prices have risen at a faster rate than earnings estimates in recent quarters despite steady interest rates is a possible concern for investors.

 The market believes there will be a rebound in earnings in 2020 even as management and analysts revise projections downward.  Whether or not current projections are realistic or Pollyannaish remains to be seen.  History would indicate that analysts begin the year with lofty projections and then lower them as management gives conservative guidance for the year.  Actual results then surpass lowered expectations.  So far, the current earnings period is showing a similar trend, perhaps amplified by virus concerns.  This time, however, the market seems to be disregarding earnings results and dampened projections as it soars to new levels.  As valuation multiples climb, it is getting harder and harder to make the case that the market is undervalued.

 Sources

https://finance.yahoo.com/news/positive-earnings-picture-212009000.html, Sheraz Mian, Zacks, February 12, 2020

https://www.marketwatch.com/story/earnings-recession-set-to-end-as-sp-500-earnings-growth-turns-positive-2020-02-05, Tomi Kilgore, MarketWatch, February 5, 2020

https://www.forbes.com/sites/sergeiklebnikov/2020/01/07/earnings-preview-wall-street-banking-on-profits-to-rebound-in-2020/#4c8417865a3a, Sergei Klebnikov, Forbes, January 7, 2020

https://www.longtermtrends.net/price-earnings-ratio/, Longtermtrends, February 13, 2020

https://www.valuescopeinc.com/resources/white-papers/the-sp-500-pe-ratio-a-historical-perspective/,
ValueScope, February 13, 2020

https://www.yardeni.com/pub/peacocksp500revisions.pdf, Yardeni Research, January 27, 2020

https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_013120.pdf, John Butters, Factset, January 31, 2020

NobleCon16 Panel to Discuss Cannabis Regulatory Future, Industry Trends, and Expectations for Investors

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

If cannabis and hemp products are expected to take a larger role in people’s day-to-day lives, why were stock prices so depressed last year? What will signal the expected rebound?

These questions, along with current regulations and the implications of new statutes, on both the state and federal level, are to be weighed and discussed by a diversified panel of experts. The panel boasts a variety of professionals who are involved in different areas of the fledgling business. These presenters were hand-selected for their ability to bring a complete mix of up-to-date information that will attempt to touch on all the different issues impacting their industry.  The goal is for the investors attending NobleCon16 to develop a better understanding of the direction and pace of the cannabis industry this decade.

The discussion will take place at NobleCon16 being held from February 16th – 18th at the Hard Rock Guitar
Hotel in Fort Lauderdale.

The Panelists:

The panelists have been pulled from VC funds, CBD companies, an industry news and information publisher, specialized lawyer, supply chain expert, and a provider of industry staffing and education. Back Down to Reality? What
Investors Should Know About Cannabis Stocks in 2020 will take place on Monday, February 17 at 5:30pm.

Arby Barroso, Co-founder at Green Roads World

Brett Finkelstein, Managing Director at Phyto
Partners, LP

Jason Spatafora, Owner at MarijuanaStocks.com

Jonathan Conforti, Vice President of Corporate Development, Abacus Health Products, Inc.

Matt Ginder, Partner at Greenspoon Marder, LLP

Roman Bond, Founder at The Leafy Group

Robert Friedman (Moderator), Founder at Cannabis Labs

 Brett Heimann, the Director at Noble responsible for orchestrating this highly regarded cannabis panel had this to say: “I think people should view the cannabis industry, as it relates to CBD products, the way cell phones were viewed twenty years ago. At first, a few early-adopters saw the benefits of having a “cellular phone” available to them. Two decades, and some significant evolution to the offerings, and almost everyone now finds the phones indispensable. CBD in households could easily become as commonplace as aspirin.”  

 Level With Me

In addition to Back Down to
Reality? What Investors Should Know About Cannabis Stocks in 2020, Noble Capital Markets has assembled many information-packed company presentations and addresses for their 16^th conference. The events should be of interest to anyone seeking to discover still-small companies whose businesses could soon have a bigger impact.

NobleCon conferences experience 70% repeat attendance by investors who want to build on their understanding of opportunities and perhaps meet privately with company management to best understand their company’s potential.  Money managers, family office finance professionals, investment advisors, independent brokers, and equity analysts go to NobleCon each year to learn of companies, products, and breakthroughs that could easily be overlooked in a world where larger well-known companies get the majority of the spotlight. Some of tomorrow’s household names are companies that benefit from more light being shed on them today. That’s what NobleCon and ChannelChek are about — Shedding more light on small and micro-cap opportunities in order to unearth actionable ideas.

More Information:

www.NobleConference.com

The Investor Conference at the Guitar Hotel in Florida offers More than New Ideas

           Seek continuous improvement and renewal
professionally and personally. – Stephen Covey

Does it make sense to not go to the largest investment conference of its kind?

Mixing work and pleasure is seldom as easy as we’d like. On the one hand, we’re looking to maximize our productivity in ways that enhance security and options in our life (make money). On the other hand, we need to recharge, rest, or take time to learn new skills and gain clarity-of-mind to find fresh opportunities (prepare).

Investors, business owners, athletes, and anyone faced with big drawdowns in some area of their life usually finds they benefit from a break. In reality, many business owners won’t allow themselves time off. This is especially common among “A” type personalities, and “A” type personalities are common among business leaders. As for investors, they may feel they always need to be engaged in monitoring, acting, and learning.

One solution to the need to step away yet need to be involved may be going to a conference that allows both. An option taken by many each Winter is to follow investors who flock to Florida for combined work and play. This Winter, approximately a thousand investors will be at the new Hard Rock “Guitar Hotel” to discover high potential growth investments, networking with others from across the globe, and solid play. For the purpose of full disclosure, Channelchek, where you are likely reading this, is a product of Noble Financial Group who meticulously plans this particular conference down to the last detail. The conference named NobleCon16 is their 16^th annual investor conference. So, we have some insight and know that in addition to their having an agenda that appeals to both self-directed and professional investors, there is fun and surprise both on the agenda and off. The learning and networking event takes place over two full days, one of these days the market and most businesses are closed. So those attending may only miss one workday away from their desk.

Admittedly, we’re biased as to how we believe serious investors should recharge, regroup, and prepare. We also understand there are many different investment styles. What is presented at NobleCon16 may not suit your interests. However, the idea of a learning vacation is still something worth looking into. There is simply less guilt associated with being away when your leaning and making new contacts.

For those that feel they cannot comfortably keep away from “business” for even a few days, we hope that you’re at least relaxing as we are this weekend during the Superbowl.  Enjoy a fruitful week.

Information and Registration for NobleCon16: www.nobleconference.com

Friday, January 31, 2020

1-800-Flowers.com (FLWS)

It’s Got Mo

1-800-FLOWERS.COM, Inc. is the leading provider of gourmet and floral gifts for all occasions. For nearly 40 years, 1-800-FLOWERS® has been helping deliver smiles for customers with gifts for every occasion, including fresh flowers, premium, gift-quality fruits, and other gourmet items from Harry & David®, popcorn and specialty treats from The Popcorn Factory®; cookies and baked gifts from Cheryl’s®; premium chocolates and confections from Fannie May®; gift baskets and towers from 1-800-Baskets.com®; premium English muffins and other breakfast treats from Wolferman’s; carved fresh fruit arrangements from FruitBouquets.com; and top quality steaks and chops from Stock Yards®. The Company’s BloomNet® international floral wire service provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Another nice gift. Fiscal Q2 results overachieved, with revenues, cash flow, and earnings, all better than estimates. It was the third quarter in a row of beating expectations and the results indicate favorable operating momentum in each segment including Consumer Floral, BloomNet, and Gourmet Food & Gift Baskets.

Conservative guidance?  Full fiscal year 2020 cash flow guidance (adj. EBITDA) was raised from a range of 8% to 10% growth to 13% to 15% growth and EPS guidance was raised from a range of…

Get the full report on Channelchek desktop.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision. 

The Investor Conference at the Guitar Hotel in Florida offers More than New Ideas

           Seek continuous improvement and renewal
professionally and personally. – Stephen Covey

Does it make sense to not go to the largest investment conference of its kind?

Mixing work and pleasure is seldom as easy as we’d like. On the one hand, we’re looking to maximize our productivity in ways that enhance security and options in our life (make money). On the other hand, we need to recharge, rest, or take time to learn new skills and gain clarity-of-mind to find fresh opportunities (prepare).

Investors, business owners, athletes, and anyone faced with big drawdowns in some area of their life usually finds they benefit from a break. In reality, many business owners won’t allow themselves time off. This is especially common among “A” type personalities, and “A” type personalities are common among business leaders. As for investors, they may feel they always need to be engaged in monitoring, acting, and learning.

One solution to the need to step away yet need to be involved may be going to a conference that allows both. An option taken by many each Winter is to follow investors who flock to Florida for combined work and play. This Winter, approximately a thousand investors will be at the new Hard Rock “Guitar Hotel” to discover high potential growth investments, networking with others from across the globe, and solid play. For the purpose of full disclosure, Channelchek, where you are likely reading this, is a product of Noble Financial Group who meticulously plans this particular conference down to the last detail. The conference named NobleCon16 is their 16^th annual investor conference. So, we have some insight and know that in addition to their having an agenda that appeals to both self-directed and professional investors, there is fun and surprise both on the agenda and off. The learning and networking event takes place over two full days, one of these days the market and most businesses are closed. So those attending may only miss one workday away from their desk.

Admittedly, we’re biased as to how we believe serious investors should recharge, regroup, and prepare. We also understand there are many different investment styles. What is presented at NobleCon16 may not suit your interests. However, the idea of a learning vacation is still something worth looking into. There is simply less guilt associated with being away when your leaning and making new contacts.

For those that feel they cannot comfortably keep away from “business” for even a few days, we hope that you’re at least relaxing as we are this weekend during the Superbowl.  Enjoy a fruitful week.

Information and Registration for NobleCon16: www.nobleconference.com

Friday, January 31, 2020

1-800-Flowers.com (FLWS)

It’s Got Mo

1-800-FLOWERS.COM, Inc. is the leading provider of gourmet and floral gifts for all occasions. For nearly 40 years, 1-800-FLOWERS® has been helping deliver smiles for customers with gifts for every occasion, including fresh flowers, premium, gift-quality fruits, and other gourmet items from Harry & David®, popcorn and specialty treats from The Popcorn Factory®; cookies and baked gifts from Cheryl’s®; premium chocolates and confections from Fannie May®; gift baskets and towers from 1-800-Baskets.com®; premium English muffins and other breakfast treats from Wolferman’s; carved fresh fruit arrangements from FruitBouquets.com; and top quality steaks and chops from Stock Yards®. The Company’s BloomNet® international floral wire service provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Another nice gift. Fiscal Q2 results overachieved, with revenues, cash flow, and earnings, all better than estimates. It was the third quarter in a row of beating expectations and the results indicate favorable operating momentum in each segment including Consumer Floral, BloomNet, and Gourmet Food & Gift Baskets.

Conservative guidance?  Full fiscal year 2020 cash flow guidance (adj. EBITDA) was raised from a range of 8% to 10% growth to 13% to 15% growth and EPS guidance was raised from a range of…

Get the full report on Channelchek desktop.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision. 

The 2020s Could Become the Most Inclusive Decade for Investors

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

Barriers that a short time ago prevented the average investment account from access to the same benefits that larger institutional or high-net-worth accounts took for granted are crumbling. There were a number of doors opened from regulators, online brokers, financial advisors, and investment research providers toward the end of the last decade. If they keep opening, it will change the investor playing field.  Together they give investment advisors, self-directed investors, and other financial professionals the ability to provide lower cost, higher quality, and more flexible service, to far more people.

Toward the end of the last decade, four big advancements leading to a more inclusive environment by Wall Street occurred. As they’re adopted or more broadly accepted, smaller investors will have more options, and investment advisors will have an increased ability to serve their clients.

 

Brokerage Fees

Keeping more of their money is the surest way for any investors to net a higher return. If the same nominal cost per transaction is applied to a large order, versus a small order, the percent cost of the transaction fee is much different. For example, a $6.95 transaction cost on a $40,000 trade is .017%. A smaller investor committing $4,000 at the same $6.95 is reducing their return on the trade by .17% on just the initiation side of the transaction.  The cost to close out the position will similarly take from the return.

So, the same dollar cost per transaction will impact various size investors differently. The advantage, of course, going to the larger investor.  Mathematically that will happen unless the cost per transaction was dropped to $0.00. In October of 2019, the larger online brokerages began eliminating transaction fees on stocks and lowering them on options.

Now, if we do the same math $0.00 on a $40,000 trade versus the same $0.00 on a $4,000 trade, we find the impact as a percent of return is exactly the same. There is no return benefit to the larger order. The only new consideration is investors should be aware that long-term capital gains are treated differently than short-term capital gains. If an investor is inclined to trade more often as a result of zero fees, evaluating any tax consequences should be part of the decision.

To the extent that trading costs have been limiting access or usage by smaller investors, that barrier is no longer an issue.

 

Accredited Investor Definition

In late December 2019, the SEC voted to propose to amend its definition of an accredited investor. The old SEC rule which determines who can invest in unregistered securities restricts investors based on net worth, income, asset size, governance status, or professional experience. Their reason to seek change to the current rule is to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in private capital markets.

 “Modernization
of this approach is long overdue. The proposal would add additional means for
individuals to qualify to participate in our private capital markets based on
established, clear measures of financial sophistication. I also am pleased that
the proposal specifically recognizes that certain organizations, such as tribal
governments, should not be restricted from participating in our private capital
markets.”

– Jay Clayton, Chairman Securities and Exchange Commission

Until there is a proposal that is accepted (currently in comment period until February 17, 2020), an individual accredited investor is one who has a net worth of more than $1 million excluding the value of their primary residence or an income of more than $200,000 annually (or $300,000 combined income with a spouse). This would then mean a non-accredited investor is someone earning less than $200,000 a year (less than $300,000 including a spouse) that also has a total net worth of less than $1 million when their primary residence is excluded. The reason this distinction is important and why one may want to fall under the new definition is it allows them to invest in alternative investment classes such as hedge funds, venture capital, or private equity. Any final change to the guidelines is expected to allow more investors to be considered accredited. It adds new categories of natural persons that may qualify as accredited investors based on their professional knowledge, experience, or certifications. The proposal would also expand the list of entities (not individuals) that may qualify as accredited investors by, among other things, allowing any entity that meets an investments test to qualify.

Third-Party
Research

Small investors have been stuck making decisions in a world where the big investors have access to top-tier company research and industry reports from the largest firms on Wall Street.  If you’re too small to be a client of one of these behemoths, you don’t have access. The big investors, especially if an institution, may also have “better” information by hiring staff researchers with advanced MBA or PhD degrees and hard-to come by designations such as CFA or CPA. The small investor obviously can’t financially do this. In addition to staff researchers, larger investors also have had better financial ability to subscribe to third-party research which may have been too expensive for the little guy. Access to quality research could lead to more informed investment decisions by smaller investors.

Instead, until recently, small investors have been relying on resources such as the pundits on CNBC, and publications such as Money magazine. This is quickly changing. The barrier has recently been taken down by third-party research firms allowing all investors access to their analysis and reports at no cost. Recently a few distinguished investment research firms began providing no-cost access to everyone. This new inclusion by way of change in the way these cutting-edge firms conduct business brings down another of the barriers to information that had exclusively benefitted the large accounts.

 

Managed
Accounts

Small investors have been sold on the idea that they need diversity in their investment accounts. They’ve been told they’re best served if they place their assets in mutual funds so they can spread their risk over a very large array of holdings without incurring large transaction costs and management fees.  

There has been a trend in the investment management community that has some Registered Investment Advisors begin to include lower minimums for accounts in their actively managed account offering. These firms are now providing separately managed accounts made up of individual securities holdings (not funds) to people who did not have access before.

Separately Managed Accounts (SMA) are beneficial in that an RIA can take a client’s tax considerations, cash flow needs, risk tolerance, and other financial considerations into the design of the portfolio to create something that performs in a way that better suits the client. With the new low or no transaction costs, and odd-lot trading or allocation provided by today’s technology, prudent diversification could be satisfied in a small account while reaping the other benefits of an SMA.  

Access to a professional money manager who can tailor to a small investor’s needs allows the client to speak directly with the person who is responsible for each of their holdings. The ability to refine every aspect of their account cannot be as closely achieved with mutual funds of exchange traded funds (ETF).

Bright
Future

As we enter the new decade, investors and investment advisors will have access to a wider array of choices at lower cost with “better” information. This, of course, doesn’t automatically lead to better results. But the potential for fine-tuning portfolios and more confident investing is increasing rapidly.

Paul Hoffman

Managing Editor

Suggested Reading

The 9 Paradigm Shifts Investment
Professionals Can’t Ignore in the 2020s

Is Company Sponsored Research the Future for Small-Cap Stock
Investors?

Should the SEC Relax Requirements for Accredited Investors?

 

Sources:

https://www.sec.gov/news/press-release/2019-265

https://www.investopedia.com/terms/n/nonaccreditedinvestor.asp

Long Term Investors and Small Cap Stocks

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

According to Ibbotson Associates’ Stocks, Bonds, Bill and Inflation, small Capitalization stocks outperform Large Capitalization stocks over the long term. (Although there is not a set definition for a Small Cap stock,  generally speaking Small Cap stocks are those with a market capitalization below $2 billion today, while Large Cap stocks refer to the S&P 500.) Over the 1926-2018 period, Small Caps produced an average annual return of 11.0% compared to 9.99% for Large Capitalization stocks. (1) But, since 2010, Small Cap stocks have underperformed their Large Cap brethren. From the beginning of 2010 through the end of 2019 the S&P 500 rose 185.2% while the Russell 2000 (a proxy for small cap stocks) was up 145.8%. Over the last decade, the S&P 500 outperformed the Russell 2000 in 6 of the ten years. In 2019, the S&P 500 produced a 28.9% return compared to 23.7% for the Russell 2000. Has the time come for Small Cap stocks to outperform Large Cap stocks?

Long Term Investors and Small Cap Stocks

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

According to Ibbotson Associates’ Stocks, Bonds, Bill and Inflation, small Capitalization stocks outperform Large Capitalization stocks over the long term. (Although there is not a set definition for a Small Cap stock,  generally speaking Small Cap stocks are those with a market capitalization below $2 billion today, while Large Cap stocks refer to the S&P 500.) Over the 1926-2018 period, Small Caps produced an average annual return of 11.0% compared to 9.99% for Large Capitalization stocks. (1) But, since 2010, Small Cap stocks have underperformed their Large Cap brethren. From the beginning of 2010 through the end of 2019 the S&P 500 rose 185.2% while the Russell 2000 (a proxy for small cap stocks) was up 145.8%. Over the last decade, the S&P 500 outperformed the Russell 2000 in 6 of the ten years. In 2019, the S&P 500 produced a 28.9% return compared to 23.7% for the Russell 2000. Has the time come for Small Cap stocks to outperform Large Cap stocks?

Can Algorithmic Trading Continue to Expand?

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

The use of algorithmic robots to trade stocks has grown rapidly in recent years.  Algorithmic trading refers to transactions that allow investors to establish specific trading rules that are automatically executed by computer.  A report by Trading Type estimates that the global algorithmic trading market will increase by 11% annually between 2019-2024 reaching a level of $18.8 billion.  Select USA estimates that roughly 75% of shares traded on U.S. stock exchanges come from automatic trading systems.  Once relegated to buy and sell limit orders, algorithmic trading has expanded into data mining algorithms that turn news events into trades in real time.  An increase in news reports with the words “trade tension”, for example, could result in an automatic order to sell U.S. stocks with a large exposure to China.  Is algorithmic trading an investment tool that can allow individual traders to quickly take advantage of market inefficiencies?  Or, does algorithmic trading make the market less stable and in fact create market inefficiencies?

Can Algorithmic Trading Continue to Expand?

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

The use of algorithmic robots to trade stocks has grown rapidly in recent years.  Algorithmic trading refers to transactions that allow investors to establish specific trading rules that are automatically executed by computer.  A report by Trading Type estimates that the global algorithmic trading market will increase by 11% annually between 2019-2024 reaching a level of $18.8 billion.  Select USA estimates that roughly 75% of shares traded on U.S. stock exchanges come from automatic trading systems.  Once relegated to buy and sell limit orders, algorithmic trading has expanded into data mining algorithms that turn news events into trades in real time.  An increase in news reports with the words “trade tension”, for example, could result in an automatic order to sell U.S. stocks with a large exposure to China.  Is algorithmic trading an investment tool that can allow individual traders to quickly take advantage of market inefficiencies?  Or, does algorithmic trading make the market less stable and in fact create market inefficiencies?

Should investors switch to an underperforming sector?

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

It’s been a good run for growth sectors and indicators remain favorable, but things can change quickly.

2019 was another good year for the stock market with most major indices (DJIA, SP500, Russell 2000) up 25-30% entering the last week of the year.  Almost all market subsectors reported strong results in response to continued economic strength, lower interest rates, and a lessoning of trade tension.  However, looking at the performance by subsector, there was one clear winner (technology stocks) and one clear loser (energy). 

Technology Select Sector SPDR Fund (XLK):	Up 49.8%
Financial Select Sector SPDR Fund (XLF):	Up 30.7%
Communication Service Select Sector SPDR Fund (XLC):	Up 29.8%
Industrial Select Sector SPDR Fund (XLI):	Up 28.3%
Consumer Discretionary Select Sector SPDR Fund (XLY):	Up 28.0%
Utilities Select Sector SPDR Fund (XLU):	Up 22.5%
Health Care Select Sector SPDR Fund (XLV):	Up 20.6%
Energy Select Sector SOPDR Fund (XLE):	Up 6.6%

As investors turn their attention to 2020, one question remains – will the hot sectors of 2019 continue their dominance (Bull) or is it time for the underperformers to have their day in the sun (Bear).

Cryptocurrency and the Howey Test: Are They Securities?

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

Are Cryptocurrencies securities? Should cryptocurrencies be regulated? Why? If so, by whom? These are just some of the questions with which regulators and the cryptocurrency industry are struggling. One of the key drivers behind the success of blockchain is its libertarian, anti-establishment set of beliefs. Fitting in with the regulatory bodies would seem to go against the beliefs upon which the blockchain ecosystem was built. (1) Historically, the so-called Howey Test has been used by the Securities and Exchange Commission (SEC) to determine if something is a security and, therefore, subject to securities regulation. (2) In 1946, the Supreme Court in S.E.C.
v. W.J. Howey Co. stated that “an investment contract for the purposes of the Securities Act mean a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.” (3) The SEC has used the Howey test to declare various items as securities, significantly outside the typically stock and bond realm. In fact, Howey involved a Florida citrus grove farmer who was selling portions of the acreage with investors to immediately lease back the acreage to Howey. (2)  Nonetheless, cryptocurrency still lacks a single regulatory body. (3)