Category: Markets

Taking Stock of Index Funds

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bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

Recently, Morningstar reported that US stock index funds and exchanged traded funds (ETFs) now hold more assets than the traditional actively managed funds, with passive funds making up 50.2% of the US stock mutual fund pie, while actively managed funds made up 49.8%. (1) This uncharted territory has intensified the calls from some very astute investors, including such names as Carl Icahn, Bill Ackman, Seth Klarman, and Michael Burry, that there is an “index fund bubble” that will not end well for investors. The “Big Three” index fund managers include Vanguard with a 51% share of the market, BlackRock with 21%, and State Street Global with 9%. With fees for index funds approaching zero in some cases, it is unlikely new competitors will reduce this concentration.

Sins of Omission

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With growing interest in socially responsible investing and corporate awareness of environmental, social, and governance (ESG) issues, should investors shun corporations that are branded “sin” stocks? Typically associated with the alcohol, tobacco, gaming, and firearms industries, the number of sin stocks appears to be growing as investors weigh environmental, human rights, political positions, and other issues into their investment decisions. Should investors be more concerned about earning appropriate risk-adjusted returns rather than making moral judgments? For investors willing to indulge in a little vice, we examine the bull and bear case for four sectors generally left out of socially responsible portfolios.

Waning Stock Buybacks: Should Investors be Worried?

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On April 3^rd, Channelchek posted an article entitled “Stock Buybacks: Good, Evil, or Maybe Something In Between?” highlighting not only the significant rise in buybacks, but also the increasing concerns voiced by various parties regarding stock buybacks. Now, in a note to clients, Goldman Sachs recently warned that corporate buybacks are “plummeting” and it could have a big impact on the market. (1) According to the investment bank, in the second quarter of 2019 the S&P 500 share buybacks totaled $161 billion, about 18% less than the first quarter. Year-to-date, buybacks are down some 17%. For 2019, Goldman Sachs estimates total buybacks will drop 15% to $710 billion, with an additional 5% decline in 2020. (1) Assuming Goldman’s forecast is accurate, should investors be concerned? 

Show Me the Money: Should College Athletes Play for Pay?

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bullish, bearish, and balanced point of view; sources are listed after the
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On September 30^th, California Governor Gavin Newsom signed into law Senate Bill 206, the so-called “Fair Pay to Play Act.” The law allows college athletes to receive compensation for use of their name, image, or likeness; to hire agents; and to be paid for endorsements. The law goes into effect January 1, 2023. This bill is against current NCAA rules, which ban players from receiving any compensation aside from scholarships. Under existing NCAA rules, athletes cannot execute any endorsement deals or accept payment for use of their images. Notably, however, SB 206 would still prohibit schools from paying athletes. Since Governor Newsom’s signing, lawmakers in 11 other states, as well as at least one US Congressman, have proposed similar legislation.

Developing a Research Driven Approach: an Investment Bank’s Perspective Webinar Noble Capital Markets and OTC Markets Group invite you to watch this webinar discussing the importance of third-party research. Learn why establishing a dialogue with your investment community holds a significant purpose and how to achieve your company’s mission through institutional-quality research. Key Topics: The new capital markets environment for micro-caps – following the European model Corporate messaging – delivered with passion but without promotion Avoiding the quid pro quo in a sell-side research/investment banking relationship Why it’s become increasingly difficult to attract Wall Street analysts Misperceptions of company sponsored research

Who Is to Blame for the Weak Manufacturing Number and the Market Crash?

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bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

The stock market declined 800 points or 3% in the first two days of the fourth quarter. The decline follows a report that the ISM US manufacturing purchasing managers’ index declined to the lowest level in ten years. President Trump blamed the Fed for the disappointing numbers pointing to a strong dollar as a reason for decreased exports. Other pundits point to the trade war with China and the uncertainty that has created as the cause for trade issues. Is the market decline due to political issues that could be reversed (bull case), or is it due to more endemic causes that could drag the market down even further (bear case)?

What’s Going on with the IPO Market?

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Several high-profile Initial Public Offerings (IPOs) have performed poorly after going public recently. Examples include Peloton, WeWork, Blue Apron, Smile Direct Club and Lyft. Other high-flying companies that debuted in the last five years such as Netflix, Snap and Uber have run into weakness after initial success. Is the IPO market flawed or is this just a temporary trend?

Does Going Green Mean the Loss of Green?

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Last week, the United Nations held a summit of government, business, and civil leaders to announce steps to confront climate change. The summit’s stated goal was to increase the standards set in the Paris Agreement to contain global temperatures to a 1.5-degree Celsius increase, a level seen as by the U.N. as the point where irreparable damage will be done to the environment. Few people remain who question the impact man is having on climate change or the impact climate change is having on the environment. A fairer argument would be that addressing climate change must be viewed alongside any potential impact on global economic growth. But which will cost more: taking the steps to mitigate climate change or paying the consequences of not mitigating change?

Smallcap Rally: Russel 2000 Trumps S&P 500 in September

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Although smallcap stocks have underperformed their large- and midcap peers for some time, it appears this trend may be reversing. Economists and other experts believe this rally in smallcap stocks is here to stay. Unlike their larger counterparts, smallcap stocks offer high growth opportunities, which can also come with increased risk and volatility. It appears, though, more investors are starting to recognize an opportunity in these smallcaps.

Cut to the Chase: The Reality of Rate Cuts

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The Federal Reserve cut its benchmark lending rate by a quarter point at the end of the Federal Open Market Committee meeting on Wednesday, which is the second rate cut in the last decade, following their last quarter-point cut on July 31 this year. Investors may now be searching for clues about the Fed’s future plans given Wednesday’s announcements.

Can Smallcap Funds Help Cap Index Overlap in Your Portfolio?

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Fund Overlap arises when an investor owns two or more mutual funds that invest in similar parts of the market. Indexes will normally hold a high percentage of the top-performing companies in their particular sector, so by holding two similar funds, an investor is bound to have some sort of overlap. This overlap reduces the benefit of diversification and increases your exposures. The simplest way to detect and avoid overlap is to look at your investment categories and consistently check, as funds may deviate from their original style.

Mortgage Rates Jump

MCLEAN, Va., Sept. 19, 2019 (GLOBE NEWSWIRE) — Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey^® (PMMS^®), showing that the 30-year fixed-rate mortgage (FRM) rate averaged 3.73 percent. This week’s 30-year fixed mortgage rate increase is the largest week-to-week uptick since October 2018.

Sam Khater, Freddie Mac’s Chief Economist says, “Despite the rise in mortgage rates, economic data improved this week – particularly housing activity, which gained momentum with a noticeable rise in purchase demand and new construction. Homebuyers flocked to lenders with purchase applications, which were up fifteen percent from a year ago and residential construction permits increased twelve percent from a year ago to 1.4 million, the highest level in twelve years. While there was initially a slow response to the overall lower mortgage rate environment this year, it is clear that the housing market is finally improving due to the strong labor market and low mortgage rates.”

News Facts

• 30-year fixed-rate mortgage averaged 3.73 percent with an average 0.5 point for the week ending September 19, 2019, up from last week when it averaged 3.56 percent. A year ago at this time, the 30-year FRM averaged 4.65 percent. 
• 15-year fixed-rate mortgage averaged 3.21 percent with an average 0.5 point, up from last week when it averaged 3.09 percent. A year ago at this time, the 15-year FRM averaged 4.11 percent. 
• 5-year Treasury-indexed hybrid adjustable-rate
  mortgage (ARM) averaged 3.49 percent with an average 0.4 point, up from last week when it averaged 3.36 percent. A year ago at this time, the 5-year ARM averaged 3.92 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we’ve made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders, investors and taxpayers. Learn more at FreddieMac.com, Twitter 
@FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

MEDIA CONTACT: 
Angela Waugaman
703-714-4829
Angela_Waugaman@FreddieMac.com

Investing in Cannabis: Should You Go Green?

In 2012, Colorado and Washington were the first states to approve the recreational use of marijuana. Since then, cannabis has been legalized recreationally in eleven states and medically in thirty. About a year ago, Canada became the largest country to legalize cannabis completely. Colorado has now generated more than $1 billion in state revenue since 2014, with almost $7 billion in total sales.