Consumer and corporate borrowing has rebounded this year, and the economy looks to book its third consecutive quarter over 3% growth for the final three months of the year. That would have shares of financial institutions booming were it not for two factors working against the industry. Shares of banks have underperformed this year on a narrow net interest margin, the difference between long-term and short-term rates, and continued regulatory costs from post-crisis legislation. The SPDR S&P Bank ETF (NYSE: KBE) has returned just 3.3% this year versus a 15% increase in the broader S&P 500 index. Despite increases in… Read More

Consumer and corporate borrowing has rebounded this year, and the economy looks to book its third consecutive quarter over 3% growth for the final three months of the year. That would have shares of financial institutions booming were it not for two factors working against the industry. Shares of banks have underperformed this year on a narrow net interest margin, the difference between long-term and short-term rates, and continued regulatory costs from post-crisis legislation. The SPDR S&P Bank ETF (NYSE: KBE) has returned just 3.3% this year versus a 15% increase in the broader S&P 500 index. Despite increases in the short-term benchmark rate by the Federal Reserve and more on the way, higher rates on the short end of the yield curve haven’t translated to higher long-term rates. Subdued inflation and fears over long-term economic growth have kept the rate on the 10-year Treasury well under 3% all year. That means the net interest spread, the difference between the rate paid by banks on deposits and what they collect on longer-term loans, has held back profits. #-ad_banner-#The other factor holding banks back is high regulatory costs for compliance and capital requirements, especially for banks listed as systemically important financial… Read More

Clues are emerging to what could be one of the biggest trends in 2018. The rate on the 10-year Treasury has jumped 15% since early September and is causing an investor exodus from one segment of the market. The selloff could get worse as rates rise further and a wave of debt threatens these companies’ already precarious financial health. In fact, as investors anxiously wait for tax reform, one proposal could actually cause taxes on this segment of the market to increase. It’s all lining up to be a harsh wake-up from years of debt-fueled growth and is certain to… Read More

Clues are emerging to what could be one of the biggest trends in 2018. The rate on the 10-year Treasury has jumped 15% since early September and is causing an investor exodus from one segment of the market. The selloff could get worse as rates rise further and a wave of debt threatens these companies’ already precarious financial health. In fact, as investors anxiously wait for tax reform, one proposal could actually cause taxes on this segment of the market to increase. It’s all lining up to be a harsh wake-up from years of debt-fueled growth and is certain to create winners and losers. #-ad_banner-#The Next Debt Crisis Threatens An Entire Segment Of The Market High-yield bonds saw 1% of their value wiped out in the first half of November. That may not sound like much, but it’s on pace for the worst month since January 2016.  Investor fears of rising rates and weak earnings for some sectors have caused an exodus out of highly leveraged companies. High-yield bonds in the telecom sector have lost 3.3% so far this month and investors pulled more than $2 billion from high-yield ETFs in just the second week… Read More

Rates on the 10-year Treasury have plunged 4.5% since late October, while interest rates on shorter-dated bonds have held steady or increased. This has caused the yield curve to flatten like a pancake, typically a precursor to a recession.  Economic growth in the United States reached 3% last quarter and strong global growth doesn’t seem to point to an end of the eight-year recovery, but there is one sector that has been punished on the drop in rates. Yields on the 10-year have fallen to within 0.69% of the yield on the two-year note, the narrowest since 2007. That narrowing… Read More

Rates on the 10-year Treasury have plunged 4.5% since late October, while interest rates on shorter-dated bonds have held steady or increased. This has caused the yield curve to flatten like a pancake, typically a precursor to a recession.  Economic growth in the United States reached 3% last quarter and strong global growth doesn’t seem to point to an end of the eight-year recovery, but there is one sector that has been punished on the drop in rates. Yields on the 10-year have fallen to within 0.69% of the yield on the two-year note, the narrowest since 2007. That narrowing of rates between short- and long-term bonds is wreaking havoc on a sector that was supposed to be one of the biggest beneficiaries to economic growth and the trend to deregulation this year. There are several catalysts pointing to a potential reversal in the trend to lower long-term rates, meaning that this sector could bounce coming into the new year. #-ad_banner-#​The Trend In Long-Term Rates Could Reverse Quickly Shares of banks and other financials have been hammered on the drop in long-term rates, with the Financial Select Sector SPDR (NYSE: XLF) tumbling 2.7% over the last three weeks against… Read More

The S&P 500 is up 2.7% in the month since the close of the third quarter, and has boomed 15% so far this year. That upside strength, especially as companies report their third-quarter results, is hiding a growing deviation in the market.  Behind the optimism for tax cuts and economic growth, this trend has grown from investor fears of stock valuations. And while the overall market trend to higher prices makes for shaky investments in what could ultimately end badly, this new trend is actually creating an opportunity to invest in solid companies with catalysts for upside growth. I’ve been… Read More

The S&P 500 is up 2.7% in the month since the close of the third quarter, and has boomed 15% so far this year. That upside strength, especially as companies report their third-quarter results, is hiding a growing deviation in the market.  Behind the optimism for tax cuts and economic growth, this trend has grown from investor fears of stock valuations. And while the overall market trend to higher prices makes for shaky investments in what could ultimately end badly, this new trend is actually creating an opportunity to invest in solid companies with catalysts for upside growth. I’ve been mining the market to pick winners out of the third quarter’s losers — and they could be some of the best investments I make all year. #-ad_banner-#​Complacent Investors Are Too Quick To Punish As of November 3, 81% of companies in the S&P 500 have reported third quarter earnings. Two-thirds (66%) have reported positive sales surprises and three-quarters (74%) have reported positive earnings surprises on a blended growth rate of 5.9% over the same quarter last year. That market strength fades quickly if you strip away some of the best-performing sectors. Exclude the energy sector and year-over-year earnings growth… Read More

Facebook (Nasdaq: FB) has long been the leader in social media, dominating internet time use and an increasing share of online advertising spending. As of June 2017, the platform counts more than two billion monthly users, including a full one billion who access the site daily. Users spend an average of 35 minutes a day on the platform and access it eight times a day according to Nielsen. It’s been able to translate that social media dominance into a huge chunk of the advertising pie — and shares have soared.  Since the post-IPO low of $17.73 per share, Facebook has… Read More

Facebook (Nasdaq: FB) has long been the leader in social media, dominating internet time use and an increasing share of online advertising spending. As of June 2017, the platform counts more than two billion monthly users, including a full one billion who access the site daily. Users spend an average of 35 minutes a day on the platform and access it eight times a day according to Nielsen. It’s been able to translate that social media dominance into a huge chunk of the advertising pie — and shares have soared.  Since the post-IPO low of $17.73 per share, Facebook has jumped ten-fold, with a gain of 56% in this year alone. #-ad_banner-#But the platform has always hit one stumbling block, one weakness where it has lost visitors and limited its revenue potential. It may be about to launch a program that solves that problem, a solution that could improve the user experience, keep people on the platform longer and create another revenue stream. The program could take Facebook from social media control to overall media dominance. Facebook Looks To Become A True Media Power Time spent by users on the Facebook is actually down from… Read More

The S&P 500 rose to a price of 18 times expected earnings last week, a valuation not reached in 15 years.  That’s 13% higher than its long-term average multiple and even that take into account earnings jumping by almost three times the average rate over the last four years. With valuations reminiscent of the dot.com bubble and a market that shrugs off geo-political tensions, a tightening monetary policy, and fiscal stimulus uncertainty, the value investor in me is more than a little worried. How much has to fall in place for the market to head higher? As a value investor,… Read More

The S&P 500 rose to a price of 18 times expected earnings last week, a valuation not reached in 15 years.  That’s 13% higher than its long-term average multiple and even that take into account earnings jumping by almost three times the average rate over the last four years. With valuations reminiscent of the dot.com bubble and a market that shrugs off geo-political tensions, a tightening monetary policy, and fiscal stimulus uncertainty, the value investor in me is more than a little worried. How much has to fall in place for the market to head higher? As a value investor, I hate paying high premiums on stocks… especially if the earnings on which those premiums are based don’t have a chance at materializing. #-ad_banner-#Fortunately, there are still pockets of value left in this market — if you know where to look. This Bull Is Getting Expensive Earnings in the first two quarters gave the bulls something to be excited about, with corporate profits jumping by double digits. Full-year earnings are expected higher by 9.5% this year. But is the market getting ahead of itself? Analysts expect earnings to grow by 11.5% next year and 9.8% in 2019. That contrasts… Read More

Even as stocks reach record highs, there’s a growing sense of fear among investors that the market is setting up for a drop. The S&P 500 has surged 20% over the past year, taking stocks to 31 times cyclically-adjusted earnings despite a lackluster economic backdrop and a Federal Reserve that’s withdrawing monetary stimulus. Professional money managers have been slowly moving to cash, with Bank of America’s fund manager survey showing cash positions at highs not seen since 2001.  I’ve had a back-and-forth conversation with a financial advisor friend for the past several months. The nearly nine-year… Read More

Even as stocks reach record highs, there’s a growing sense of fear among investors that the market is setting up for a drop. The S&P 500 has surged 20% over the past year, taking stocks to 31 times cyclically-adjusted earnings despite a lackluster economic backdrop and a Federal Reserve that’s withdrawing monetary stimulus. Professional money managers have been slowly moving to cash, with Bank of America’s fund manager survey showing cash positions at highs not seen since 2001.  I’ve had a back-and-forth conversation with a financial advisor friend for the past several months. The nearly nine-year bull market defies any kind of rational portfolio investing based on fundamentals but is still just as strong as it has been since 2009. The anxiety has gotten so bad that my friend has 40% of managed money in cash, and clients aren’t too happy that they might be missing out. But there may be a way to protect your portfolio and still earn a return on your money. I researched different asset classes for correlations with stocks and performance over the previous two bear markets. What I found were two investments classes with solid cash yields and that may… Read More

Comments by President Trump rocked the municipal bond market last Wednesday after the President said that Puerto Rico’s $74 billion in bonds would have to be “wiped out.” The comments sent the island’s general obligation bonds plunging to a record low of $0.30 on the dollar, a 35% drop from trading at $0.46 a day earlier. That’s in a market where muni bonds are thought to be some of the safest investments available and rarely trade more than a few cents higher or lower in a session. The comments hit one industry particularly hard, an industry that has already had… Read More

Comments by President Trump rocked the municipal bond market last Wednesday after the President said that Puerto Rico’s $74 billion in bonds would have to be “wiped out.” The comments sent the island’s general obligation bonds plunging to a record low of $0.30 on the dollar, a 35% drop from trading at $0.46 a day earlier. That’s in a market where muni bonds are thought to be some of the safest investments available and rarely trade more than a few cents higher or lower in a session. The comments hit one industry particularly hard, an industry that has already had to face weakening investor sentiment for more than a year. But it could also mark a low for the industry, a buying opportunity in a normally very safe portion of the market. Shares of these financial companies are trading as low as half their book value and could be ready for a long-awaited rebound. #-ad_banner-#​Municipal Insurers Weather The Storm Companies insuring municipal bonds against default fell immediately after the President’s comments, with shares falling the most since Hurricane Irma threatened Puerto Rico in early September. The President told Sean Hannity that, “[Puerto Rico] owes a lot of money to… Read More

If the post-recession markets had to be defined by one theme, it would be the emergence of activist investors.  Shareholder activism, defined by buying control of a company with the goal of making a major change in order to enhance its value, has been around since the first traders in the Dutch East India Company. But we’ve rarely seen so much activity and oversight lately. Activist campaigns have surged from 104 in 2000 to 758 in 2016 according to Activist Insight’s annual review. Nearly half (40%) of S&P 500 companies saw activist investor campaigns in the… Read More

If the post-recession markets had to be defined by one theme, it would be the emergence of activist investors.  Shareholder activism, defined by buying control of a company with the goal of making a major change in order to enhance its value, has been around since the first traders in the Dutch East India Company. But we’ve rarely seen so much activity and oversight lately. Activist campaigns have surged from 104 in 2000 to 758 in 2016 according to Activist Insight’s annual review. Nearly half (40%) of S&P 500 companies saw activist investor campaigns in the seven years through 2015. Assets under activist management have grown nearly 20% annually for more than a decade, topping $123 billion last year. Activists have been attracted by the mountain of balance sheet cash companies hold, and the historically cheap cost of debt. That availability of money lends itself to poor checkbook control by management and an attractive source of cash return to the billionaire activists that can buy seats on a board to control it. #-ad_banner-#Oversight by large investors has helped protect shareholder rights and led to some impressive gains. A portfolio of activist targets… Read More

About the only point of agreement between the two Presidential candidates last year was the need for a massive infrastructure plan to repair America’s crumbling roads and bridges. Then-candidate Trump used a $1 trillion infrastructure plan as a cornerstone of his plan to “make America great again.” Investors responded by going all-in on infrastructure stocks, pushing the iShares Global Infrastructure ETF (Nasdaq: IGF) up 14.5% in the year through October 2016.  Against the push to replace the Affordable Care Act and reform the tax code, infrastructure spending seems to have been put on the backburner in 2017. President-elect Trump… Read More

About the only point of agreement between the two Presidential candidates last year was the need for a massive infrastructure plan to repair America’s crumbling roads and bridges. Then-candidate Trump used a $1 trillion infrastructure plan as a cornerstone of his plan to “make America great again.” Investors responded by going all-in on infrastructure stocks, pushing the iShares Global Infrastructure ETF (Nasdaq: IGF) up 14.5% in the year through October 2016.  Against the push to replace the Affordable Care Act and reform the tax code, infrastructure spending seems to have been put on the backburner in 2017. President-elect Trump told The New York Times in December that infrastructure would not be a “core” part of the first few years of his administration. A policy statement released in June was light on specifics and we haven’t heard much since. As it turns out, investors may not need an infrastructure plan to see a boom in infrastructure spending over the next year. In fact, recent events could mean years of rebuilding and increased revenue at infrastructure and related companies. #-ad_banner-#​A Year Of Unprecedented Natural Disasters On August 11, I warned investors about the potential for a blowout… Read More