FINSUM + Magnifi: Potential Trouble in the High Yield Market
(October 2020)
The high yield bond market is sending some very odd signals. Over the month of September, something highly unusual happened—the most poorly rated bonds outperformed higher-rated ones. The junk bond market as a whole posted a 1% loss in September, but the lowest rung—CCC+ and below—gained 0.4%. According to well-known strategist Marty Fridson, “The market’s message, namely, that risk decreased in the riskiest high-yield bonds while increasing in the least risky bonds, is perplexing … If a weakening of economic prospects caused default risk to increase, then surely the issues most susceptible to default were the most affected”. According to Fridson, what might be happening is that two separate investor groups have settled into the market: “Our notion is that some investors respond to an increase in credit risk by shedding speculative-grade bonds, while others wait for just such opportunities to put money to work … We suggest that the former group dominates the action in the medium-to-upper end of the speculative-grade quality range, while the more opportunistic players exert greater influence on the bottom tier’s behavior.”
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FINSUM + Magnifi: Healthcare - The Winners and Losers in the Election
(October 2020)
One of the sectors that will be impacted most acutely by the election is healthcare. A win by Trump or Biden has highly divergent outcomes for the industry. To analyze the impact, it is best to look at the space by sub-sectors. For instance, in a Trump victory, pharmaceutical companies and insurers would likely thrive with the continuation of the status quo. If Biden were to win, there would be a very different reaction. Pharma and insurers would likely struggle under Biden, but equipment manufacturers and biotech generally would see gains. For a Biden win, check out ETFs like the IBB Biotech ETF or the IHI Medical devices ETF. For a Trump win, consider the SPDR S&P pharmaceuticals ETF (XPH) or the Fidelity MSCI Health Care ETF (FHLC).
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FINSUM + Magnifi: The Best Funds for the Election
(October 2020)
Investors have a great deal of consternation about the election. Not only does the outcome offer two very different realities, but the odds of a hotly contested election are high, with a potentially brutal effect on market prices because of the long period of uncertainty that would ensue. With that in mind, here are some ideas for how to play the election. In a Democratic sweep, where higher taxes seem likely, big stocks might face some headwinds. However, consumers would probably receive some extra stimulus, which means spending would be better. In this scenario, look at McDonalds, Target, Dollar General, and Nike. If the election is split, with a Democratic president and a split Congress, that would likely mean a slower recovery and less spending, so think about Walmart, Dollar Tree, and Home Depot. Finally, in a Republican sweep, most things would stay the same as now, and Best Buy, Walmart, Dollar General, and LuluLemon could do well.
FINSUM + Magnifi: Goldman Warns the Election is a Big Lose-Lose for Stocks
(October 2020)
Goldman Sachs is worried about the election. In particular, they are concerned about what a contested outcome could mean for stock prices. Because of that they think the debates, which started this week, have the potential to be an “important catalyst for investors to assess risks”. The debates have the possibility of swinging the election strongly one way or the other, which means they can be tipping points for investors. “One way to lower the odds of a contested outcome (that brings noise and volatility) is via a large margin of victory that cannot be undermined”. That said, according to the bank’s strategists, even a big win could have risks: “Although undoubtedly under the clean-sweep scenario there is the negative implications for risk assets to be considered, stemming from a Democratic legislative agenda including higher corporate taxes and increased capital-gains taxes”.
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