Cover story: The active/passive debate in the investing world hasn’t focused on the issue of whether, or how, increased indexing will affect the market; “Indexing works because it can piggyback on the wisdom of the crowd, but its very rise shrinks the crowd whose decisions help make the market.”
Tech Trader: Positive on AVGO, FNSR: Rampant spending by tech giants such as GOOGL, AMZN, BIDU, FB, MSFT, and AAPL on streaming, artificial intelligence, and other technologies has led to the need for greater Internet infrastructure, boosting chipmakers and fiber-optic suppliers.
Trader: “With rates rising and multiples under pressure due to tighter monetary policy, it might take more than your run-of-the-mill earnings beat to send stocks higher,” says UBS strategist Julian Emanuel; Since the financial crisis, investors seem to have confused low volatility with low risk, but at this point volatility has become almost completely disconnected from fundamentals; During the first half, picks from the Trader column returned 6.9%, beating the S&P 500’s average gain of 3% during the same period.
1) “The price of crude oil could touch $60 a barrel before the end of the year, as demand exceeds supply”; traders have had difficulty interpreting the effect on price of recent events in the market, says Citigroup’s Eric Lee;
2) Positive on APA: Shares of Apache, one of the worst-performing stocks in the market this year, could double as the company’s value is realized by the market or a sale, and some institutional investors are buying; Positive on ADSK, ALXN, EA, SLAB: Companies look attractive on the metric of selling, general, and administrative expenses (SG&A), which academics have linked to future stock returns.
Mutual Funds Quarterly:
1) Evidence from the last proxy season indicates the largest passive investors are becoming more active;
2) Research carried out during the past several years suggests that companies scoring well on gender equality have a tangible edge over less-diverse peers;
3) Providers of so-called multi-factor exchange traded funds say they should replace funds based on broad-market indexes, but the jury is still out;
4) A look at leaders and laggards in the second quarter across a range of fund types.
Follow-Up: Cautious on ORLY: Auto-parts supplier still needs time to get back on track, and shares are down after poor quarterly performance, but investors should hold on to them; Positive on BWA: Company should see increased revenue as automakers sell a higher mix of gasoline models that need to meet fleet efficiency requirements.
European Trader: UBS chief Sergio Ermotti’s move to shrink the investment bank to focus on wealth management has “made the firm a strange beast in the financial-services jungle”—and difficult to value.
Asian Trader: “Investors have been all-in for Macau’s gaming stocks this year, but now it looks like a good time to take some money off the table.”
Emerging Markets: As the U.S. and Mexico undertake the renegotiation of NAFTA, “the more complex subjects of labor mobility and taxes will prove vexing,” leading to a pause in the peso’s rise, some Mexican stock weakness, and an upside for some Mexican bonds.
Commodities: “China’s economic slowdown, a U.S. bid to halt imports, and a strong dollar are likely to stagnate steel’s price in the near term.”
Streetwise: The column asks four questions about the stock market: Who is afraid of rising yields? What do Q2 results say about future earnings power? Will earnings peak this year? Is bullish positioning excessive?