In this month's issue:
Cue the Big Banks
Mark Luschini
At the end of each calendar quarter, publicly traded companies release their financial results for the preceding three-month period, and management opines on business activity and often projects what the company sees ahead for its prospects. Leading the parade of hundreds of releases over the ensuing weeks are the big, money-center banks. These include JP Morgan, Citigroup, Bank of America, and Wells Fargo. Early reports also come from those more closely associated with the capital markets, such as Goldman Sachs and Morgan Stanley, and even some regional banks like PNC and M&T Bank.
These financial institutions collect and warehouse copious amounts of detailed information about their customers; businesses, and consumers alike, putting them in a unique position to comment on the direction in which the economic winds are blowing. Are they seeing stresses building in the form of credit delinquencies or defaults, falling deposit balances, and weakening loan demand, or are customers’ liabilities being met on time, and is spending trending at a healthy pace? Or perhaps there is something else emerging that has their attention, requiring further pursuit?
Hidden Costs of Fixed Income Index Funds and ETFs
Guy LeBas
The rise of indexing as an investment strategy has transformed the landscape of equity markets. Mutual funds and exchange-traded funds (ETFs) that track major equity indices have benefited from trillions of dollars of inflows since pioneer John Bogle launched the First Index Investment Trust in 1975. It took another 11 years before indexing came to fixed income, but it was not until 2009 that the idea of fixed income indexing gained real traction. While indexation can offer lower fees, diversification, transparency, and better liquidity in small sizes, its application in corporate bond investing can create unintended risks as well.
Arguably, the biggest—and perhaps most overlooked—issue is that corporate bond indices are market-value weighted. As a result, the more debt a company issues, the larger its representation in the index. Concentration risks are subtly different in fixed income than in equities. In equity indexing, larger companies earn more weight because of investor confidence and performance, whereas in fixed income indexing, weights are correlated with credit risk.
Is It Time for a Deep Breath?
Gregory M. Drahuschak
The speed of the stock market’s advance from the April 7, 2025, low has been astounding. From the April 7 intraday low (4835.04), the S&P 500 reached as high as 6409.26 for a 32.56% gain. From the applicable closing prices on each date, the S&P 500 gained 26.22%, all in 76 trading days. Perhaps even more remarkable is that it took only 55 trading days to reach a new all-time closing high. For perspective, consider that after the COVID-induced low in March 2020, it took 103 days to reach a new high, or that after the March 2009 low, 1021 trading days passed. It took 1462 trading sessions for the S&P to reach a new high after the October low in 1974, when the market and the economy were rocked by political turmoil and the dramatic rise in the price of crude oil.
The next closest period between a notable low and a new high came after an August low in 1998, when the S&P 500 took only 59 days to reach a new high on November 23, 1998.
You can read the full Investment Perspectives here.
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