Investors have been agonizing over how big a threat China poses to the global economy, but they may be looking in the wrong place.» Read More
The biggest trouble sign for stocks may be bonds.
High-yield bonds, specifically, often are seen as an effective proxy for movements in the equity market. If that's the case, trends in junk are pointing to a rocky road ahead.
Average yields for low-rated companies have jumped to 7.3 percent and spreads between such debt and comparable duration Treasurys have widened dramatically, according to David Rosenberg, chief economist and strategist at Gluskin Sheff.
History suggests that fallout in stocks is not far behind.
"If you think the equity market is heading for a spot of trouble here, the high-yield bond market is having a coronary," Rosenberg said in his daily market analysis Thursday.
In the course of just a couple of days, things have gotten a lot more complicated for the Federal Reserve.
Late last week, when the July jobs numbers came in right around market expectations, expectations surged that the U.S. central bank in September would enact its first rate hike in more than nine years.
Now, things have changed.
Darkening global deflation clouds have begun to form while China has moved to devalue its currency just as the Fed apparently was about to strengthen the U.S. dollar. Meanwhile, flatlining productivity at home has caused economists to ruminate over growth that may not be anywhere near the 3 percent aspirations held by the Fed and Wall Street experts.
Consequently, traders who bet on the movement of fed fund futures have changed direction. A week ago, the CME Group FedWatch tool had assigned a better than 50 percent chance of a rate hike next month. However, the latest wagering has the probability down to 39 percent, with the strongest chance of liftoff in 2015 not coming until December, which now has a 66 percent chance.
The U.S. has an economic crisis on its hands that one economist thinks is worse than the Great Recession.
Over the past year, productivity has increased just 0.3 percent and a mere 0.5 percent over the past five years, during which the economy has struggled to escape the clutches of the financial crisis and the recession that supposedly ended in mid-2009.
The result has been growth in job creation but little corresponding rise in wages and, subsequently, living standards. It's essentially been the economy's dirty little secret even as Wall Street forecasters continue to project breakout growth that never seems to come.
"This topic is still getting almost no attention—particularly among presidential candidates—but there is a case to be made that the stagnation in productivity has been more damaging to the real living standards of Americans than the Great Recession," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients. "Productivity growth is the primary driver of gains in real wages." (Tweet this)
Indeed, wage growth has been stuck around 2 percent or lower for pretty much all of the post-recessionary period. So while stock market investors enjoy the fruits of never-before-seen easy monetary policy—with the S&P 500 up about 210 percent since March 2009—it's been a different story for much of the labor force.
"The longer this slump goes on, the harder it is to believe that the economy will just snap out of it," Ashworth said. "For all the talk of secular stagnation and permanently weak demand, it may be supply-side problems that are the bigger problem."
Investors continue to pull money out of Bill Gross' new bond fund, though the exodus slowed somewhat in July.
Despite comparatively strong performance against its peers, the Janus Global Unconstrained Bond Fund saw $2.4 million in outflows for the month, bringing its total assets to $1.47 billion, according to data Morningstar released Tuesday.
As a percentage of total assets, the monthly outflows amount to less than two-tenths of a percent—essentially a rounding error—but are part of a recent pattern of flight from the fund. Gross started the Janus offering after his highly publicized departure from Pimco in September 2014.
Silicon Valley is taking on Wall Street right where it lives: in financial services that big banks either have ditched or haven't latched onto yet.
Tech-focused venture capital firms poured some $12.2 billion into financial services start-ups in 2014, more than triple the amount in 2013, according to numbers from Accenture and CB Insights that Wall Street brokerage Convergex cited in a note Monday.
The "fintech" interest is broad based, from mobile payments to peer-to-peer lending to cryptocurrencies and a handful of areas in between. At the root of the interest is an effort to capture the way millennials want to do banking in the future.
Surveys repeatedly have shown that this cohort, generally identified as those who came to young adulthood around the turn of the century, is avidly looking for alternatives to traditional banking. One in 3 would switch banking in the next 90 days, according to a survey from Viacom's Scratch. Earlier this year, SNL Financial reported that 1 in 4 millennials changed banks solely because of an institution that offered a better app.
It's all led to money sniffing out opportunities in the burgeoning $75 trillion shadow banking industry.
Tighter regulations and increased costs have pushed traditional banks out of some services. In other instances, banks simply have been slow to respond to changing customers demands.
"Financial services will dramatically evolve over the next 10 years as millennials age and use more banking services compared to the last 50, enabled by advancements in technology. No doubt traditional banks remain entrenched and there's a plethora of regulatory hurdles standing in the way of this industry and new entrants," Convergex said. "Numerous startups, however, have created more efficient, cost effective, and tech-savvy versions of the verticals currently on offer."
Consequently, investors including Google Ventures, Andreesen Horowitz and Sequoia Capital have become players in exploring new opportunities. Convergex analysts identified seven key areas:
A month away from the debut of Symphony's instant messaging system, CEO David Gurle plays down talk that his company could be the one to topple "The Bloomberg."
"I don't think so," Gurle (pronounced gehr-LAY), told CNBC. "You know, we are not building a Bloomberg terminal. We are building a communication platform."
Symphony's platform is backed by $66 million from 14 blue chip financial firms, including Goldman Sachs, JPMorgan Chase, Citadel and BNY Mellon. Gurle said he is lucky in that his investors are also his clients, as their input helped shape the service.
"We know what they want and how they use the products," he said. "So from that perspective it was very helpful. What they want us to do is to simplify the way they communicate internally and externally."
Still, some speculate the firms are expecting Symphony to do more than simplify the way they communicate, and that they want the company to build a more private and less expensive alternative to the Bloomberg or Reuters services they use.
For example, Bloomberg's service is rich with proprietary data and analytics. This justifies its hefty annual price tag of close to $20,000 per subscription.
For most users though, the most popular Bloomberg function is its instant messaging system.
The central bank printed $4.5 trillion and all we got was a lousy 0.2 percent wage increase.
While that sounds like a T-shirt for policy geeks that one might buy at the shore, it actually pretty accurately describes the plight of the average American worker. After years of easing never seen before in global central banking history, the Federal Reserve's efforts have amounted to little when it comes to stimulating "good" inflation, particularly in terms of wage increases.
The employment cost index, an otherwise secondary data point that suddenly has taken on more importance, painted a bleak picture for workers in its latest update Friday.
On a quarterly basis, it showed wages and salaries increasing just 0.2 percent, believed to be the lowest three-month move ever for a data set that goes back to 1982. That translated to a 2 percent annualized gain in compensation costs, according to the Bureau of Labor Statistics.
What's more, the scant growth went mostly to government workers, who saw a 0.6 percent increase, while the private sector was flat. On a 12-month basis, private worker compensation rose just 1.9 percent, which actually was a slight decrease from the 2.0 percent at the same time in 2014. Wages and salaries alone grew 2.1 percent, which actually was an increase from the 1.8 percent a year ago.
Investors hungry for clues about when the Federal Reserve is going to raise rates are looking for, well, anything.
That crowd includes one bond expert who has honed in on the word "some."
Yes, just four letters that make up one decidedly indefinite pronoun, contained in the Federal Open Market Committee's seemingly innocuous post-meeting statement Wednesday, could provide a key as to when the U.S. central bank finally will begin what should be a painstakingly slow exit from zero interest rates.
"By inserting the word 'some' before 'further improvement in the labor market' in the part of the FOMC statement that describes conditions needed for liftoff, the Fed effectively lowered the bar," Hans Mikkelsen, credit strategist at Bank of America Merrill Lynch, said in an analysis for clients. "While this is a hawkish tilt, clearly the subsequent rally in stocks and decline in interest rates suggest that the market expected—or should we say feared—more explicit language preparing for liftoff."
Mikkelsen filed his note Wednesday as stocks indeed were in rally mode. Market sentiment cooled somewhat Thursday as traders weighed what to make of the Fed statement against more news of an economy that has yet to find anything more than mediocre growth despite nearly seven years of supposedly stimulative monetary policy.
Gross domestic product grew 2.3 percent in the second quarter, according to the advance reading of the number released Thursday, while first-quarter growth was revised up but remained at an anemic 0.6 percent.
Investors can't be faulted for trying to figure out when and how quickly the Federal Reserve is going to move on interest rates.
Some of the recent speculation, though, seems to have gotten at least a bit overdone.
Recent chatter has gone so far as to suggest the Fed may only hike by 10 basis points, or 0.10 percentage points, in its first move after keeping its key rate near zero for the past nine years. In a CNBC.com report Monday, ANZ senior foreign exchange analyst Khoon Goh said the futures market actually has priced in such a move for September.
Forget what history says: In what has become the silly season for Fed speculation, everything seems to be on the table.
"Some ... go so far as to predict that the Fed will raise short-term rates by as little as 10 (basis points). Should such a small move occur, however, it would be the first one in history," Sam Stovall, U.S. equity strategist at S&P Capital IQ, said in a note. "It's never happened in the 179 rate moves since 1934."
As yet another key debt payment date closes in on Puerto Rico, here's a primer on what you should know, and who it will affect the most ahead of the deadline.
Q: If the Puerto Rico Public Finance Corporation (PFC) doesn't pay bondholders on Aug. 1, will it be considered a default?
A: Yes. According to Moody's vice president and senior credit officer, Ted Hampton, if there is no payment made on Friday, it will be the first default of a U.S. state, or state-like entity, since Arkansas couldn't make its bond payments during the Great Depression in 1933.
Q: What should Puerto Rico's bondholders do?
A: The outlook for Puerto Rico bondholders is rather bleak, said Nick Venditti, a portfolio manager at Thornburg Investment Management.
"If you're an investor in a heavily overweighted Puerto Rico municipal bond mutual fund, or have direct exposure to Puerto Rico's debt, your best-case scenario is to sell right now," Venditti said. "You won't be able to get a better dollar value return on your Puerto Rico investment than what it's trading at right now."
Q: How much money is due on Friday?
A: Puerto Rico's Public Finance Corporation, a subsidiary of the U.S. territory's Government Development Bank, owes bondholders $58 million. Puerto Rico will likely default on this payment due to PFC's failure to transfer $93.7 million on July 15 to the bond trustee.
The nonappropriation of the $93.7 million caused Standard & Poor's to lower its rating on PFC's bonds, saying it sees "default for this debt … as a virtual certainty." The rating agency also placed all other Puerto Rico tax-backed debt on its CreditWatch with negative implications.
Read MoreWhy US may not help Puerto Rico
On Monday, Victor Suarez, chief of staff to Gov. Alejandro Garcia Padilla, reiterated that the commonwealth didn't have the cash flow to pay the principal and interest on the PFC bonds.
Some other payments are also due on Friday, including $140 million owed by the Government Development Bank.
Chatter about what the Fed's next steps will be has shifted from when it will hike to when it will offer stimulus.
For years, Piper Jaffray has been one of the biggest bulls on Wall Street, and with good reason.
Mohamed El-Erian said Monday stocks must fall much further before investors can be coaxed back into the market.