Aswath Damodaran, a professor at New York University's Stern School of Business, sees this behavior as the market's biggest risk. Mr. Damodaran, who is considered an authority on valuation, says S&P 500 companies through the first two quarters of the year collectively returned 112% of their earnings through buybacks and dividends. That is the highest since 2008 and well above the 82% average over the past 15 years, he said in a blog post last week.
Mr. Damodaran says with rates this low, traditional valuation metrics are distorted. Instead, the inability of companies to keep paying off their investors will cause the next downturn. "This is the weakest link in this market," Mr. Damodaran told the Journal. "We know cash flows will go down. What we don't know is what the market is pricing in."
Below, some of the best analysis and insight from WSJ writers and columnists, and beyond, on investing, the wealth-management business and more.
TALKING POINTS
Index folly. More than $400 billion has flowed into index funds this year, raising the prospect of whether these autopilot portfolios could become so popular they distort financial markets, writes WSJ Intelligent Investor columnist Jason Zweig.
A report this past week from investment firm Sanford C. Bernstein, titled "The Silent Road to Serfdom: Why Passive Investing Is Worse than Marxism," warned that index funds might grow to the point at which new investments could be massively mispriced. The tone of the report was a little operatic, but the question it raised is deadly serious, Mr. Zweig writes.
Interest rate hike odds increase. Federal Reserve Chairwoman Janet Yellen signaled growing conviction that the central bank will raise short-term interest rates in the weeks or months ahead, reports WSJ. Ms. Yellen's remarks on Friday left the door open for a Fed rate increase at its Sept. 20-21 policy meeting, but the chairwoman hedged her comments in ways that give the central bank an out if economic data disappoint in the next few weeks.
The Fed's decision appears to hinge on whether the Labor Department's Sept. 2 jobs report shows steady gains in hiring. Job gains have averaged 190,000 a month over the past three months.
Friday's markets. U.S. stocks notched their biggest weekly declines since Brexit after Ms. Yellen's remarks.
The Dow Jones Industrial Average fell 53.01 points, or 0.3%, to 18395.40 on Friday after earlier rising as much as 124 points. The S&P 500 lost 3.43 points, or 0.2%, to 2169.04. The Nasdaq Composite rose 6.71 points, or 0.1%, to 5218.92.
PLANNING & INVESTING
IPO rebound? A flood of share debuts is expected to invigorate the listless IPO market after the coming Labor Day holiday, but the revival may be short-lived, WSJ writes. Companies in a wide variety of industries plan to go public after the long weekend.
The level of new issuance should resemble what would normally be expected given record stock prices and historically low volatility. But the window for offerings is expected to shut about six weeks later as political uncertainty rises ahead of the presidential election, bankers and analysts tell WSJ.
"We've been preaching 'go now' to the right companies that have been ready for some time," said JD Moriarty, head of Americas equity capital markets at Bank of America
THE BUSINESS
Self-directed IRA savers face hurdles. New federal rules governing how people save for retirement may limit the guidance that investors managing their own individual accounts can get from providers, writes WSJ Wealth Adviser.
Rules handed down by the Obama administration, requiring brokers to put the interests of retirement savers ahead of their own, mostly will leave investors who manage their own individual retirement accounts untouched. But those rules, which will start to take effect next April, will cause firms that provide self-directed IRAs to tread carefully when those account holders reach out for assistance.
The Obama administration's rule, spearheaded by the Labor Department, has a carve-out that allows firms to provide general "education" to investors, but the exemption wouldn't apply if the conversation veered toward specific investment advice.
The reinvention of Morgan Stanley and Goldman Sachs. Since the financial crisis, Morgan Stanley and Goldman Sachshave turned to more basic banking businesses, betting that the cachet of their brand names can overcome relative lack of experience in dealing with the deposits and loans of middle-class Americans, reports WSJ.
The moves have surprised many and suggest capital-markets businesses have reached a turning point. "I would never have thought years ago that they would ever be doing this," says Richard Kovacevich, Wells Fargo & Co.'s former chairman and chief executive. But as regulation and muted client activity hammers trading revenue, "you either shrink, or you try to replace" lost profits.
Morgan Stanley, which already had made wealth management a key part of its business, is looking to squeeze more revenue from its existing pool of generally well-off clients. Goldman is casting a wider net, hanging out an internet shingle in hopes of attracting deposits from and making loans to Main Street America—opening the door wide to less-wealthy clients it once shunned.
The Wealth Adviser briefing covers topics of special interest to wealth managers, financial planners and other advisers. It's delivered to subscribers by email each workday morning. If you haven't done so already, you can sign up for it here: http://on.wsj.com/WealthAdviserSignup.
