(New York)

Something discouraging is happening to the US real estate market. Home prices and sales are continuing to be weak despite a huge drop in mortgage rates. Lower mortgage rates should have given a boost to new home sales and construction, but the opposite has occurred. Home price gains and sales have slipped considerably and permits for new construction have fallen 6.6% in 15 months.

FINSUM: The question, as ever, is whether the weakness in housing is presaging an economy-wide recession, or is just an isolated situation. We favor the latter.

(New York)

Low volatility stocks have been the hero of the volatility over the last year. In the past 12 months, the S&P 500 has returned 3.2%. That compares to a whopping 14% plus for low volatility stocks, such as in the S&P 500 low-vol index. By definition, low volatility stocks are boring (think utilities, insurance, and REITs) and have stable earnings. That works well for defending against market swings, but the protection means that valuations are WAY above their long-term average (three standard deviations above). That said, falling rates are very helpful to this class of stocks, so there is wind at their backs.

FINSUM: Despite quite high valuations, we think low vol stocks will continue to do well so long as the trade war continues to plague markets.

(New York)

There are a lot of safe havens that people are trying to use to defend against market turbulence right now. The two that immediately come to mind are Treasury bonds and gold. However, those are clearly overbought, so where is another good place? Some REITs are offering very attractive defensive profiles. REITs generally do well during periods of falling rates as their yields become ever more attractive. They were beat up during the rate rises of 2018, but have surged this year, up 20%. What is very compelling, though, is that despite the big rise, REIT valuations are just now returning to their average historical valuations. Speaking about the nature of REIT cash flows, especially regarding long-term leases, “The cash flow is locked in, and that’s just not the case for most of the stock market”, says and Eaton Vance Real Estate fund manager.

FINSUM: Certain REITs seem like they could be a very good buy right now given that they are not overpriced and have falling rates as a tailwind.

(New York)

Despite all the headlines to the contrary, beware of dividend stocks right now. On the surface, dividend stocks look attractive at present, as falling rates make their yields look more attractive. However, picking the wrong ones can be very costly. For instance, the most commonly held high dividend stocks are from blue chips. The problem there is their growth is usually weak and they generally have weaker valuations than the market.

FINSUM: The wrong dividend stocks could go very badly in the current environment, so it will be wise to have a very particular strategy.

(Seattle)

Fedex and Amazon are in the middle of an ugly spot. Anyone paying attention over the last few years will be aware of the “frenemy” relationship between Amazon and logistics providers, as the company offers a lot of business but hammers margins and is stealing away business with its own shipping network. Well, Fedex finally said enough is enough and decided against renewing its ground shipping contract with Amazon. Therein lies opportunity, however, as it should offer UPS a lot more business.

FINSUM: This is a bold move by Fedex. We expect it will hit revenue slightly, but probably not wound profits too badly. It could give UPS and USPS a boost.