(New York)

Investors looking for income in the stock market are finding it harder and harder to choose the best equities. Quickly rising short-term bond rates mean many income stocks have seen prices wounded and yields no longer look as attractive. The key, therefore, is to diversify one’s holdings in regards to income. For example, Six Flags is a good income stock (4.3% yield), but instead of combining it with REITs or utilities, try convertible bonds, which are yielding ~3%, but have features which make them trade like growth stocks.

FINSUM: Because stock yields are now lagging bonds yields to a considerable degree, equity-focused income investors are now going to need to be more creative.

(Riyadh)

Oil prices are currently falling. The reason is fear of a supply glut. After several months of coordinated output cuts between the world’s oil superpowers, OPEC and allies are considering boosting total oil output. There is some contention within the group as to how much to boost production, but increased supply looks highly likely when the cartel meets tomorrow in Vienna. The spark for losses was news that Iran, which had been a hard-line critic of higher output, said it would be willing to accept a modest rise.

FINSUM: Prices have risen because of falling output in Venezuela and fears of a total supply shortage. However, that can be wiped out with the stroke of a pen. We expect prices will moderate.

(New York)

Every investor and advisor knows the mantra: past success does not predict future performance, or some iteration thereof. Countless market studies have proven the mantra. However, what about areas where the saying does not hold true? In private, non-liquid markets, studies actually show the opposite—that past performance actually does a good job predicting future success. For instance, in private equity and venture capital, funds with performance in the top and bottom quartile are very likely to continue in that quartile time and again.

FINSUM: So this is quite an interesting finding, but one with an equally curious subplot. It is not actually the funds that are predictive of the performance, instead it is the individual dealmakers in the funds, the study found. All these results make sense to us because VC and PE are not like large liquid markets, a lot of who gets access to the best deals depends on reputation, which allows winners to keep thriving.

(New York)

Investors beware, the strongest predictor of recession has just rung its bell. An inverted yield curve has predicted all six of the US recessions going back 60 years. And while all of investors’ focus has been on whether the Treasury yield curve will invert, the global yield curve already has. The yield on the ICE Bank of America index of government bonds due in 7 to 10 years has already inverted, with such yields being lower than for 1 to 3 year bonds. While the US economy is currently looking strong, there is growing weakness in Europe, China, and emerging markets, which seems to have inverted the curve. The IMF says the clouds over the world’s economy are “getting darker by the day”.

FINSUM: It is seeming more and more like we will have a global recession. Though, the US seems like it will be the last to succumb to it. One thing to remember—in the US it takes an average of 18.5 months from when the curve inverts to when we reach the peak of the growth cycle.

(New York)

That headline might have played with your mind a bit, and rightly so. Since financials generally trade alongside the direction of the economy, buying them ahead of a recession seems like folly. However, the truth is that financials tend to perform strongly for the 18 months that follow a yield curve inversion (or near one). Inversions do tend to strongly signal a forthcoming recession, but it generally takes 18.5 months from when it happens for the cycle to actually reach its peak, a period when stocks had median gains of 21%.

FINSUM: So this is a purely historical performance-based article, which is always dicey. However, it is a good point that the length of time between a yield curve inversion and a growth peak can be considerable.