(New York)

One of the biggest mistakes that investors might make in this rising rate era is to try to combat rising rates with better yielding bonds. While that strategy can work, especially in short-term bonds with high yields (such as junk bonds), a better strategy is to buy dividend growth stocks. Historically speaking, dividend growth shares have performed well in periods of rising rates, outperforming yield stocks and the broader market. BMO Capital Markets recently put out a piece on the topic, saying that “We prefer to focus on stocks that combine dividend growth and yield characteristics”. Some stocks that meet dividend growth criteria are BlackRock, Bank of America, Union Pacific, and Delta Airlines.

FINSUM: Dividend growth stocks tend to have good capital appreciation during periods of rising rates, which makes them seem like a good bet for this tightening cycle.

(New York)

Yesterday was a full-on panic in markets. Shares plunged across the board from a broad mix of worries about rates, earnings, the economy, and trade war. The Nasdaq was hit hardest, falling 4.4% into correction territory. Losses in the Dow and S&P 500 were enough to eliminate all gains for the year. Earnings have continued to be strong, but it has not helped support stocks much, if at all. The S&P 500 is now 9.4% off its 52-week high.

FINSUM: Our own view on stocks is that this will be a temporary hiccup and equities will steady themselves soon. Given that earnings growth is strong and the economy is still very healthy, it is hard to imagine a bear market starting.

(New York)

It might come as no surprise, but that does not mean it isn’t noteworthy. Alongside the big surge in volatility this month, gold has risen considerably. The precious metal has risen 3.2% this month to $1,230 per ounce, no small feat considering that stocks initially started falling because of worries about rising rates. Gold has been shunned for most of the year as stocks rose, but is now being sought out as a haven from volatility. An analyst at UBS summarized the situation this way, saying “Price action in the past couple of weeks has shown signs that gold is slowly reasserting its role as a safe haven … In the near term, a pullback in the dollar, weakness in equities and the potential for a soft patch in US data would be upside catalysts for gold”.

FINSUM: Gold rising when the Dollar is strong and rates are being hiked is quite noteworthy. It will be interesting to see how fast gold might fall if this correction in stocks reverses.

(Washington)

In what we think might be the worst case scenario for the industry, it is looking like the DOL and SEC are in a full scale partnership to regulate the wealth management industry. With the DOL’s announcement that it is taking another crack at the fiduciary rule, and its guidance that it would issue a new rule in September 2019 (the same month the SEC says it will debut an updated best interest rule), many insiders now expect that the DOL and SEC are working together to craft a comprehensive package of fiduciary regulations. According to Fred Reish, a top industry lawyer, “It appears that DOL and the SEC have coordinated their agendas so that the SEC's rules can be incorporated into a new exemption for prohibited transactions resulting from non-discretionary fiduciary advice”.

FINSUM: Some think this is a good sign, but more partnership between the regulators means a more diverse set of rules to adhere to. Further, there will inevitably be significant gaps between the different agency rules, leaving a lot of doubt and grey area, which causes headaches for anyone trying to play by the rules.

(New York)

The S&P 500 is off about 6% this month, almost enough to eliminate its gain for the year. At the same time, earnings have grown strongly. Put together, a good question emerges: when do stocks again become cheap? In the last several selloffs, stocks have found support when valuations fell to 15x earnings, so it seems a good target. Taking account of various earnings forecasts, it appears stocks would need to fall a further 14% from here to make it to that level.

FINSUM: That would put the S&P 500 near a bear market just to bring the p/e ratio back down to 15x. Bleak.