(New York)

Investors beware. US equity prices now seem to be entirely at the mercy of bond yields. Stocks have consistently struggled as yields have moved higher, and today Treasury yields seem to have broken an important threshold. Treasuries traded as high as 3.13% this morning, the highest level in seven years. Stock markets unsurprisingly fell. The markets were initially spooked by a solid US retail sales report that seemed to indicate the Fed might hike more aggressively than expected.

FINSUM: Yields definitely seem to have a strongly upward trend at the moment and have definitively broken out of that 2.9% band they had been locked in for a few weeks. Next stop 3.50%?

(Los Angeles)

US real estate has been humming along quite nicely for several years. The market has been so steady as to be considered in a goldilocks period. Rates were low, lending standards slowly slipped, and the market kept rolling with high demand. However, that period may finally now have come to an end as mortgage rates are rising quickly. Mortgage rates just hit a seven year high, which could mean demand for housing softens as borrowers are unwilling to pay higher rates. The average rate for a 30-year fixed mortgage now sits at 4.61%. Rates bottomed in 2012 at an average rate of 3.31%.

FINSUM: We think this is definitely going to have an effect on mortgage demand, especially on mortgages in urban areas, where amounts tend to be larger.

(New York)

There is a little known recession predictor that has done a good job historically of predicting when the economy is about to go into reverse: conception rate. Based on analysis from 1989 to 2016, a period with over 100 million US births, three economists have found that conception rate consistently dropped just prior to recessions. Conception rate is different than birth rate in that it measures the decision to have a baby, not the actual birth of one. The economists found that months or quarters before a recession, the decision to have a baby declined.

FINSUM: So conception rate and birth rate are different, but obviously very linked. So, what is scary to find out is that the US birth rate just hit its lowest level since 1987. Reason to worry?

(Houston)

Oil prices have risen spectacularly over the last year, with Brent crude now trading above $80 per barrel. However, the question for investors is what to do about the rise. Have they already missed the gains? Additionally, oil has the complication of being difficult to invest in directly because of the cost of rolling over futures positions. Therefore, the best way to take a position in oil markets is through several ETFs. The tickers to look at span from those covering major oil companies to those more weighted towards E&P companies. Here are some of the funds: VDE, XLE, IXC, IYE, XOP, OIH, and USO.

FINSUM: We suspect that exploration and production companies will gain the most from recent price rises as their businesses will be most directly impacted by gains (just like they were most hurt in the downturn).

(New York)

Stock markets are moving sideways, bond yields are shooting higher, and there is a great deal of uncertainty about the direction of the economy. Investors are understandably nervous. With that in mind, Barron’s has published a piece outlining the best places to park your or your clients’ cash. The answer is short-term bond funds, which are almost all yielding over 2% and have significant insulation from losses related to rate rises. For instance, the Vanguard Short term bond fund is yielding 2.76% and has only lost less than 1% this year despite rises in yields. ETFs that track floating rate bonds are also a good idea given the environment. For example, the iShares Floating Rate Bond (FLOT), which yields 2.21%.

FINSUM: Short-term bond yields are finally significantly higher than equity yields, which means there is at last a good, and likely less risky, alternative to stocks.