Displaying items by tag: rates

(New York)

Stock investors and bond investors are showing a big disconnect right now. That mismatch in sentiment could cause some big losses. Fixed income investors have been buying bonds aggressively, keeping yields pinned at low levels and the curve very flat. However, equity markets have been rallying strongly, which will alleviate some pressure on the Fed, allowing them more margin to raise rates again. However, the bond derivatives market shows the market is betting there is a 98% chance rates are in exactly the same place as now in one year’s time.

FINSUM: Bond investors are too comfortable with the Fed right now. Powell et al have been quite hawkish for awhile now, only very recently backing off. We don’t think it would take much to get them back on track, and the equity market is paving the way.

(New York)

Dividend stocks have not been looking as appealing lately because of the rise in rates. Yields on even short-term assets now look much more attractive than the near zero coupons that were being offered a few years ago. That said, dividend stocks have a special niche within a portfolio, and it is not hard to find some very solid stocks with good yields. One of the best ways to buy dividend stocks is through an ETF that can select a large and balanced group. With that in mind, here are three ETFs to do just that: ProShares Dividend Aristocrat ETF (NOBL), the SPDR S&P Dividend ETF (SDY), and the Vanguard Dividend Appreciation ETF (VIG).

FINSUM: With the Fed showing dovishness on rates, the outlook for dividend stocks has suddenly brightened.

(New York)

For the last six months, there has been a lot of focus in the media and amongst analysts that a recession will be arriving in 2020. 2019 always seemed to close of a call because of how the economy was trending, but 2020 seems to be a safe bet based on some of the indicators out there. Now, JP Morgan is saying a recession in 2020 is unlikely. The catalyst for the change? The Fed. Strategists at JP Morgan concluded “If the Fed is less spooked by full employment, more tolerant of an inflation overshoot and less anxious to reach restrictive policy, then 2020 might not be a year to think about recession and so late 2019/early 2020 would be premature to position defensively cross-asset”.

FINSUM: This analysis is dead simple, but we would agree. If the Fed is less hawkish, then it will prolong this cycle.

(New York)

On the surface of it, this does not seem like a good time to buy bank stocks. Bank shares have done really well in the last month, but the Fed’s sudden and dramatic dovishness on rates would seem to be a catalyst for a move lower in bank shares. Countering that theory stands Mike Mayo from Wells Fargo, an equity analyst who thinks the picture of bank shares looks better. Many big bank stocks are trading at relatively cheap 10x p/e ratios, with yields of 3% or more. According to Mayo, “The negative sentiment has created an opportunity with uniquely attractive valuations”. Banks are also expected to do a large amount of buybacks in 2019, with some like Wells Fargo and Citi, expected to spend more than 100% of earnings on dividends and buybacks.

FINSUM: Banks do seem like a good value play. But at the same time, they have been trading for years more on a macro basis. Which side seems more realistic? Stick with the trend—bank stocks now have a weaker outlook because of the Fed.

(New York)

A terrible December and then a great January. There is certainly reason for optimism on shares, but investors may well be nervous after a such a dramatic swing. February is not traditionally a very strong month for stocks, but this year could be different. That is for two reasons. The first is that February tends to mimic January, and secondly, because the Fed has just made a historic u-turn on rates, which should provide much smoother sailing.

FINSUM: The other big factor here is that p/e ratios have fallen dramatically over the last year because of the big move lower in stocks and the healthy gains in corporate profits. We are increasingly optimistic.