Displaying items by tag: rates

(New York)

Stable income is in the best place it has been for years. The yield curve has stabilized with rates at reasonable levels, which means finding decent-yielding investments isn’t nearly as hard as it was a few years ago. That said, income investments, especially at the higher-yielding end, have pitfalls. With that in mind, here are some good income ideas. The picks come from Franklin Templeton’s $73 bn Income Fund. Some of the top names held (holding assets across the capital structure) are Chesapeake Energy, Tenet Healthcare, JP Morgan Chase, Wells Fargo, Softbank Group, and Bank of America.

FINSUM: This is a very energy and financials heavy group, which has its risks.

(Washington)

Once you admit that this 2019 rally is almost purely predicated on the Fed dramatically turning around its position on rates and the economy late last year, you come to a realization: it could all end so quickly. The market is very vulnerable to the Fed’s actions right now, so the question becomes—will the central bank turn hawkish? The short answer is that it doesn’t look like the Fed will get hawkish any time soon. New language released in the latest notes look even more dovish than in December. The key buzzword is that the Fed is looking to be “patient” on rates and says it would need clear upward signs in the economy to hike any further.

FINSUM: The Fed has set up another goldilocks situation for markets. So long as data is okay but not too good, asset prices will be fine. If some data comes out poorly, the market knows the Fed can cut rates. Are we in for another big bull run?

(New York)

The real estate market has been heading south for almost a year. Disappointing numbers keep coming in, but there has not been major urgency or alarm. In fact, homebuilders are having a stellar year, up almost 20% and well above the S&P 500’s gain. However, Stephen Kim at Evercore is warning that investors should be wary of hosuing stocks. Citing the most risky names as DR Horton, PulteGroup, Toll Brothers, and KBHome, Kim says about the group that “Hope is not a strategy”. Kim was bullish on the shares in the Fall before their big move higher, but now believes they are fully valued.

FINSUM: The trend may be your friend, but given the direction of the housing market and the big recent price rises, we wouldn’t want to be long the homebuilders index right now.

(New York)

Stock investors may have largely moved on from day to day concerns about a pending recession, but important parts of the bond market are still signaling a downturn is coming. For instance, the 1 to 5-year spread in Treasuries inverted at then end of December, and despite the Fed making a big policy u-turn, has remained inverted ever since. The spread is currently minus 7 basis points. It is important to remember that the entire yield curve does not invert at once, it happens in stages, and this particular measure has proven to be a good recession indicator in the past.

FINSUM: It is alarming to us that this remains inverted despite the drastic change at the Fed. From here forward we expect the curve to be very data dependent, as if economic data is worsening, we expect more and more of it to invert.

(New York)

Another month, anther patch of really rough data on the US real estate market. New data from December has just been released, and shows a clearly negative trend for the market. Housing starts dropped 11.2% in the month, and overall, the market saw the worst price growth (4.7% in major metropolitan areas) since 2014. Stock market turbulence and higher rates plagued the market at the end of 2018.

FINSUM: We have seen many months of deteriorating real estate performance. The big question now is whether the market can rebound in time for the peak spring selling season.