Displaying items by tag: rates

(New York)

If you are worried that much higher rates will cause an exodus from the stock market, you are not alone. Many advisors across the country are closely watching the markets to see signs of a mass departure. The big worry is that even three-year Treasury bills now have yields which exceed the dividend yield of the S&P 500. So while for the last several years the theme was “there is no alternative”, now there are some very good ones, which could scuttle the market.

FINSUM: The good news here is that the so-called “Great Rotation” into stocks never really materialized, so there is not going to be a great rotation the other way, or at least everyone hopes so.

(New York)

Investors who own bank stocks or ETFs have probably been shocked over the last couple of days. The financial sector lost 4% yesterday alone. Many may be wondering why. While no one is quite sure, there do seem to be some concrete reasons, and not just because of the Italian drama. The bigger culprit is likely because of tumbling US Treasury yields, which have fallen from well above 3%, to well below 2.9%. Banks stocks have historically performed poorly in periods of flattening yield curves. Lower rates and yields hurt banks’ net interest margin.

FINSUM: US banks have very little exposure to Italy, so there is no reason for any meltdown fears, yet the sector has reacted almost overly strongly. It seems the only explanation has to do with US yields falling.

(Washington)

In what could be could news for those worried about the Fed hiking us into a recession, one of the Fed’s top leaders has just come out with a very dovish tone. St. Louis Fed chief Bullard says the Fed needs to slow its pace of rate hikes to preserve its credibility. “Inflation expectations in the U.S. remain somewhat low, suggesting that further normalization may not be necessary to keep inflation near target”. He suggests that the best policy going forward may be to freeze hikes.

FINSUM: One of the things that has worried us about the Fed is that they seem to be viewing rate hikes as some sort of automatic pre-determined path towards normalization rather than basing it on actual inflation numbers.

(New York)

Now might be a good time to buy dividend stocks, especially if you think rates and the economy are likely to stagnate. But even if not, having solid income stocks is always a key feature of a portfolio. With that in mind Barron’s has come up with a list of 12 income stocks with good cash flow and very solid fundamentals, all of whom are supposed to see growing cash flow in 2019. Some of the names cited include: Kraft Heinz, Target, Merck, Johnson & Johnson, 3M, Eli Lilly, and Omnicom.

FINSUM: This is a diverse list from across different sectors which includes a lot of companies with strong profiles. All of the stocks have of a dividend yield of at least 2.5%.

(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%?