Displaying items by tag: yields
Yields have fallen precipitously of late. Ten-years have been touching around the 1.5% mark, and now another big threshold has been crossed—30-years have fallen below 2%. The latest moved downward was propelled by Apple’s announcement about coronavirus being likely to make it miss revenue estimates. The bigger question is about how investors should react. Bond prices are again enormously rich, and worse, there is little dependable yield.
FINSUM: This seems like a post-crisis repeat all over again. With yields so low, it feels like the market has returned to “TINA” (there is no alternative to stocks).
Bonds have been in a bull market for the entire living memory of almost everyone in the financial industry. Yields are extremely low, prices are high, and stocks are peaking every week. Even if you are worried about bonds, the odds that they keep rising seem strong given some undeniably supportive factors. Those include a Fed that not only says it has no intention of hiking rates, but is actually undertaking a stealth form of QE by buying $60 bn of Treasury bills every month to make sure the financial system has adequate cash reserves.
FINSUM: Everything in the market is pointing to a repeat of the post-Crisis market paradigm—ultra-low rates, rising stocks. Should we expect a different outcome this time?
Everyone has heard of the “Dogs of the Dow”, or the strategy of buying the laggards of the Dow. It is has been of the few highly successful value-based strategies over the last decade. If you have liked the Dogs of the Dow approach then check out “Fast Dogs”, which could be a good strategy. The idea is to buy the ten stocks with the fastest dividend growth in the Dow. The strategy has performed well in the last three years and just edged out the S&P 500’s performance (it is hard to track it further because dividend growth rate data is historically spotty). What will likely make this strategy successful is that companies with rising dividend growth are naturally signaling improvement and a brighter future, so an increasingly optimistic outlook is de facto. And of course, investors love dividends.
FINSUM: We like this idea. It would probably work better in rising rate markets, but generally speaking it seems like a smart approach in any environment.
After about three years of being a laggard and worrying investors that a recession may be coming, US real estate looks to be turning the corner. Not only have home sales been rising, but new mortgage data looks very encouraging. Home lenders extended $2.4 tn in new home loans last year, the most since 2006. That figure is a whopping 46% increase from 2018. One economist from Freddie Mac described the situation bluntly, saying “When a large and cyclical part of the economy—housing—is starting to improve, it’s a good sign for the economy at large”.
FINSUM: It is important to note that most of this was refinancing activity because of the drop in rates, so it is not as massive an increase as it appears. Still, good momentum.
The market is at all time highs, multiples are huge, and earnings are trending the wrong way. If you are looking to buy into some downside protection, take a look at these 4 tech names. These stocks have big dividends which should offer some significant downside protection as tech shares with lower multiples and good dividend yields provide insulation. Here are the names: IBM (4.7% yield), Broadcom (4.2%), Hewlett Packard (3.2%), and Cisco Systems (2.9%).
FINSUM: IBM trailed the tech market last year but still had a respectable 16% gain. Seems like a good choice given the big dividend yield.