Utilities just hit a new high. So what else is new. Utility stocks have been surging this year alongside falling rates, and they are not the only ones. Consumer staples, consumer discretionary and even tech have been rising strongly. Not only do the dividends look appealing, but the stable earnings profile is attractive given the threat of a downturn. What is most impressive is that utilities have held up even though value has been surging. According to Goldman Sachs “With the Fed cutting rates again this week and the 10-year yield at 1.78% [now 1.71%], utilities continue to perform well, despite NT headwinds as broader momentum trades reversed slightly”.
FINSUM: As long as there is downward pressure on rates, we suspect dividend stocks will be strong. But it wouldn’t take much to reverse that.
A few weeks ago we were feeling very bearish about the new iPhone and suggested that we thought Apple’s stock might fall. However, we must now admit that we have had a change of heart. The incredibly poor sentiment that preceded the new iPhone’s release has been replaced with cautious optimism. Reviews of the newest suite of phones have been more positive than expected and this replacement cycle seems likely to be significantly better than previously expected. That, combined with the fact that Apple is not staggering release dates of the models this year, means that the stock could see some significant gains.
FINSUM: Everything seemed very gloomy prior to the new iPhone’s release, but that was the perfect environment for an upside surprise.
Retail investors are fleeing the stock market, yet it keeps rising. What gives? Bernstein Research just studied this situation and had some interesting findings. Firstly, retail investors’ rotation of out stock funds and into bond funds has been the largest in history, with $1.1 tn flowing out of stocks and into bonds in the last 12 months. Secondly, they found that none of that really matters given the current state of markets, which are being driven by buybacks and M&A. Finally, they found that such outflows are usually a very bullish sign and they generally signal over-pessimism and have often been followed by great returns.
FINSUM: This seems like a very solid counter indicator that things might start turning more positive.
While a lot of sentiment is starting to look more positive, Deutsche Bank has just come out with the exact opposite opinion. The bank has gone on the record warning that a recession will arrive very shortly, and that stock prices should be at least 13% lower than they are. The bank’s chief global strategist said, “We are cautious on stocks. We would argue you want to be defensively positioned [and] we would argue that the U.S. equity market has run way, way ahead of growth”. He continued “Every time payrolls growth has gone below 1%, the U.S. has ended up in recession. We would argue the U.S. economy is dangerously close to...tipping into recession”. US jobs growth is currently at 1.3% and slowing.
FINSUM: This is a really bearish outlook from an investment bank, which tend to trend towards over-bullishness. We question the valuation argument, but this is certainly a view worth noting.
Most of this summer was dominated by the dual fears of a trade war and a recession. A weakening of underlying economic data backed up the view that we may be headed for a recession, and the long yield curve inversion only heightened those fears. However, new economic data is providing a pretty strong rebuttal to those ideas. The last four economic releases, including home sales, jobless claims and beyond, have all come back more strongly than forecast.
FINSUM: The economy never looked that bad, as it was mostly the yield curve and trade war that pushed fears of a downturn. Accordingly, we don’t think these recent data releases will have much of an effect one way or the other.