Displaying items by tag: large cap
It may not get much attention right now, but the biggest threat to stock prices is also the same thing that has been supporting them for years. If you really consider what has driven the extraordinary rise in stocks, it is the fact that bond yields have been so outrageously low since the Crisis. This has created the widely-covered “TINA” (there is no alternative) syndrome that has driven investors to pour capital into stocks. Accordingly, many analysts say the biggest risk to stocks is a pickup in inflation, which would likely send bond yields sharply higher.
FINSUM: This is a solid argument theoretically, but calling a rise in inflation has been a very poor bet for over a decade. Why is that different now?
It has been stewing for a while, but antitrust regulation regarding some of the stock market’s largest companies is starting to look like more of a reality. However, it is not in the way one might expect. Trump has long said he wanted to work on anti-trust regulation—with Amazon the frequent target of his ire—but now he is taking steps that actually support big companies and corporate power. The way the administration is going about is through the Justice Department filing many legal arguments in cases where it is not even a party. In this way, it is trying to influence how the courts handle competition cases, and it has generally been pushing patent-holder friendly positions and undercutting lawsuits of other enforcement agencies.
FINSUM: This does not track very well with Trump’s general rhetoric, but it does follow a general Republican economic line. It seems positive for stocks.
At this point it might seem natural to think that the stock market simply rises a bit everyday. Stocks have been so steady and so quiet for so long that it is almost disconcerting. The current “quiet” streak is one of the longest ever. The current number of days without a 1% move is the sixth longest streak since 1969 and the third longest since 1995. One analyst described the situation this way, saying “Right now it’s very, very tough to fight this trend … There’s a reinvigoration in the idea that we will see better growth”.
FINSUM: The huge rise in stocks from the Crisis through the last decade was generally characterized by steadiness. We don’t see this as any surprise.
It should not be this easy to beat the Dow, but it is. In the last ten years, investors could have used a very simple strategy to outperform the index by a significant level. The strategy is called “Dogs of the Dow”, which is the method of buying the ten highest yielding stocks in the Dow. Over the last decade, the strategy outperformed the index in 7 years and overall outpaced the Dow by 1.7% per year, returning an average of 15% per year for a decade. It also outperformed the S&P 500 considerably.
FINSUM: Who sad value investing is dead? This is a classic strategy that has worked to great effect.
The Dow gets a lot of intention in the media, but in the investing world it is relatively rare to see Dow-tracking products compared to those linked to the S&P 500. This has led to a general perception of the Dow being old-fashioned and not particularly suitable for investment because of its odd weighting system. But not so fast (!), over the last five years the Dow has actually outperformed the S&P, and in the last ten it barely trails.
FINSUM: This is quite an interesting finding considering how the Dow is generally treated. If you want to play the Dow, check out the SPDR Dow Jones Industrial Average ETF Trust.