Eq: Large Cap
(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.
(New York)
Investors beware, US stocks may be in for a real summer storm. On the surface things have been looking better. Despite a week in which many geopolitical events went wrong (e.g. trade war, Trump and North Korea, Italian bonds/government), the markets stayed strong. However, underneath the positive surface, there is some real bearishness. The average stock in the S&P 500 is underperforming the market as a whole by almost a whole percent. The S&P 500 is up 3% this year, but the average stock has gained just 2.1%, showing that market breadth has narrowed.
FINSUM: We do not think the current market breadth figures show much of anything, but then again, we are more concerned about the overall economy than the signals the market is sending.
(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%.
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(New York)
Allocation funds don’t get a lot of discussion in the press, but they could be a good buy. With their broad mandate to invest in all manner of asset classes, an allocation fund can theoretically be a one-stop shop for advisors or retail investors. However, most of them have not lived up to their hype since broad allocation takes more research horsepower than the funds can afford. However, the T Rowe Price Global Allocation fund has been performing great. The fund invests in 20 different T Rowe funds across all strategies. “This fund represents our best thinking across different asset classes”, says the fund’s manager. It has beaten 92% of its category peers over the past three years.
FINSUM: Allocation funds can be a good choice if you want to merely deposit assets into a single vehicle. However, we would worry about having a great deal of one’s assets with a single manager.
(Washington)
The Financial Times has just put out what we think is a very interesting story about the battle going on between President Trump and Amazon. The president has been pushing hard for a regulatory crackdown on Amazon, some say because of Jeff Bezos’ ownership of the Washington Post. But the FT points out that the president needs to tread lightly, as Amazon is a well-liked company and he might not win a popularity campaign against it.
FINSUM: Amazon is apparently the 10th most reputable company in the country. Trump’s approval rating is 43%. Even if Trump is right to try to breakup up some of Amazon’s grip, it seems like a risky campaign.
(New York)
While markets have been doing a little better of late, investors may be looking for safe stocks that could perform well. Well, if that is the case, look no further than three old-time consumer goods companies that look ripe for outperformance. Coca-cola, PepsiCo, and P&G all look set to thrive and are available at a bargain. On the back of a slew of industry factors, consumer goods stocks are down by over 12% this year. However, the three stocks mentioned are solid dividend producers and seem likely to provide strong earnings growth, making a 10% total return for the year look likely.
FINSUM: 4% dividend yields with good top-line revenue growth for rock solid stocks seems like a pretty attractive proposition to us.