Displaying items by tag: fed

Tuesday, 06 February 2024 05:44

Will Value Stocks Outperform in 2024

Value stocks have consistently underperformed growth stocks for many years. Yet, there are some signs that 2024 could herald a change in trend. Underperformance in value stocks was exacerbated in 2023 as many growth stocks, in the tech sector, saw huge gains due to excitement around artificial intelligence (AI). 

 

However, this could present a silver lining for value stocks as they are historically cheap, and mean-reversion could lead to solid gains. Further, growth stocks have become quite expensive, following the most recent rally, and there could be rotation into value especially if earnings don’t meet investors’ lofty expectations.

 

Value stocks are primarily comprised of healthcare, industrial, and financial stocks. A major impediment over the past year has been the struggles in the banking system due to high rates and an inverted yield curve. This means that lending is not as profitable, while banks are paying high rates on deposits but holding loans that were made when rates were much lower. But, there could be some relief coming as the Fed signals it will look to cut rates later this year. 

 

In addition to the path of monetary policy, the economy re-accelerating would be another positive catalyst for the sector. Many value stocks are economically sensitive and would see an increase in top and bottom-line numbers. However if investors are bearish on the economy but want exposure to value, they can stick with utilities and consumer staples which would outperform in a lower growth circumstance. 


Finsum: Value stocks underperformed in 2023. Here’s why 2024 is shaping up to be better, and under what circumstances, value will outperform growth. 

 

Published in Eq: Value
Friday, 02 February 2024 07:27

Bonds Rally, Stocks Fall Following FOMC Meeting

Stocks were lower, while Treasuries caught a bid following the latest FOMC meeting which was deemed hawkish despite the Fed holding rates as expected. In essence, Chair Powell’s remarks during the press conference made it clear that the central bank is not willing to cut yet.

 

In response, markets were in a risk-off mood. Fed futures showed that the odds of a rate cut at the next meeting declined from 40% to 36%, while the odds of the first cut happening in May increased to 59% from 54%. 

 

Overall, the policy statement and Powell’s press conference underscored that the Fed is moving in a more dovish direction, just not as fast as the market’s desired pace. The policy statement expressed that there is a better balance in terms of employment and inflation goals. However, before cutting rates, it wants to see even more progress on the inflation front. In essence, the resilient economy and labor market mean that the Fed has more latitude to continue its battle against inflation before pivoting to support the economy and risk re-igniting inflationary pressures.

 

Rather than hawkish or dovish, its current stance can be characterized as ‘data-dependent’. Some of the important releases, prior to the March FOMC meeting, will be the January and February employment data and consumer price indexes. 


Finsum: The Fed held rates steady but came out slightly more hawkish than expected. This led to the odds of a rate cut in March slightly dropping, but the bigger takeaway is that the Fed sees inflation and employment risks as being balanced and remains data dependent. 

 

Published in Bonds: Total Market
Thursday, 01 February 2024 04:19

Vanguard Launches 2 Municipal Bond ETFs

Vanguard is launching 2 new ETFs giving investors exposure to the municipal bond market. The Vanguard Intermediate-Term Tax-Exempt Bond ETF (VTEI) and the Vanguard California Tax-Exempt Bond ETF (VTEC) launched on the CBOE BZX Exchange and are designed to offer targeted exposure to certain segments of the muni market with an emphasis on quality and yield. 

 

Both also have low expense ratios of 0.08%, making them among the least costly within the muni fixed income category. The intermediate-focused, tax-exempt ETF is particularly timely given expectations that interest rates will decline in 2024 due to a dovish Fed and weakening economic outlook. Thus, many investors are looking to lock in yields at these levels by moving out from the short-end into the intermediate and longer-end of the curve. 

 

In addition to quality and generous yields, municipal bonds also have tax benefits. While VTEI is designed to appeal to a wider swathe of investors, VTEC is for investors who want exposure to California municipal debt. The yield generated from this ETF is tax exempt at the federal and state level for California residents while also prioritizing credit quality. 


Finsum: Vanguard is launching 2 intermediate-term, municipal bond ETFs that offer investors tax benefits in addition to income and quality.  

 

Published in Wealth Management
Tuesday, 30 January 2024 03:11

Is It Time to Lock in Yields?

In 2024, the major market narrative has certainly shifted from whether the Fed will cut or hike to when and how much the Fed will cut. According to Steve Laipply, BlackRock’s Global Co-Head of Bond ETFs, it’s a good time to lock in yields. Currently, investors can achieve yields of 4% in low-risk, diversified bond funds which is quite attractive relative to recent history. 

During the previous cycle, investors would have to buy riskier high-yield bonds to achieve such income. Overall, he believes that investors have been overly risk averse during this tightening cycle, and most are underexposed to the asset class. Despite the recent rally, there are plenty of opportunities to capture generous yields with lower levels of risk. Further, fixed income would benefit if the economy weakened further, and inflation continues to lose steam. 

While investors can get even higher yields in the front-end of the curve or with certificates of deposit, Laipply doesn’t see this as a prudent approach given underlying macroeconomic trends, and the Fed’s dovish tilt in the new year. He recommends that investors choose a diversified, broad bond fund like the iShares Core US Aggregate Bond ETF or an active fund like the Blackrock Flexible Income Fund.


Finsum: According to Steve Laipply, Blackrock’s Global Co-head of Bond ETFs, investors should lock in yields given the rising chance of a recession, slowing inflation, and a dovish Fed in 2024.

 

Published in Bonds: Total Market

Hazelview Investments shared its bullish outlook for real estate investment trusts (REITs) in 2024. The firm sees gains in the fourth quarter of last year continuing due to earnings strength and relatively low amounts of real estate supply which should support prices. It also sees upside due to attractive valuations, 

 

It does see the economy slowing in the coming year but this should be offset by easing interest rates and the sector’s strong, underlying fundamentals. In addition, Hazelview points out that historically REITs have delivered their strongest performance during the interim period in between the Fed changing course on monetary policy from hikes to cuts. 

 

According to Corrado Russo, managing partner and head of Global Securities at Hazelview Investments, "The shifting tides of economic and monetary conditions, coupled with compelling valuations, create a canvas for strong performance in the REIT market in 2024." 

 

In terms of earnings, the firm sees a 10% increase next year on a cumulative basis. It also anticipates a decline in available supply given that construction has slowed to a crawl over the last 2 years given higher construction and financing costs. At the same time, demand has seen little indication of slowing. 


Finsum: Hazelview Investments is bullish on REITs for 2024 due to attractive valuations, strong underlying fundamentals, double-digit earnings growth, and improving monetary and economic conditions.

 

Published in Eq: Real Estate
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