Displaying items by tag: yields

(New York)

Dividend stocks have been an interesting case over the last few quarters. In the fourth quarter, when interest rates looked to be headed higher, they actually outperformed the market (counterintuitively). This year, as rates look to be headed lower, they have performed quite well (up 16%), but still lagged a bit behind the S&P 500. The question is where they go from here, and all signs point to higher given the prevailing rates environment and general anxiety. The trick is buying the right ones, as financials and healthcare offer better value than more traditional areas like utilities, real estate, and consumer staples.

FINSUM: We think these are good sector selections as they have not seen as much price inflation as the more common dividend choices. Healthcare seems particularly interesting given that it is quite recession-resistant.

(New York)

Gold has been doing well recently. Between global trade turmoil, a falling economy, and decreasing yields, the metal has thrived. Here are three reasons the gains won’t reverse. The first is that the stock market continues to look risky, meaning gold’s allure as a safe haven seems assured. Secondly, yields on bonds have a definitively downward direction, which makes gold more attractive. Finally, inflation is unlikely to stay low forever. When it starts to rise, it would give investors another reason to bet on gold instead of bonds.

FINSUM: We don’t really think inflation will be much of a factor for gold in the immediate term, but the first two points are material.

(New York)

The dovishness from the Fed has been bullish for most of the debt market, with sovereign yields falling and corporate debt getting a boost. However, the riskiest corner of the market, triple C junk bonds, have been left out, with the group falling by 1.5% since May. Triple B bonds, by comparison, were up. The odd part about the losses is that signs of an interest rate cut are usually very bullish for junk bonds because they would mean lower interest burdens for the companies. That said, anxiety about the economy is high enough that such benefits were negated.

FINSUM: This whole situation makes sense in that the downside risk of a sinking economy is greater than the upside of lower interest rates for this subsector. Thus, the bonds are losing. In other parts of the credit spectrum, the risk-reward balance is different.

(New York)

Gold is doing well, and it is no surprise. Markets are worried about an economic downturn, and yields are falling, both of which are bullish for gold. The metal is up almost 7% in July alone. But what is the best way to play the commodity using ETFs? Owning gold directly is costly, so passive structures are great. Consider the SPDR Gold Shares ETF (0.40% fee), the iShares Gold Trust (0.25%), and the GraniteShares Gold Trust.

FINSUM: Passive is definitely the best way to play gold. We like the outlook for the metal as rates and yields are definitely headed lower, which helps gold in multiple ways.

(New York)

If you could time travel back to December, it would be hard to find anyone in the world that would have thought that six months later, ten-year Treasury yields would be back under 2%. The turnaround has been so stark and so dramatic, that it is hard to fathom. The yield is now at its lowest level since 2016, with investors fearful of the economy and anticipating several Fed rate cuts.

FINSUM: The big question is what this means. Consider that the yield curve has been inverted for over 90 days. This seems like a very clear recession signal, yet economic data continues to hold up.