Displaying items by tag: yields

(Washington)

Earlier this week it seemed that the market might finally have a reason to believe the Fed might pause its inexorable march higher in rates. That reason was that inflation had dipped below the Fed’s target. Being just a single occurrence, it was a weak-footed hope. Now, new data shows the American consumer is doing well, as retail sales jumped 0.9% in November. The explanation for the jump is that a drop in gasoline prices helped fuel more retail spending.

FINSUM: Consumers are obviously still feeling comfortable, which will give the Fed a bit of comfort about the stage of the cycle.

(Washington)

The moment many investors have been waiting for (or not, depending on how you look at it) has arrived. Rate hikes finally have a chance to slow after their steady rise over the last couple of years. New inflation data has come in showing weakness. Inflation has now fallen below the Fed’s 2% rate, which means the central bank has cause to pause its rate hikes as the economy looks to be on more fragile footing.

FINSUM: There are two ways to look at this. The first is that it takes some momentum away from the current yield inversion. But on the other hand, it could be an indicator that the economy is headed towards recession.

(New York)

Banks are usually the last ones to forecast a recession. Saying things are heading south is usually not good for business. However, despite this a slew of major banks, including Goldman Sachs, JP Morgan, and BofA, are all saying that the risks of a recession in 2019 are rising. While they are still loath to say a recession will happen next year, JP Morgan just increased the odds considerably, saying there is a 35% chance. In March they said it was just 16%. Jobs data has just started to weaken, which is a warning sing, and the yield curve has begun to invert, another indicator of trouble ahead.

FINSUM: We know a recession is on the way, but the timing is the tough part. Our best bet is towards the end of 2019 or Q1 2020.

(New York)

Stock markets are taking a pounding right now. Where should investors turn? One’s first instinct is probably to look for ten-year Treasuries. However, that safe haven may have finally worn itself out given the current rising rate paradigm. So where should investors turn? Look at short-term (two years and under) securities, both sovereign and corporate. The two-year Treasury yield is now 2.82%, and funds at the very short end of the curve have positive returns for the year even though the rest of fixed income has had a tough time.

FINSUM: Short-term bonds look very favorable right now. Yields are strong and they have little rate sensitivity. So long as one avoids too much credit risk, they look like a good safe haven.

(New York)

There is a lot going against equities right now. A trade war, rising rates, a weaker 2019 earnings outlook, a fading tax effect, and high valuations. There is one more to add to the list, and it could end up being the worst of all—stocks are now yielding significantly less than short-term bonds. Two-year Treasuries are yielding 2.82% while the S&P 500 is yielding just 1.9%. Yields better than bonds had been an incentive for investors to put money in stocks for years, a phenomenon called “TINA”, or “there is no alternative”.

FINSUM: With all the volatility and headwinds facing equities, and relatively unattractive yields as well, it is hard to see what force is going to swoop in to help out stock indexes.