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Fund managers are turning to an unusual place to lead the charge in ESG…see the full story on our partner Magnifi’s site

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Thursday, 27 May 2021 16:33

Real Yields are a Huge Warning Sign

(New York)

Inflation worries may have surged this Spring, but that has not helped real yields. When you compare the yields of stocks and bonds versus inflation, the truth is that real yields have turned negative. It is unusual for the S&P 500 to have a negative yield, which is currently at -0.81%. That is slightly better than 10-year Treasuries’ real yield of -0.87%. This has usually spelled trouble historically. Going back to 1970, there has only been one instance when the market did not decline at least 32% in the two years following the point at which yields went negative.

FINSUM: This is a pretty scary statistic, but then again, most historical contexts don’t involve a pandemic-induced country-wide shutdown and unprecedented government stimulus.


Environmentally, Social and Corporate Governance (ESG) investing is getting all of the attention from both news outlets and traders, but some investors think too much attention is being diverted from fossil fuels. They argue that oil is now a sin stock, where many investors stay away because of the nature of the good (e.g. alcohol, defense, gambling, and tobacco). Sin stocks traditionally outpace the market, under the wisdom that they remain perpetual value stocks because socially conscious investors stay away, and oil ETFs are starting to outperform renewable ETFs. In reality, sin stocks don’t get their boost from value but rather higher operating margins, and oil is one of the most competitive with low to negative margins depending on how far upstream the extraction is. While oil is moving out of environmental favor it isn’t quite a sin stock yet because it also lacks the capital intensity that is common to sin stocks.

FINSUM: There are a lot of reasons to be bullish on oil right now, but being sin stock probably isn’t one. Oil can still be a value play even if that’s not how sin stocks make their name.


Speculation is running rampant in the wealth management…see the full story on our partner Magnifi’s site

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