Displaying items by tag: equities

(New York)

After years in the doldrums, the country (and world) now seems to be on a definitive path to higher interest rates. This reality has set the markets on fire, with bonds dropping and equities swinging all over the map. Understandably then, investors are looking for safe income even as rates rise, especially those who are headed towards retirement. In response, Barron’s has searched for companies whose free cash flow exceeds their dividend as a way of finding income one can rely on. The names that come up when doing this sort of screen also resonate a sense of stability just by their stature, and include UPS, Cisco, and JP Morgan. Walmart, Pfizer, and 3M are also in the mix, amongst others.

FINSUM: Companies with stable and positive free cash flow margins seem like a good bet for maintaining or raising dividends.

(New York)

This bull market is getting old. We mean very long in the tooth. However, even if you are anxious about a broader downturn, there are still some good plays, says Barron’s. The two big sectors to consider when planning for the end of a bull market include financials and industrials, as both benefit from rising rates. That said, stocks may not perform as poorly as many imagine, as some argue that stocks never fully priced in ultra low rates, so as they rise, they should be less affected.

FINSUM: Stocks not fully pricing low rates is an interesting argument, and it is somewhat supported by the fact that equities did not sell-off alongside bonds when inflation came out the other day. We think of stocks as both an inflation hedge, and as a direct beneficiary of economic growth, which often accompanies rising rates, so we are not too bearish.

(New York)

Goldman Sachs put out a big warning to the market yesterday. The bank’s fixed income division says that it thinks yields on ten-year Treasuries are going to rise to 3.5% within two quarters as the Fed continues to hikes rates and the market sells off. Goldman called its prediction “not very brave”, indicating it thinks yields might be higher, especially since it feels the Fed will hike four times this year. Goldman’s forecast for rates is much higher than most analysts, so if it comes to pass, it could have big ramifications for equity investors.

FINSUM: If yields rose to 3.5% or above that quickly, we expect the equity markets would perform very poorly, and it may be the kind of scenario where we have a recession.

(New York)

We appear to be in the middle of a long-absent bout of volatility for both stocks and bonds. After a year of almost no volatility, all the major US indices fell strongly last week. The market is also off to a rocky start today. Now, Barron’s is arguing that this could be the beginning of an ugly ride. The reason why is that the recent trend of stocks and bonds being negatively correlated is ending. While for many years bond prices would rise when stocks fell, and vice versa, the opposite is happening now. Because the market fears rate hikes, bonds and stocks are falling in unison, with nothing to give the market comfort. For that reason, the “bond cushion” that has protected markets since the Crisis, appears to be gone.

FINSUM: The whole paradigm of markets is changing right now. Stock investors cannot simply flee into Treasuries as they have for years, which means there is little place a hide—a fact which could bring more serious losses.

(New York)

Tech has been the undisputed leader of the rally over the last several months, but there might be cracks in its armor that investors need to be aware of. Internal price momentum has started to fade in the sector, and it looks as though it might be ready to hand over leadership of the market. According to one equity analyst, “Relative performance has diverged on the sector’s new high, while semiconductors and small caps have failed to confirm as well”.

FINSUM: No one wants to hear this, but with valuations so high, it might well be true. The other big risk is regulation, but given good business momentum in the sector, there could still be some room to run.