Will a Stock Exodus Follow Rate Hikes?

In a recent Barron’s article, financial analyst Mark Hulbert wrote that many of the investment advisors he monitors on a regular basis are concerned that high interest rates will entice investors to move their dollars from equities to bonds. He cites the so-called “Great Rotation” theory that emerged in 2011 and predicted a huge shift from bond funds into equity fund as “investors came to appreciate the near certainty that interest rates would eventually rise… Read More

Interest Rates are the Market’s New Boss

Interest rates are now more important than profits for stock performance, according to a recent article in The Wall Street Journal. “The first quarter was very good for U.S. companies, as a brew of corporate tax cuts, solid global economic growth and a weaker dollar pushed profits higher,” the article says, adding that while profits will be strong all year, the first quarter will likely be “as good as it gets.” But as growth slows,… Read More

U.S. Companies Facing $4 Trillion in Refinancing

A recent Bloomberg article reports that U.S. companies will need to refinance an estimated $4 trillion in bonds over the next five years (according to Wells Fargo Securities), a concern for investors due to the rising rate environment. “Corporate America,” it says, “partied like never before on cheap money over the past decade, and now comes the hangover,” the article states. Rising rates means that debt service costs will rise which “could push balance sheets… Read More

Inflation and Stock Price Increases Causing Worry

Earlier this month, inflation and interest rate concerns sent stocks into a “historic and nerve-rattling plunge,” but the market rallied shortly thereafter, leading some experts to say that stocks can continue to rally even if both indicators creep upward. This according to an article in The New York Times. According to Brian Nick, chief investment strategist for Nuveen, while the past 20 years have seen a strong correlation between stocks and interest rates, the same… Read More

S&P Says High Corporate Debt Could Trigger Defaults

According to S&P Global Ratings, tightening credit conditions could lead to increased defaults by companies with heavy debt loads. This according to a recent article in Bloomberg. The article cites a February 5th report issued by the rating agency that says removing the “easy money punch bowl” could trigger a rash of defaults since heavily leveraged borrowers are more sensitive to rate hikes. It cites a global sample of 13,000 business entities showing that 37… Read More

The “Near Perfect” Investing Environment May End Soon

For the past two decades, government bonds have moved in the opposite direction of equities in the short run but have produced similarly strong gains in the long run, representing a nearly “perfect” investment, according to a recent article in The Wall Street Journal. From the beginning of 2000 to the end of 2017, the article says, “holding the latest 10-year Treasury and reinvesting coupons returned 155%, the S&P 500 with dividends 158%, while a… Read More

Ray Dalio Says Market Surge Ahead

 At the recent World Economic Forum in Davos, Switzerland, billionaire Ray Dalio told CNBC that the coming tax cut could lead to big gains for the U.S. stock market. “We are in a Goldilocks period right now,” said the Bridgewater CEO. “Inflation isn’t a problem. Growth is good,” he said, predicting a “market blow off” rally fueled by cash from banks, corporations and investors. “There is a lot of cash on the sidelines,” he added. “If… Read More

Pimco Adviser Says Market’s Lack of Fear is Scary

As many expect the current bull market to last longer, Pimco global economic adviser Joachim Fels recently told Bloomberg TV, “The fact that the fear is gone is the main reason why we should be worried.” Fels argues that interest rates could rise faster than expected, pushing up government bond yields, and inflation could bump up. The fact that fear is at a low, he says, “means most investors are now pretty fully invested and… Read More

Gold Outperforming Since Fed Rate Hikes

Since the Fed raised rates last month, gold has outperformed most major asset classes, according to a recent Bloomberg article. Though counterintuitive, the article says, gold’s strong performance has become the norm since the global financial crisis. “Unless greenback weakness reverses,” says Bloomberg intelligence analyst Mike McGlone, “gold should shine.”

Interest Rate Sensitivity and Low-Vol Investing

Interest rates have a significant impact on security prices, according to an article by Morningstar’s Alex Bryan, CFA, the firm’s Director of Passive Strategies Research, North America. Bryan writes that, unlike bonds, which have a finite life and fixed cash flow, the impact of rates is more difficult to anticipate for equities. He explains his theory that firms that are “more sensitive to the business cycle tend to experience greater cash flow growth during economic… Read More