Come la vedono gli altri: aggiornamento del settembre 2020
In Italia, nessuno la vede con la propria testa quando si parla di mercati finanziari. Non esistono destra e sinistra. Non c’è il PD, la Lega, non ci sono i 5 Stelle.
Nessuno nel mondo degli investimenti e dei servizi al risparmio esprime una opinione, una visione, una strategia propria, una strategia che si discosta da quella della massa.
In Italia, sia i “consulenti”, sia le Reti di promotori finanziari come FINECO, Azimut, Banca Generali, Fideuram e Mediolanum, sia le case di Fondi Comuni di Investimento italiane, al Cliente ripetono, ogni giorno e tutti i giorni, le medesime cose che tutti voi leggete ogni giorno e tutti i giorni sui quotidiani, oppure ascoltate su CNBC TV.
Mai una osservazione originale, meno che mai critica. Mai una visione indipendente. Mai una analisi che si discosta. Mai un’idea che sia propria, autentica. Tutti allineati e coperti.
C’è molto più dibattito, e differenza di opinioni, all’interno della chiesa cattolica sull’operato del Papa. Eppure per la Chiesa Cattolica il Papa è infallibile.
Beh, evidentemente Mario Draghi è “più infallibile”.
Stanno tutti coperti, tutti nascosti dietro, tutti allineati. Allineati a chi oppure a che cosa? Recce’d ve lo fa leggere in questo Post.
Il pensiero unico, sui mercati finanziari, è dato dalle grandi case di investimento, quali sono Goldman Sachs, Morgan Stanely, Credit Suisse, UBS, e soci assortiti. Sono loro, a pensare: pensano per tutti quanti.
Come si sono guadagnate questa credibilità queste banche globali? In passato hanno dato ai loro Clienti indicazioni azzeccate sui mercati finanziari?
MAI. Non è mai successo: informatevi e verificate, e fatevi aiutare in merito dal wealth manager, dal private banker e dal family banker a cui fate riferimento. Se loro avessero notizie diverse, ve le potranno documentare. Delle grandi banche di investimento globali al contrario si ricordano (e sono documentati, e noi di Recce’d li abbiamo documentati in questo Blog in passato) svarioni clamorosi, eclatanti, MOLTO gravi e dannosi per gli investitori.
E allora? Perché troviamo tutti ogni giorno strettamente allineati e coperti dietro alle “views” di Goldman di Morgan Stanley, piuttosto che di UBS, di Credit Suisse o di Bank of America?
Chi ci guadagna, da questo stato di cose? E che cosa ci guadagna?
Ci guadagnano tutti gli intermediari. Tutti i venditori. Tutti i cosiddetti “consulenti”. Tutti quelli che NON gestiscono il vostro denaro. Che non fanno a vostro favore una sola operazione, non una sola. Tutti quelli che vi vendono portafogli più o meno pre-cotti, pre-confezionati, prodotti da banco del supermercato, prodotti standardizzati. Portafogli di Fondi Comuni di Investimento. Con in più le Unit Linked. Con in più i Certificati. E tutte quelle altre cose che chiamano “prodotti” sui quali PRIMA guadagna l’intermediario venditore, e poi FORSE, ma solo forse, potrebbe eventualmente guadagnare qualche cosa il Cliente.
Che cosa ci guadagnano, questi qui? Questi intermediari? Questi venditori?
Spieghiamolo: le grandi banche globali di investimento tengono tutti allineati e compatti dietro di loro grazie ad una ampia rete di relazioni commerciali, che portano soldi ai tutta la rete dei venditori. Piazzano attraverso i venditori la “merce” (i prodotti) che loro originano, e retrocedono al venditore una parte del ricavato. Prendono la percentuale. Proprio, esattamente, uguale a come si fa per il Tupperware, il Worwerk Folletto, il Weight Watchers oppure Avon. Il meccanismo è identico.
Quindi: acquistando da loro la merce da vendere, sia i Fondi Comuni di Investimento, sia le Reti di vendita fatte dei cosiddetti “consulenti”, dei family bankers, dei private bankers, ed altri nomi assortiti, vi DEVONO vendere tutte insieme sempre la stessa storia, perché è quella la “storia che adesso si vende”. E chissenefrega se è giusta, o se poi dopo si rivela sbagliata. Tanto, il venditore ha piazzato la merce, e la banca globale di investimento ha già incassato. I Cliente si arrangia (in fondo è LUI che ha scelto).
Vi devono vendere la merce per guadagnare. E come guadagnano? Come le retrocessioni, e lo abbiamo già detto. E poi ci sono una lunga serie di “benefit”, sopra e sotto banco. Regali, viaggi, ed altri strumenti, dei quali avete letto su tutti i giornali in ogni articolo che spieghi come si corrompono i funzionari, in ogni ambito dell’economia e della politica.
La più efficiente e più evoluta forma di inganno del Cliente, a questo proposito, è quella di “cancellare le retrocessioni” e poi fare arrivare i soldi a chi distribuisce i prodotto (Fondi Comuni di Investimento, Unit linked, polizze di assicurazione, certificati) attraverso altri canali. Così che il “consulente”, il private banker, la SIM, ed ogni altro venditore possa scrivere il falso, ovvero che “noi non riceviamo retrocessioni”, per poi essere gratificato di bonus, di cosiddette soft commissions, di viaggi, corsi, postazioni di Bloomberg oppure Reuters, e a volte anche di denaro sottobanco noppure all’estero.
Notate bene che nessuno, di quelli che a voi spingono in modo insistito le quote dei Fondi Comuni, magari spiegandovi che hanno “selezionato i migliori sulla base di performance e volatilità”, che vi abbia mai spiegato il perché. Perché a voi dovrebbe interessare di investire i Fondi Comuni? Che cosa ci guadagnate, voi Clienti investitori? E’ vero, oppure è falso, che il 90% dei Fondi Comuni fa peggio del proprio benchmark? Perché mai dovreste mettervi in portafoglio dei “prodotti finanziari” che sono, chiaramente inefficienti, ovvero come si dice in gergo “dei cartoni”?
Nasce esattamente da qui, la vicenda di Robinhood, ed anche Apple che viene valutata 35 volte gli utili PASSATI, e poi Tesla a 500 dollari USA, e poi anche una Società fallita come Hertz che vede il suo titolo salire del 90%, e poi anche scendere del 95%, ed anche il calo del Nasdaq che avete visto nelle prime nove sedute del settembre 2020. Tutto questo caos, che ha conquistato anche in Italia le prime pagine dei quotidiani, nasce proprio da qui.
Nasce tutto da qui: i profeti del trading, quelli come dicono che “le azioni non scendono mai”, come Dave Portnoy (lo vedete nelle immagini e noi ne abbiamo scritto a lungo, in modo dettagliato ed analitico nel nostro The Morning Brief” da alcuni mesi a questa parte) devono la loro improvvisa popolarità esattamente a questa situazione.
Loro (i trader di ultima generazione) li hanno definiti come “suits”, ovvero “quelli che al lavoro indossano l’abito con giacca e cravatta”. Gli “suits” sono gli uomini di Wall Street: a questi “suits”, Dave Portnoy dice quello che segue: “visto che voi suits vi siete sempre sbagliati, visto che ci avete per decenni presi in giro, allora adesso facciamo da soli, e faremo meglio di voi”.
E per rafforzare il messaggio, Dave Portnoy sta sempre in canottiera (tranne nell’occasione nella quale fu ricevuto alla Casa Bianca da Donald J. Trump).
Da questo punto di vista, la ribellione dei traders di giornata al sistema che parte dalle banche globali di investimento, passa per i Fondi Comuni di Investimento, e arriva ai promotori finanziari, ai “consulenti”, ai private bankers, è del tutto legittima e giustificata. Non basta: è anche del tutto sensata (ovviamente, in un suo modo distorto: è sensata poiché il contesto intorno ha del tutto mollato gli ormeggi con la realtà)..
Purtroppo, è del tutto insensato, ed è dannoso e pericoloso, quello che i traders di giornata alla Dave Portnoy fanno e dicono di fare ai loro seguaci di Robinhood. Il finale, inevitabilmente, sarà un disastro.
Recce’d, da ormai più di un decennio, si presenta ai risparmiatori dicendo quanto segue: ESISTE una alternativa al muro di gomma fatto di banche globali di investimento, di Fondi Comuni e di promotori/consulenti/wealth managers. Esiste, ed è accessibile: tutto ciò che serve è vincere la pigrizia mentale che ti fa dire “ho sempre fatto così, che fatica cambiare!”.
L’alternativa esiste, è accessibile, offre risultati superiori, ed un servizio superiore, a costi inferiori. E non è quella di Dave Portnoy e di Robinhood: l’alternativa non è buttarsi giù nel burrone per vedere se si sopravvive (qui sotto un Tweet dello scorso 8 settembre 2020)..
Per correttezza professionale, oggi vi proponiamo di leggere una efficiente e completa panoramica di ciò che pensano “loro”: di ciò che pensano quelli delle grandi banche globali, e quindi quelli dei Fondi Comuni di Investimento, e quindi anche quelli che vengono a casa vostra, che vi telefonano, che vi spingono, che insistono, che vi vendono i Fondi Comuni di Investimento, con o senza algoritmo, con o senza robo-advisor. Quelli del pensiero unico. Quelli dai quali voi investitori dovreste scappare: il più lontano possibile. Prima che sia tardi.
L’articolo che riproduciamo qui sotto è stato pubblicato da Barron’s nel fine settimana del 12-13 settembre 2020. Un suggerimento ai vostri lettori: queste che leggete NON sono analisi ed opinioni sui vostri investimenti: ricordate che questo che leggete è MATERIALE PUBBLICITARIO SCRITTO DA CHI HA QUALCOSA DA VENDERVI. Che cosa vuole vendervi? GPM, oppure GPF, oppure un algoritmo, oppure un robot, oppure un qualsiasi altro contenitore (chiamatelo come preferite) dentro al quale mettere i cosiddetti “prodotti finanziari”, ovvero quei prodotti che poi al venditore retrocedono le commissioni (“prendono la percentuale”). Esattamente come fanno quelli di Weight Watchers, Worwerk Folletto, Tupperware, Avon, e tanti altri.
Questi signori non “la vedono” così: vogliono soltanto che voi, lettori investitori, la vediate in questo modo, per poi vendervi prodotti dai nomi astrusi e privi di senso, che a voi non faranno del bene ma del male.
E ricordate anche una seconda cosa: il conflitto di interesse è un reato. Perché non viene perseguito? Perché a tutto oggi tutte le Reti di “consulenti” e promotori e private bankers e wealth managers possono operare commettendo questo reato? Riflettete e datevi una risposta.
Un ultimo suggerimento suggerimento ai lettori investitori: conservate questo articolo di Barron’s, tenetelo da parte. Poi andremo insieme a rileggerlo, come Recce’d fa sempre, a fine 2020.
U.S. stocks have defied almost all expectations in this crisis-riven year, first plunging into a bear market in February and March, as the coronavirus pandemic spread and the economy shut down, and then rebounding with lightning-fast speed to reach new highs by late summer. Following a selloff in tech stocks earlier this month, the S&P 500 index closed on Friday at 3341, about 240 points short of its record, and up 3.4% for the year.
Don’t expect this sort of drama to continue through year end, at least so far as the S&P and its fellow market measures—the Dow Jones Industrial Average and Nasdaq Composite —are concerned. Wall Street’s stock market strategists see only a modest move higher in the S&P 500 through December 2020, although there could be plenty of action below the surface, given potential economic and political shifts, a possible rotation from growth stocks to value, and the challenges inherent in investing in a zero-interest-rate world.
Among the half-dozen Wall Street strategists whom Barron’s recently canvassed, none sees the S&P 500 ending the year very far from current levels. The strategists’ average year-end S&P 500 target is 3492, less than 5% above Friday’s close.
The group expects the picture to brighten in 2021, however. The four strategists with published 2021 targets see the S&P settling at 3800 or 3850 next year. Based on the midpoint of that range, the benchmark index could gain about 15% from here.
The strategists’ average S&P 500 earnings forecast is $128 for 2020. But they expect earnings to shoot up by 26% next year, to $161, even with last year. “We’re at a point where, albeit slowly, we seem to be emerging on the other side of Covid-19,” says Savita Subramanian, head of U.S. Equity & Quantitative Strategy at Bank of America Securities.
Earnings Recession
The near-term outlook has darkened for corporate profits, although they could rebound in 2021.
$128
Wall Street strategists’ average earnings forecast for the S&P 500 this year, down from actual earnings of $161 in 2019
This has been the year of Big Tech. Near-zero interest rates and a hunger for growth have pushed many investors into the same five giant tech stocks— Alphabet (ticker: GOOGL), Amazon.com (AMZN), Apple (AAPL), Facebook (FB), and Microsoft (MSFT)—and lifted valuations to increasingly lofty levels, even after the Nasdaq’s recent setback.
The five are expected to grow their revenue by an average of 15% in 2020, despite the deepest global recession since the Great Depression. The other 495 companies in the S&P 500 could see their sales decline by 5% this year. Similarly, the Big Five boast Ebitda (earnings before interest, taxes, depreciation, and amortization) margins of 29%, versus 17% for the S&P 495. All of the tech titans have net cash, implying little balance-sheet risk.
What’s Next: More Gains for Stocks
Here are Wall Street strategists’ predictions for 2020 and 2021.
Michael Fredericks
Head of Income Investing for Multi-Asset Strategies, BlackRock
Target
S&P 500 YE2020 TARGET:3650
S&P 500 YE2021 Target3850
S&P 500 2020 EPS:$125S&P 500
2021 EPS:$165
10-Year U.S. Treasury Yield YE2020:1.00%
10-Year U.S. Treasury Yield YE2021:1.25%
Fed Funds Rate Target Range YE2020:0-0.25%
Fed Funds Rate Target Range YE2021:0-0.25%
Gold Price YE2020:N/A
Gold Price YE2021:N/A2020
U.S. GDP Growth/Decline:-5.5%2021
U.S. GDP Growth/Decline:+4.5%
David Kostin
Chief U.S. Equity Strategist, Goldman Sachs
Target
S&P 500 YE2020 TARGET:3600
S&P 500 YE2021 Target3800 (Aug. 2021)
S&P 500 2020 EPS:$130
S&P 500 2021 EPS:$170
10-Year U.S. Treasury Yield YE2020:1.05%*
10-Year U.S. Treasury Yield YE2021:1.45%*
Fed Funds Rate Target Range YE2020:0-0.25%*
Fed Funds Rate Target Range YE2021:0-0.25%*
Gold Price YE2020:$2,300*
Gold Price YE2021:$2,300*
2020 U.S. GDP Growth/Decline:-3.8%*
2021 U.S. GDP Growth/Decline:+6.1%*
*Goldman Sachs estimates. YE=Year end. N/A=Not Available.
Saira Malik
Head of Global Equities, Nuveen
Target
S&P 500 YE2020 TARGET:3600
S&P 500 YE2021 Target3800
S&P 500 2020 EPS:$130
S&P 500 2021 EPS:$160
10-Year U.S. Treasury Yield YE2020:0.95%
10-Year U.S. Treasury Yield YE2021:1.25%
Fed Funds Rate Target Range YE2020:0-0.25%
Fed Funds Rate Target Range YE2021:0-0.25%
Gold Price YE2020:$2,000
Gold Price YE2021:$1,8502020
U.S. GDP Growth/Decline:-5.0%2021
U.S. GDP Growth/Decline:+4.5%
Savita Subramanian
Head of U.S. Equity & Quantitative Strategy, Bank of America Securities
Target
S&P 500 YE2020 TARGET:3250
S&P 500 YE2021 TargetN/A
S&P 500 2020 EPS:$125
S&P 500 2021 EPS:$155
10-Year U.S. Treasury Yield YE2020:1.00%
10-Year U.S. Treasury Yield YE2021:1.35% (Q2 2021)
Fed Funds Rate Target Range YE2020:0-0.25%
Fed Funds Rate Target Range YE2021:0-0.25%
Gold Price YE2020:$1,886
Gold Price YE2021:$2,2132020
U.S. GDP Growth/Decline:-5.3%2021
U.S. GDP Growth/Decline:+2.9%
Mike Wilson
Chief U.S. Equity Strategist and Chief Investment Officer, Morgan Stanley
Target
S&P 500 YE2020 TARGET:3350 (JUNE 2021)
S&P 500 YE2021 Target3350 (June 2021)
S&P 500 2020 EPS:$130
S&P 500 2021 EPS:$158
10-Year U.S. Treasury Yield YE2020:1.15%
10-Year U.S. Treasury Yield YE2021:N/A
Fed Funds Rate Target Range YE2020:0-0.25%
Fed Funds Rate Target Range YE2021:0-0.25%
Gold Price YE2020:N/A
Gold Price YE2021:N/A2020
U.S. GDP Growth/Decline:-5.3%2021
U.S. GDP Growth/Decline:+3.4%
Edward Yardeni
President, Yardeni Research
Target
S&P 500 YE2020 TARGET:3500
S&P 500 YE2021 Target3800
S&P 500 2020 EPS:$125
S&P 500 2021 EPS:$155
10-Year U.S. Treasury Yield YE2020:0.75%
10-Year U.S. Treasury Yield YE2021:0.75%
Fed Funds Rate Target Range YE2020:0-0.25%
Fed Funds Rate Target Range YE2021:0-0.25%
Gold Price YE2020:$2,000
Gold Price YE2021:$2,5002020
U.S. GDP Growth/Decline:-5.0%2021
U.S. GDP Growth/Decline:+3.5%
The Federal Reserve gets much of the credit for keeping the tech sector, the broad market, and the economy aloft in 2020. After starting to lower interest rates in mid-2019, the Fed went all-in in March as the coronavirus swept the U.S., dropping its federal-funds rate target to a range of 0.00% to 0.25%. All six strategists see no change in the fed-funds rate for this year and next.
Ultralow interest rates have boosted the valuations of companies expected to earn the bulk of their profits in the future—sometimes years down the road. When discounted back to the present, far-off cash flows are worth more today than in a higher-rate world. That calculation has helped lift stock indexes to records even as earnings have tumbled.
“The investment community is paying more for duration today than they ever have in history,” says David Kostin, Goldman Sachs ’ chief U.S. equity strategist. “Given that we anticipate rates to stay low, this valuation-at-the- lower-bound question becomes the dominant issue that will be driving the market and prospective returns.”
The price-to-forward earnings ratio of the Russell 1000 Growth index recently hit 31 times, while its Value equivalent trades for 19 times. Growth investing trounced value for much of the past decade, and growth stocks’ lead widened this year as the market rebounded. Some strategists see a change in leadership for the remainder of 2020, if not beyond.
“If we get a vaccine this year, or more signs that we’ve contained this crisis adequately, we can resume a greater semblance of normal activities,” Subramanian says. “That would cause a renewed interest in some of the more economically sensitive cyclicals, coming off of very low levels of investor positioning.”
The Scorecard, So Far
Volatility is 2020's big winner, and crude oil, the biggest loser. Tech stocks have swelled the Nasdaq's returns; other markets are mixed.
9/10/20 Close
YTD Change
S&P 5003,339.19+3.4%
Dow Jones Industrial Average27,534.58-3.5%
Nasdaq Composite10,919.59+21.7%
Russell 20001,507.75-9.6%
STOXX Europe 600367.48-11.6%
Nikkei 22523,235.47-1.8%
Shanghai Composite3,234.82+6.1%
MSCI Emerging Markets Index1,085.31-2.6%
Bloomberg Barclays U.S. Aggregate Bond Index2,379.31+6.9%
10-Year Treasury Yield0.68%-1.24*
U.S. Dollar Index93.39-3.1%
Refinitiv/CoreCommodity CRB Index146.17-21.3%
Cboe Volatility Index (VIX)29.71+115.6%
WTI Crude Oil (per barrel)$37.03-39.4%
Gold (per troy ounce)$1,954.20+28.6%
Note: YTD % change for foreign markets in local currency; *Change in percentage points
Source: Bloomberg
Paying up for a narrow group of tech-related companies’ future earnings growth is easier to justify when profits are tumbling elsewhere, as has been the case for most of this year. But as the U.S. and other economies emerge from a coronavirus trough, the “old economy” should rebound. Investors looking for bargains in value sectors must differentiate, however, between companies whose earnings are sitting at cyclical lows because of reversible drops in demand and those being disrupted permanently.
Industries such as semiconductors, construction, and auto manufacturing won’t be affected fundamentally by the pandemic in the long term. But accelerated shifts away from business travel or bricks-and-mortar retail might never reverse.
For many industrials, materials, and financials companies, a rebound in global economic activity could mean a return to prerecession levels of sales and earnings in a relatively short order. Cheaper valuations relative to growth sectors could further support outperformance by cyclical and more value-oriented stocks. A Covid-19 vaccine or further improvements in treatments could accelerate the economic reopening.
Yielding to Reality
U.S. Treasuries don’t provide much income these days. Preferred shares could be a better place to look.
1%Strategists’ 2020 year-end forecast for the 10-year Treasury yield
5.4%The yield on the iShares Preferred & Income Securities exchange-traded fund
“We recommend positioning for a continued recovery in the economy,” says Mike Wilson, Morgan Stanley’s chief U.S. equity strategist and chief investment officer. “Look for the companies that can generate the greatest operating leverage on the other side of this pandemic.”
Companies whose profits are most sensitive to changes in revenue had the most to lose on the way down, but have the greatest room to recover. That includes apparel maker PVH (PVH) and Citizens Financial Group (CFG), whose strong positions in their industries could leave them better-positioned relative to peers. Other stocks on Morgan Stanley’s Fresh Money Buy List include Walt Disney (DIS) and Linde (LIN), a leader in industrial gases.
A sustained rotation from growth to value is a recipe for relatively flat performance on the index level, says Goldman Sachs’ Kostin. The weight of tech stocks in the market relative to lagging sectors means it would be a lopsided rotation. And many investors, after taking profits, don’t immediately redeploy 100% of their cash.
The risks to the market are numerous, starting with the economic outlook. Since bottoming in April, many economic indicators have rebounded sharply, but the pace of Main Street’s recovery has lagged behind Wall Street’s. Unemployment remains above 8%, and consumer spending could drop if expanded unemployment benefits aren’t extended by Congress. Ailing state and local budgets could lead to cuts in services and layoffs, worsening the impact on certain groups.
The summer surge in Covid-19 cases in the U.S. is largely past, with nationwide cases and hospitalizations recently back down to June levels. But experts such as Dr. Anthony Fauci warn of the risk of another surge in the fall, when flu season begins and cold weather forces people into closer proximity indoors. If that is accompanied by new stay-at-home orders or restrictions on economic activity, the recovery could reverse.
A contentious election season also means heightened uncertainty, with polls showing former Vice President Joseph Biden well ahead of President Donald Trump in the race for the White House. The battle for party control of the Senate is equally contested.
These circumstances support a continued preference for growth companies with secular tailwinds, which don’t depend on a rising economic tide to increase their sales and earnings.
Investors looking to bet on a cyclical recovery might do better overseas. Valuations are cheaper in Europe, Japan, and emerging markets, where stock indexes tend to have more cyclical exposure than the S&P 500.
“If you’re concerned about volatility around the election, one way to stay in the market but reduce some risk is to shift some U.S. exposure to Europe and the emerging markets,” says Michael Fredericks, head of income investing for BlackRock’s Multi-Asset Strategies team.
Ultimately, the growth-versus-value decision depends on what the world will look like once Covid-19 is in the rearview mirror. If that means a return to a slow-growth, low-interest-rate, and low-inflation world, growth will remain the place to be. “Our view is that technology stocks and growth stocks have a lot left because longer-term economic growth is not going to be extremely strong,” says Saira Malik, Nuveen’s head of global equities.
Malik recommends focusing on megatrends continuing through or accelerated by the Covid-19 pandemic. She points to Slack Technologies (WORK) as a key beneficiary of remote working and companies’ drive to increase productivity, and says that Slack can continue compounding growth over the long term. Other technology-driven trends such as telemedicine could outlast any near-term cyclical bounce.
“For cyclicals and value stocks to work, you want faster economic growth, signs of inflation, and higher interest rates,” says Malik. “There has been some talk of that lately, but we don’t see it as sustainable.”
In late August, Fed Chairman Jerome Powell revealed a rare shift in central-bank policy toward average inflation targeting. The Fed will now allow inflation to rise above the central bank’s 2% target for extended periods of time. This means the Fed might no longer raise rates proactively to stave off expected inflation just because unemployment is low. That sounds like a recipe for higher inflation over the coming economic cycle.
An aging population that prioritizes saving, technological innovation that brings down prices, global supply chains, and other forces have kept a lid on inflation over the past decade, despite low interest rates. Many strategists aren’t convinced that the next decade will be much different.
“We’ve learned that inflation isn’t purely a monetary phenomenon,” says Edward Yardeni, economist and president of Yardeni Research. “We’ll have to see it to believe it. But what we can take from it is that interest rates will remain at or close to zero for the foreseeable future.”
Whether that will help the economy is one issue, Yardeni says, but low rates should keep supporting the stock market as portfolio managers and individual investors either move money out of bonds and into stocks or allocate new money to stocks rather than to bonds. That also supports continued growth-stock leadership.
Morgan Stanley’s Wilson sees long-term inflation and interest rates rising as a result of unprecedented peacetime deficit spending by the federal government. Heavy spending looks to remain the case no matter which party is in power after the November election.
“The biggest surprise of this year is a generational shift in fiscal policy: We’re getting much more than we would have in a recession that wasn’t a pandemic,” he says. “That’s going to be with us for years, which means larger fiscal deficits will become more structural in nature than investors currently expect.”
If that means interest rates rise, the long-duration assets that outperformed in the past decade will become the laggards.
The strategists that Barron’s consulted generally see the yield on the 10-year U.S. Treasury note ticking up to about 1% by year end from a current 0.67%, as the price of the security falls. By the end of 2021, strategists’ estimates range from 0.75% to 1.45%. Income-seeking investors will need to look elsewhere.
“On the fixed-income side, the starting point from a yield perspective is pretty dismal,” Fredericks says.
Better-quality parts of the high-yield market still offer attractive returns, he notes. But moving too far down the quality spectrum could be problematic, given the uncertain outlook for industries more permanently affected by the pandemic.
Fredericks notes that preferred shares issued by high-quality financial companies offer solid yields and opportunities for capital appreciation. Big banks such as JPMorgan Chase (JPM) and Bank of America (BAC) have preferreds, yielding 4.5% and 4.9%, respectively. The iShares Preferred & Income Securities (PFF) exchange-traded fund yields 5.4%.
Fredericks expects common stocks that pay dividends to be in greater demand next year, as interest rates stay low and a steadier economy gives investors confidence that companies will be able to maintain their payouts. “We think the puck is headed toward the scarcity of income being a big driver of flows and total returns,” he says.
That could be positive for traditional dividend-yielding sectors like utilities. And dividend-yielding cyclicals could deliver the best of both worlds.