Heading into mid-September, the U.S. equity markets have been trading in a very skittish manner, unnerved by uncertainty surrounding the military threats from North Korea and the totality of damage that will be inflicted by Hurricane Harvey and Hurricane Irma.
Investors have sought the safety of the Treasury market, driving the yield on the benchmark 10-year T-Note down to 2.03%, a level not seen since the early days following last November‚??s presidential election. There is a general rule of thumb in the investing world that when the yield on the 10-year T-Note gets at or near that of the S&P 500, history tells us to back up the truck.
As of this writing on Sept. 8, the current yield for the S&P is right at 1.92%, or about 10 basis points below that of the benchmark bond. What makes this development even more compelling is that it comes at a time when September is notorious for being a month that delivers poor stock performance. Getting long in the market in a big way at this time of year is counterintuitive to say the least, but just might be one of the great opportunities of 2017.
The S&P is in its fourth month of consolidation, trading at about 20 points above where it was at the beginning of June. Assuming the market is an efficient forward price discounting mechanism that takes into account inherent risks like North Korea‚??s warmongering dictator and Mother Nature‚??s storms, the case for legging into the market for dividend income is a good one. Inflation, in all its forms, is tame, due primarily to softer energy and commodity pricing. This trend appears to have secular legs from visible oversupply of just about every commodity in the world.
This would also explain to some extent why the dollar is trading at low levels not seen since 2015. The notion of the Fed standing pat on any further rate increases is getting traction and being realized in lower currency valuations and bond yields that only will frustrate fixed income investors and further the bullish case for equity income that is sensitive to economic growth, Fed policy, inflation and fund flows into the earnings-driven stock market in general.
For income investors seeking yields well above that of the S&P or the 10-year T-Note, there are sectors where outsized yield and capital appreciation can be captured in specific holdings that are components to my Cash Machine investment newsletter. I‚??ve put together of model portfolio of 30 positions in assets that are leveraged to the current investing landscape, while offering a dividend yield that is 4 times that of either the S&P or the 10-year Treasury Note. Click here for further details.
It is my firm view that investment capital dedicated to high-yield income is best served both from a fundamental standpoint and on the basis of reliable dividend income in the following sectors and market themes for the balance of 2017 and into 2018:
- Blue-chip stocks with rapidly growing dividend payouts
- Closed-end funds and ETFs focused on infrastructure, total return strategies that incorporate option-premium income
- Floating-rate business development companies (BDCs) and commercial finance real estate investment trusts (REITs)
- Hotel, gaming, amusement park REITs, office REITs, data center, cell tower REITs, industrial REITs
- Short-term corporate, convertible and distressed credit debt funds
- Private equity firms and big-cap bank stocks
- Covered-call, closed-end technology funds
- Liquefied Natural Gas (LNG) master limited partnerships (MLPs)
- Select gas pipeline/transfer/storage/logistics and refining MLPs
The more investors know and become familiar with these themes and sectors, the more confident they will be putting capital to work that generates a stream of income that is consistently reliable, diversified and lucrative. When the perceived market risk dies down and the fourth quarter approaches, there could well be a very strong finish to the year for equities and especially those where bond investors shift their allocation to dividend income-paying assets.
Call it a ‚??melt up‚?Ě or just a solid year-end rally, there is a growing case for using the current uneasiness in market sentiment to buy into the best high-yield assets available at very attractive entry points. You can find out more how to take advantage of this unfolding scenario by clicking here to learn how to put your income capital to work and give your portfolio a nice year-end pay raise.
In case you missed it, I encourage you to read my e-letter article from last week about the forward movement of the economy.