Evening Brief – 09.15.23
Time for Dividend-Paying Stocks?
One aspect that stands out amid the present market behavior is how the bond market has its pulse on the direction of the equities markets.
Most investors believe that stock indexes rise 80% of the time, and the 20% downtime may be painful for investors, as it is characterized by rapid, ugly pullbacks that wipe away months-long profits in a matter of days.
Given the selloff in most of the stocks popularly dubbed the “Magnificent Seven” (Apple, Microsoft, Amazon, Google, Nvidia, Tesla, and Meta (Facebook), which dominate the index weightings, the S&P 500 has found a home in the once-loved, then-hated, now-loved energy sector. And no surprise, the utility sector has been hammered by the monetary tightening campaign.
If fund managers begin to accumulate utility stocks at these depressed levels, they expect to lock in the sector’s greatest dividend payouts in nearly three years, assuming that bond yields have peaked.
One major reason energy stocks rise is the assumption that the global economy will show resilience, together with bullish production cuts by OPEC+ and any new stimulus announced by the Chinese government.
Exploration and production (E&P), integrated, oil service, and refinery company stocks have recently seen a broad-based breakout. When energy rallies, it is a leading indication for the rest of the market, barring a negative geopolitical event.
September is notoriously a bad month for the equity markets, yet we find ourselves with the market trading at the same levels it did when the month began, and energy stocks have played a big role.
Of course, the next two weeks could see a vicious turn lower, but there appears to be a strong setup for a good September, which would set us up nicely for third quarter earnings.
When institutional investors believe that short-term interest rates of 5% or higher will begin to decline, a flood of cash should flow back into large-cap dividend companies.
It may then be a perfect opportunity for income investors to shift from short-term debt securities to dividend stocks with the potential to yield double-digit gains.
Evening Brief: When investors believe short-term rates of 5% or higher are beginning to decline, cash should flow back into large-cap dividend stocks…