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What I Care About This Week | 2021 July 6

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by Franklin J. Parker | Due to the abbreviated July 4th week, this update will be shorter than usual.

The Summary

Chart of the Week

Since 1980, bond yields have been on a steady trend downward. This has many side effects (not the least of which is a whole generation of bond managers who have never managed money in a rising rate environment). One side effect has been to push yield-seeking investors toward stocks. Yet stocks, too, have seen a fairly steady drop in dividend yields—to the point that stock and bond yields are at about parity.

Of course, some of this shift in stock yields can be attributed to higher tax-awareness. Dividends are a tax-inefficient way to return cash to shareholders, so in lieu of dividends many companies have shifted to stock buybacks.

In any case, yield-hungry investors have been pushed to take larger risks to gain the same return. As bond rates rise, bonds should naturally pull some of that yield-seeking capital back, and that puts some downward pressure on the sectors which previously benefitted from the yield-seeking inflow.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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