All Things in Moderation
By Laif Meidell, CMT, President of American Wealth Management, and Portfolio Manager of the AdvisorShares Meidell Tactical Advantage ETF (NYSE Arca: MATH) and the AdvisorShares Market Adaptive Unconstrained Income ETF (NASDAQ: MAUI)
It always surprises me, how every year there seems to be a story about a particular portion of the market the just can’t lose. Two years ago it was biotechnology and health care stocks, and how the increasing number of aging baby boomers would bring a continual stream of money to the health care industry (the same story was going around in the ’90s). By the way, the Nasdaq Biotechnology index is down over 35 percent over roughly the past year.
Last year the stock market groupies couldn’t get enough of the FANG stocks, and this year it seems the groupies can’t get enough utilities, telecommunications, and real estate.
Basically, the sectors that are paying a dividend of 3 percent or more are being driven higher like they are technology startup companies. I mean, a power company up 2.7 percent in one day. Really? OK, I kind of get the mentality, especially in a world where there are low and even negative interest rates, and given the uncertainty due to the presidential election, buying a stock paying a dividend seems better than one without.
However, right now we are in the recognition wave, when all the groupies are jumping on. Next, somewhere down the road, comes a scary pullback, followed by one more push higher, and then utility, telecom, and REITs will fall from grace. So, if you find yourself saying, “Why utility companies, of course, that’s the answer,” then beware. Remember, all things in moderation.
On Thursday, stocks enjoyed a strong rally for a third day in a row, with the Standard and Poor’s 500 gaining 1.36 percent and the Nasdaq Composite higher by 1.33 percent.
This week’s top performing bonds are somewhat of a surprise given the strong rebound in the stock market the past three days. Usually, high quality bonds underperform when stocks are rising, but not this week. After investors piled into high quality government bonds, as a flight to safety following the Brexit news, there hasn’t been any desire to sell. At the moment, government bonds don’t seem to be worried about interest rates going up anytime soon. This week’s top performing bonds are led by the Barclays U.S. 20+ Year Treasury up 5.04 percent over the past five trading days, followed by the BofA Merrill Lynch Build American Bond index rising 2.4 percent.