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INCLINE VILLAGE, Nev. — The economy is slowing and that is being reflected in stock prices. Home prices are still falling, consumer confidence is at a six-month low, and QE2 is about to expire and there won't be a QE3, at least not soon. The manufacturing sector — until now the brightest spot in the recovery — is barely expanding and the unemployment rate ticked up.
High energy prices, the ongoing housing recession, bad weather, floods and the tragedy in Japan, which is still causing supply disruptions, are all playing a role. Unfortunately, most economists predict a slow growth economy for several years.
What does this mean for investors? Short-term rates will continue to stay down because the Fed will not undermine the already soft economy by raising rates. As discussed last week, money from emerging market countries will continue to seek the safety of our Treasury market.
Those needing income from their investments can't turn to low-yielding money market and Treasurys. Instead, they should seek alternatives that provide income and stability. Utility stocks qualify. The utility industry's earnings are fairly predictable and the stocks offer both yield and dividend growth. In a slowing economy utility stocks typically outperform, which is why the Utilities SPDR (XLU) is near a multi-year high.
I've written in previous articles about the Western Assets Emerging Markets Debt Fund (ESD). This fund yields seven percent and pays dividends monthly. Whereas our interest rates are low and falling, emerging market rates are increasing because their economies are stronger. If the dividend rate on this fund changes it will most likely be to the upside.
There are other investment-grade securities that pay close to seven percent as well. One can still receive a good income in this low-rate environment. Preferred stocks and high-yielding equities should continue to do well.
Investors are tempering their optimism about the economy. Still, it is growing and corporate profits are high, in fact at record levels. That's why stocks haven't fallen further. The main engines that have powered the market are still in place. Those are earnings growth, reasonable valuations, and a lack of alternatives.
— David Vomund is an Incline Village-based Registered Investment Adviser. Information on his money management service is found at www.ETFportfolios.net or by calling 775-832-8555. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
High energy prices, the ongoing housing recession, bad weather, floods and the tragedy in Japan, which is still causing supply disruptions, are all playing a role. Unfortunately, most economists predict a slow growth economy for several years.
What does this mean for investors? Short-term rates will continue to stay down because the Fed will not undermine the already soft economy by raising rates. As discussed last week, money from emerging market countries will continue to seek the safety of our Treasury market.
Those needing income from their investments can't turn to low-yielding money market and Treasurys. Instead, they should seek alternatives that provide income and stability. Utility stocks qualify. The utility industry's earnings are fairly predictable and the stocks offer both yield and dividend growth. In a slowing economy utility stocks typically outperform, which is why the Utilities SPDR (XLU) is near a multi-year high.
I've written in previous articles about the Western Assets Emerging Markets Debt Fund (ESD). This fund yields seven percent and pays dividends monthly. Whereas our interest rates are low and falling, emerging market rates are increasing because their economies are stronger. If the dividend rate on this fund changes it will most likely be to the upside.
There are other investment-grade securities that pay close to seven percent as well. One can still receive a good income in this low-rate environment. Preferred stocks and high-yielding equities should continue to do well.
Investors are tempering their optimism about the economy. Still, it is growing and corporate profits are high, in fact at record levels. That's why stocks haven't fallen further. The main engines that have powered the market are still in place. Those are earnings growth, reasonable valuations, and a lack of alternatives.
— David Vomund is an Incline Village-based Registered Investment Adviser. Information on his money management service is found at www.ETFportfolios.net or by calling 775-832-8555. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
