April 18, 2021

George Cafe Journal

The Power of Success

Stock Market Today: With Powell On Deck, Investors Hold Their Breath

The Federal Reserve kicked off its two-day Federal Open Market Committee meeting Tuesday, and the stock market took a breather ahead of tomorrow’s commentary from Chair Jerome Powell.

“The FOMC meeting on the 17th will be one of the most critical events for the Fed in some time,” BofA Global Research analysts say. “Fed Chair Powell will have to strike the right balance between a more upbeat assessment of the outlook and the asymmetric (flexible average inflation targeting) reaction function.”

“Wednesday’s FOMC meeting will undoubtedly be the main focus this week given ongoing volatility in Treasury yields,” adds Deutsche Bank senior economist Brett Ryan. “(A) more robust outlook should be reflected in the Committee’s updated projections with a substantial upward revision to expected growth, lower unemployment forecasts, and a modestly higher inflation trajectory.”

How important is the Fed meeting? BofA Global Research’s March survey of global fund managers showed that for the first time since February 2020, the biggest perceived tail risk to stocks isn’t COVID-19 – inflation and “taper tantrums” have taken its place.

With little else for investors to focus on, stocks broadly lost their momentum for a day. The Dow Jones Industrial Average’s seven-session win streak was snapped, though the decline was a modest 0.4% to 32,825. It was led lower by Boeing (BA, -4.0%) and American Express (AXP, -2.6%), among others.

The Nasdaq Composite finished with a small 0.1% gain to 13,471, but that was well off its intraday high of 13,620. Among notable gainers there were Starbucks (SBUX, +2.2%), Applied Materials (AMAT, +3.2%) and Facebook (FB, +2.0%).

Other action in the stock market today:

  • The S&P 500 closed 0.2% lower to 3,962.
  • The Russell 2000 slumped 1.7% to 2,319.
  • U.S. crude oil futures dropped again, this time by 0.9%, to settle at $64.80 per barrel.
  • Gold futures managed a small 0.1% improvement to $1,730.90 per ounce.
  • Bitcoin prices struggled again, off 1.6% to $55,745. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

Higher Rates? Probably. But High Rates? Probably Not.

You’re well aware of Wall Street’s general angst about rising interest rates, but exactly how high are they headed?

Kiplinger’s forecast is for the 10-year Treasury to rise to at least 2% by the end of the year. Deutsche Bank, as another example, sees rates going a little higher and getting there faster: “Our baseline macroeconomic outlook and the balance of risks are consistent with further increases in longer-term interest rates, with the UST 10y yield moving to 2.0 to 2.25% by this summer,” say DB’s David-Folkerts-Landau and Peter Hooper.

Among many other things, that means investors’ options for significant yield will remain limited in the short-term. Bond rates still would be historically low, and the S&P 500 (at 1.5% presently) doesn’t offer up much help, either.

But income-minded investors can find much more generous yields if they just eat their “alphabet soup” – namely, acronymed special classes such as real estate investment trusts (REITs) and business development companies (BDCs), among others.

If you’d like to start your search with a few of each, consider this list of 10 high-yield income investments. This sampling includes at least one pick from each of the major high-yield categories, including a fund that wraps all of them up into one portfolio.

Kyle Woodley was long BA as of this writing.