More importantly, gone are expectations for rate cuts in the first half of Does this mean that a recession is now a certainty? The risk of recession has increased, that's for sure. What about the market retesting the June lows or falling a lot more?
Fundamentals would indicate this is likely, though it's far from certain. Fact One: This Too Shall Pass Charlie Bilello Even if we get a recession in , which the bond market and most CEOs now expect, it's not likely to stop investors from earning incredible returns in the coming decade. The year forward historical return on stocks rises to about 6. What if stocks just trade flat for a year or two?
Historically speaking, we shouldn't expect a new record high until February , which would coincide with the Fed's plans for higher for longer rates. Do you know the only real losers to the Fed's planned higher for longer interest rate regime?
Market timers. The rest of us shouldn't even consider market timing because it's almost impossible to do consistently well. But what if you just can't help rubbernecking the bull market, like the passerby of a train wreck? They often lag during bull markets, especially when growth stocks lead the way. Dividend ETFs have come alive recently, performing better than the market so far this year.
Sky-high inflation and an aggressive response by the Federal Reserve have crushed stocks. Historically, dividend-yielding stocks outperform during periods of high inflation, and has been no exception. The relatively stable dividend-payers that each of these four ETFs feature have kept these funds afloat. However, these stocks may not provide shelter during all down markets. Each performed at least as poorly as the broad market during the coronavirus-driven selloff in early But because of its defensive stance, it lagged the broader market until the second quarter of this year.
A targeted list of high-quality names helped it outpace its dividend rivals, but the relative wealth chart shows that buying the market may be the best option for total return. Dividend funds provide solid income, but they may not hold up in all market conditions. Exhibit 3 plots historical yield data since of the six names showcased in Exhibit 1. Not all investors purely seek return from their portfolios.
Many also require a stream of income. And what these names may lack in recent historical returns, they have mostly made up for in yield. Yield is a function of price, and as markets rally, the cash dividends paid by companies are a smaller percentage of their increasing share prices. This explains falling yields in most of and However, as inflation rages and recession fears echo across markets, stocks have fallen into bear-market territory for the year.
Lower equity prices have resulted in modestly higher yields. Why Do You Invest? Dividend ETFs have gobbled up assets so far this year. This could result in bond funds making a comeback just as dividend yields begin to retreat. Recent flows into these dividend ETFs suggest they may be newly minted shiny objects following great market-relative performance lately. These ETFs can be great tools for providing yield in equity markets, but they may not be right for everyone.
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