Dividend Yields (Sort Of) Soar

With the recent selloff in defensive sectors like utilities, consumer staples, real estate, and telecom, many of these stock’s dividend yields are jumping to multi-year or multi-decade highs. However, the reason their jumping isn’t the one that investors prefer. 🙁

A stock’s indicated dividend yield could rise by the company raising its dividend payout amount or the stock price falling. And recently, most of the dividend yield gains have come from falling prices.

Below is a scatter plot of S&P 500 components with their dividend yield and the stock’s drawdown from 52-week highs. At the extremes, we can see stocks like Altria ($MO), Verizon ($VZ), Walgreens Boots Alliance ($WBA), VF Corp ($VFC), and other big names catching investors’ attention.

Rising yields may seem like an attractive hook for investors looking to “buy the dip.” And they certainly were in the past “there is no alternative” (TINA) era of low-interest rates. But with the risk-free rate above 5%, many investors are abandoning these traditionally “safe” assets as they sell off with the bond market. 👎

The reason right now is simple. If you can get the same or higher yield in a risk-free (or lower-risk) product like a money market or high-yield savings account, there’s no need to take the equity risk associated with owning these stocks. Of course, they’re also giving up some potential upside there. But with fear ruling the market, many investors are willing to make that tradeoff for now.

We’ll have to wait and see how this develops. It’s unclear where interest rates will ultimately settle, and the stock market will find its footing. But after experiencing quite a bit of pain in traditionally “safe” stocks and assets this year, it’s clear some investors are taking their lumps and moving on. 📝

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How The Markets Performed In 2023

As our article about the ultra-wealthy showed, 2023 was a great year for assets (especially the publicly traded ones). Let’s take a quick peek at how things panned out. 👇

First, let’s start with the tech-heavy Nasdaq 100 index. The chart below shows that the index had one of its best rolling 12-month total returns in decades, rising 55%. The actual total return index also hit new all-time monthly closing highs, reiterating that bulls took back the momentum this year in a big way. 🤩

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Nvidia Tops Amazon

It seems like Nvidia is hitting a new milestone every day, so why would today be any different? 🤷

This morning, we saw a massive squeeze in shares of Arm Holdings, which soared more than 40% before pulling back midday. That led to other semiconductor stocks rising alongside it as investors’ optimism around the sector continued. 📈

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A New High In New Highs

Nvidia earnings re-ignited the animal spirits in the market, causing the stock and major indexes to reach several new milestones. Let’s check’em out. 👇

Firstly, a 16% rise in the stock today caused its market cap to rise $277 billion, the largest one-day increase of any stock in history. Secondly, today’s move put it firmly ahead of Google and Amazon as the fourth-largest stock in the world (Saudi Aramco not pictured below). It also moved it a stone’s throw away from $2 trillion. 🤩

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Industrials Sneak To New Highs

While everyone is focused on technology stocks, another market sector has been performing quite well. That sector is industrials, which includes everything from aerospace & defense to machinery, ground transportation, and more. 🏭

The cyclical sector is also a widely-watched proxy for how investors feel about the economy. After all, if the economy is going to grow, these types of companies are needed to help produce, ship, and deliver the goods. And right now, investors are apparently bullish on their outlook because sector ETF $XLI broke out to new highs late last year and hasn’t looked back. 📈

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