Bonds and Dividend Stocks: Is This Real?

Two lagging market segments "bust a move" but we've seen this before

Long-term bonds have had a rough go of it…for about a half-decade. I do truly believe we have seen the end of the 40-year bond bull market that ran from about 1980-2020. 11 Fed rate hikes later, investors are reminded that inflation is still a thing, and that rates cannot be suppressed forever.

The flip side of that is everyone on Wall Street seems to be begging for rate cuts. And this, at a time when Gamestop and Nvidia make the financial markets feel as much like a casino as at any point in my career (38 years).

That brings us to this week’s edition of Performance That Matters, the analysis of 15 major market segments I use to get a sense of what the macro picture is.

Highlighted in yellow above, we see that the past week was strong for “long-term bonds,” as I covered in Tuesday’s post. But the further we look to the right, the more we see that this rally in bond prices/dip in long-term Treasury bond yields is like a pitcher retiring the first 2 batters to start a game. There’s a lot more to go before we can declare “victory” and see rates fall and stay lower. More likely, we’ll see TLT ebb and flow, maybe for years, which is not a bad outcome.

High yield stocks: emerging from a slump, or another fake out?

The line right underneath is the ETF that owns the 80 highest-yielding stocks in the S&P 500 index. It too had a good week, and it has now posted a respectable total return as we approach the halfway point of 2024. Yield stocks often move in sync with bond prices, and we might be seeing the first round of that that we have in a while. note that while the S&P 500 (SPY) is up 9.8% the past 3 years, SPYD has returned less than 1/3 of that, and if we removed its near-4% dividend over that time, the price gains would be negative.

Bottom line here: a good week, still a down trend longer-term, but some hopeful signs for yield hogs like me! The more ways we have to make money in “total return” form (yield + price appreciation), the better. Bonds have not offered that for a long time.

Related: All US Treasuries Are Not Created Equal