In recent days, an inflection point seems to have occurred, with these weaker areas of the market gaining strength. We wrote in the Investor Alert last week that cyclical stocks, including health care, consumer staples, utilities and telecommunication, have been lagging the remaining sectors. From the beginning of the earnings season on April 24 through May 3, energy, industrial and materials stocks are nearly the best performing areas of the market.
We believe expectations might have become too lofty for defensive companies and too gloomy for cyclical stocks, so as perceptions toward global growth improve, it won’t take much for energy, industrials and materials to take off.
Spring clean your Treasury portfolio too
With the Fed’s insistence to keep interest rates low, real interest rates remain negative for investors. For example, a 90-day T-bill yields 0.06% and a two-year Treasury yields 0.23%, but inflation burns off 1.5%.
It’s interesting to note that while low interest rates help keep the government’s debt payments low, these rates hurt seniors living on a fixed income. My friend, Terry Savage writes this week,
“Savers are the big losers in this rigged game. And most domestic savers are seniors and those approaching retirement, who planned to live on the income generated by their savings. Today, that’s simply not possible – unless they are willing to take on a lot more risk.”
Here’s an alternative that offers both a shorter duration and higher yields, without a lot of risk: The Near-Term Tax Free Fund (NEARX) has a tax-equivalent yield of 1.51% as of March 31, 2013. Its 30-day SEC yield is 0.81%. These yields are significantly higher than a two-year Treasury.
The important idea for investors is to adjust to the current conditions. Regardless of the month, if the thermostat shows frigid temperatures, dress accordingly. Likewise for when it’s hot in the summer. What’s important is to stay tuned and make sure your portfolio is dressed accordingly.