Important Updates for Investors
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Published: March 16, 2005
Two steps forward, two
steps backward -- stocks remain basically where they started the year.
On February 28th, the S&P posted its sharpest one-day decline in six
months. The next week the benchmark index shot to its highest level in
nearly four years. Since then, the S&P has given up all of its
earlier gains and is now nearly back to where it started the year.
Stocks got a shot in the arm from February's job numbers, with the
S&P 500 posting its highest close in nearly four years on Friday,
March 4th. The data showed that the U.S. economy created 262,000 new
non-farm jobs during the month -- the most since October and the fourth
largest gain in the past five years.
However, inflation fears quickly doused investor optimism when oil
prices broke above $55 a barrel a few days later. Rising oil prices have
stirred fears that the Federal Reserve will need to aggressively raise
interest rates in order to stem inflation.
Capping the negative sentiment was a Commerce Department report that in
January the U.S. trade balance fell to negative $58.3 billion, with
imports outnumbering exports by the second largest amount on record.
The problem is that major importers like China invest large sums in U.S.
Treasuries. If these countries ever decide to pull their money out of
U.S. investments, then interest rates will need to be raised
aggressively in order to make U.S. investments more attractive.
Although a report came out a few days later that foreigners bought
enough U.S. Treasuries in February to ease these worries, bond yields
have nonetheless increased and stocks have continued to decline in
recent weeks. By
Tuesday, March 15th, the bulls once more morphed into bears and the
benchmark S&P 500 Index lost its earlier gains.
The S&P (^GSPC) closed on March 15th at 1197.75, down about -1% so
far this year. Dividend-paying stocks, as tracked by the Dow Jones
Select Dividend Index (^DJJ, 721.35), fared somewhat better than the
broader market, as investors continued to flee to safer stocks with
secure yields. At mid-month, the index was up slightly for the year.
Interest rate fears have weighed a bit more heavily on rate-sensitive
REITs. The benchmark Morgan Stanley REIT Index (^RMS, 729.69) is in
positive territory so far this month, but is still down about -5% for
the year.
Outlook
The markets are nervous, but the good news is that dividend
payouts have been on the rise.
Although the S&P has remained in a broad trading range so far this
year, one thing has definitely moved in a positive direction in this
market climate -- dividends. In fact, they have been rising like never
before. This February a full 239 companies boosted their dividend
payments -- the highest number of increases for any February in a
quarter of a century, according to Standard & Poor's. Best of all,
additional hikes now appear to be on the way over the coming months.
Meanwhile, a host of negative news continues to weigh on the broader
market. Oil prices have edged back into record territory, the dollar
continues its slide, and the key 10-year Treasury yield is now hovering
near its highest levels in nine months. All of these factors have put a
damper on share prices.
One of the more telling statistics of just how unnerved investors are
lies in a recent report by Thomson Financial. The research firm found
that insider purchases of company stock fell to the lowest
level in 12 years during the month of January.
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Insider trading takes place
when company executives and directors buy or sell their firm's stock.
Although it's not a perfect indicator, over the years insider trading
activity has proven to be a fairly reliable predictor of future share
price movements. After all, if insiders are buying or selling stock,
then maybe shareholders should too, since insiders know more about their
company than most other shareholders.
Typically, a high ratio of insider buying to insider selling shows
insiders are bullish about a company's prospects, and vice versa. Right
now, the consensus seems to be that stock prices are frothy and those in
the know are waiting for a pullback.
These are nervous times for the overall market. There are still some
"good buys" out there, but there are also many
"good-byes." Investors must tread lightly and not get caught
up in the market's near-term gyrations. As always, we will be right here
to keep you abreast of new income investing ideas that should offer
superior total returns over the long haul, through thick and thin.
Important
Note: The above article was merely a small excerpt from a
recent News Flash we sent to subscribers of our premium, income-oriented
investing newsletter -- High-Yield Investing. In each
issue of that newsletter, editor Carla Pasternak delivers a host of
other investing ideas and tips designed to help you earn steady gains
and above-average income from your portfolio. To receive your copy of
our most recent High-Yield Investing newsletter, as well
as other guidance similar to this every month, you'll need to register
for this separate publication. Please visit one of the following links
to continue...
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Please Note: The above article was merely a
small excerpt from an issue of our premium income newsletter -- High-Yield
Investing. In each issue Carla Pasternak presents
a wealth of information and timely investment ideas to help you earn a
steady income stream from your investments. To receive a
complimentary three-week trial or to learn more about our High-Yield
Investing service, please visit the following link: http://www.StreetAuthority.com/subscribe.asp#hy |
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