Published Thu, 08 Aug 2019 09:43:05 -0400 on Seeking Alpha
These are tough times for yield seekers. The yields in many defensive, typically higher dividend-paying sectors, as well as long duration Treasury bonds, have been driven down by fears of an economic slowdown and the specter of a looming recession.
Investors have piled heavily into consumer staples, utilities, and real estate in 2019, especially the higher quality names:
Data by YCharts
When the next recession will arrive is anyone's guess, but there are signs that we are getting close to the edge.
For one, as investors continue to bet on more interest rate cuts by the Federal Reserve, the yield curve continues to invert further. Currently, it is as inverted as it has been since 2007. St. Louis Fed economist William Emmons observes that the decline in home sales is consistent with a recession occurring later this year or sometime in 2020. Economist Gary Shilling believes that we are already in a recession but that this one will result in a GDP decline of 1.5-2% rather than a much more severe 3.5-4%.
Certainly, without ever-rising government expenditures, US GDP growth would have turned negative already.
If we are getting close to a recession, income-oriented investors with money to place are in something of a predicament. Economic fundamentals may be about to turn down, putting stress on the underlying companies represented by our stocks, and yet so many of them are trading near their 52-week highs!
That brings us to the present article: three defensive... Read more
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