Stock ETFs Stall Near Recent Highs as FOMC Approaches March 16, 2021
Stock index ETFs were mixed on Tuesday, with tech stocks and ETFs pushing higher as other sectors languished. Meanwhile, Federal Reserve officials commenced their March meeting.
The Dow Jones Industrial Average slipped from its recent highs on Tuesday by about 0.4%, while the S&P 500 added 0.1% to notch a new intraday high, before selling off somewhat. Meanwhile, the Nasdaq Composite led the three key benchmarks, climbing just more than 1%, led by major tech players like Microsoft, Apple, Alphabet, and Facebook.
“These are highly profitable businesses with excellent balance sheets,” said Angelo Kourkafas, an investment strategy analyst at Edward Jones. “They could be relative underperformers, but I have hard time, based on the valuations they’re trading at, imagining that they could have a severe or sustained pullback.”
Bitcoin corrects after hitting another new ATH, this time above $61 8k
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Gold Blues as Silver Woos
February was a tough month for gold, which marked its worst monthly performance since November 2016. Spot gold fell $114/oz, or 6.15%, to close the month at $1,734/oz. Half of this decline came in the two final days of February, as bond selling spiked into near panic mode and triggered a multi-asset sell-off into month-end. Figure 1 shows how gold has been inversely correlated to bond yields.
February’s pullback occurred on the back of various developments. Rising energy prices and the markets’ view on U.S. government spending bolstered the reflation trade with a rally in broader equity markets. The U.S. dollar strengthened as markets priced in a swift economic recovery and as U.S. Treasury yields advanced to the highest level in a year, with the 30-year bond rising above 2% and the rapid move in the 10-year to over 1.5%, which we will discuss in more detail. Meanwhile, gold ETFs saw holdings decline towards the end of February. Silver prices held up m
A bird in the hand is worth two in the bush.[1]
In investing, this describes investors’ preference for dividends (the bird in the hand) relative to future price appreciation (two in the bush).
While this preference is undeniable, the impact of dividends on company valuation represents a fault line between a traditional finance view and a behavioral finance view of markets:
From a
traditional finance standpoint where all investors are rational and markets efficient the relevance of dividends on firm valuation can be tenuous because investors should be indifferent between dividends and capital gains.
A
behavioral finance perspective gives license to the impact of dividends on firm value because investors may prefer firms that pay dividends, assigning value to a steady payout and thus increasing the value of these companies.
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