Saturday, November 18, 2017
Business

Investors face stocks vs. bonds conundrum

RECOMMENDED READING


As investors enter the second half of the year, they are faced with a conundrum.

Continuing growth of the economy is on stock investors' side after lifting the Standard & Poor's 500 index 6 percent in the first half of the year and into record territory, plumping up 401(k)s and savings for college and retirement. Meanwhile, the Dow Jones Industrial Average closed above 17,000 for the first time Thursday.

But deciding whether to buy stocks now — after this year's rally, which follows a 30 percent gain last year — is less clear-cut.

Stocks are pricey, leaving some analysts skeptical that sizable gains can be had until companies grow sales and earnings more.

But bonds are no great attraction, either, given low interest rates and the expectation that rates will rise later this year.

As with everything in life, it's all about timing.

When rates start climbing, everything from U.S. Treasury bonds to corporate and high-yield bonds are likely to decline in value, inflicting losses on bond funds. Those losses could be especially sharp if the Federal Reserve raises interest rates earlier instead of later in 2015.

As investors decide whether they favor stocks or bonds, analysts generally have been leaning toward stocks.

In a recent Bank of America-Merrill Lynch survey, about two-thirds of professional investors worldwide said high-yield bonds have cost too much. Analyst Hans Mikkelsen of Merrill Lynch says the slightest scare on interest rates or the economy could cause the bonds to plunge.

But pros know stock market rallies don't last forever.

Goldman Sachs estimates the S&P will end 2014 at 1,900, or about 3 percent below Thursday's 1,985 close. By the end of 2015, Goldman estimates 2,100. By the end of 2016, 2,200.

Second thinking about stocks could cause reluctance to buy, which could prompt a 10 percent selloff, a "correction." Even if that were to happen, the general direction of the market is up as the U.S. economy grows, although not at the brisk pace imagined.

The key for the market will be whether earnings reports live up to expectations. Goldman Sachs strategist David Kostin is concerned because profit margins last peaked in 2011.

The S&P trades at about 16.7 times expected company profits. Kostin says that's above the historical average of about 13.5 times profits when interest rates are 1 to 2 percent over inflation. Periods like now.

Rather than cowering in less-risky sectors, Kostin thinks investors will do best later this year and into 2015 if they purchase "cyclical stocks," sectors that gain when the economy is strengthening, such as technology companies like Facebook; manufacturing or industrial companies such as Avery Dennison and Nucor; and companies such as Lowe's and Whirlpool that sell discretionary items to consumers.

Kostin suggests picking up stocks with sales growth and dividend yields above their peers while trading at prices below them.

Comments

Stolen car crashes in St. Pete, leaving passenger, 15, with life threatening injuries

Two boys in a stolen car struck a dip in the roadway and crashed into a tree, leaving the 15-year-old passenger with life-threatening injuries, St. Petersburg police said.The crash occurred about 11:25 a.m. Sunday as the car sped west on 11th Avenue ...
Updated: 1 hour ago

Search suspended for missing Cortez boater who left from Egmont Key

The U.S. Coast Guard suspended its search for a missing 63-year-old boater on Sunday evening, two days after he and his dog were reported missing 5 miles northwest of Mead Point, just inland from Anna Maria Island.On Friday, Fraser Horne of Cortez le...
Updated: 3 hours ago
Parents, children welcome downsized MOSI in Tampa

Parents, children welcome downsized MOSI in Tampa

TAMPA — Avery, 6, slid his sneakers up the side of 200-pound rubber tire from the space shuttle Columbia and sat on top.His father, Ilder Jeannot, called for him to get off of it — usually climbing on museum displays is frowned upon. But in the new M...
Updated: 7 hours ago
Sunday Conversation: Tona Bell invites customers to enjoy a ‘digital detox’

Sunday Conversation: Tona Bell invites customers to enjoy a ‘digital detox’

Like so many small businesses, Saturday will represent a special day for Paper Seahorse owner Tona Bell. Bell’s cozy bungalow business at 211 S Howard features paper and stationery, specialty pens, vintage typewriters and crafts classes. It will offe...
Updated: 12 hours ago
Florida jobs recover from Irma, unemployment rate drops

Florida jobs recover from Irma, unemployment rate drops

As economists predicted, the tough hit that Florida jobs took from Hurricane Irma was not long-lived. The state added 125,300 jobs in October, almost breaking even from the 127,400 jobs it lost in September. According to state figures released Friday...
Published: 11/17/17
Apple will postpone release of  HomePod

Apple will postpone release of HomePod

The Washington PostApple said Friday that it’s pushing back its plans for a Siri-powered smart speaker until sometime early next year.The HomePod speaker was announced in June, with an initial launch date set for December. Apple said that its smart s...
Published: 11/17/17
HSN, Good Housekeeping pick five contest finalists

HSN, Good Housekeeping pick five contest finalists

ST. PETERSBURG — Good Housekeeping and St. Petersburg-based HSN have chosen five finalists for their entrepreneur competition. The partners are searching for a novel item to promote as endorsed by the Good Housekeeping Seal, denoting reliability and ...
Published: 11/17/17
Trigaux: State of Tampa Bay startups? Disconnected we falter but there’s a plan to fix that

Trigaux: State of Tampa Bay startups? Disconnected we falter but there’s a plan to fix that

How are we doing?That was the Big Question posed more than once this past week in Tampa Bay. First, the Tampa Bay Partnership and USF debuted in-depth and new ways to measure Tampa Bay across a wide range of indicators to gauge whether we are gaining...
Published: 11/17/17
Tesla’s latest creation: An electric big rig that can travel 500 miles on a single charge

Tesla’s latest creation: An electric big rig that can travel 500 miles on a single charge

The main course was expected: a pair of sleek silver Tesla semi-trucks that get 500 miles per charge, go from zero to 60 mph in five seconds and — if the hype is to be believed — promise to single-handedly transform the commercial trucking industry.B...
Published: 11/17/17
We ask Tampa Bay startup leaders how best to advance entrepreneurial ecosystem

We ask Tampa Bay startup leaders how best to advance entrepreneurial ecosystem

What one thing could be added to the Tampa Bay startup community to help it grow and prosper?The Tampa Bay Times reached out to these leading area entrepreneurs and startup experts for answers.RELATED COVERAGE: Trigaux: State of Tampa Bay startups? D...
Published: 11/17/17