Index Month / Year to Date
Dow Jones 4.44% / 13.72%
S&P 500 5.79% / 17.24%
NASDAQ 6.42% / 13.59%
SDEI -0.62% / 26.31%
SDEF 1.45% / 7.17%
AGG -0.31% / -1.37%
10-Yr Treasury yield was 1.50% at the end of September and 1.55% at the end of October
After falling by about 5% in September, the market rebounded strongly in October, with all three major indexes hitting new peak highs. What fueled the rally? It’s tough to say. Most of October’s economic data was mixed, and none of the issues that triggered September’s volatility really went away, although some did improve. Third quarter GDP growth came in at 2%, which was below the expected 2.8% and a big drop from the over-6% growth achieved in the first and second quarters.* However, there were also some hopeful signs. New coronavirus infections have dropped nearly 60% since peaking in September, and several key economic indicators improved in October, from jobless claims to consumer confidence.**
In addition, long-term interest rates leveled off again in October and are expected to remain stable, and the Federal Reserve has vowed to move cautiously with its plan to start raising short-term rates and rolling back quantitative easing. For now, investors seem to have faith in that promise, and faith that the economy will continue to improve. That could prove to be justified, or not. Inflation, interest rates, and/or coronavirus cases could spike again and trigger another big correction of 10 to 15%. So, what does it all mean for income investors like you? Well, for more conservative investors, stable interest rates should mean little-to-no value fluctuations on the bonds and bond-like instruments in your portfolios. We saw some of that when rates spiked at the start of the year, and when they jumped again slightly in September. However, even if your values did temporarily drop a bit, your income return was unaffected, and you can continue to rely on this core principle of the Income Model.
Low, stable rates also bode well for the stock market, and that’s good news for income investors using our value stock dividend strategies. Although most of our stock portfolios underperformed the S&P 500 in October, they have outperformed the S&P 500 year-to-date, and have done so with a much higher dividend yield: about 4% or higher for most of you. But what if we do get that 10 to 15% correction by year’s end? Well, that could create a perfect buying opportunity for dividend investors. The main point is that now is a perfect time to schedule an appointment to review your allocation and reassess your risk tolerance. Do it before the holiday season hits! Don’t miss this opportunity to better protect your money or, depending on your risk tolerance, position yourself for more income and growth potential in 2022!
When managing your portfolio at SIS, we look for one of four possible “enhancement” trades while reviewing securities and possible transactions. Income generation is our primary goal for our clients, and we consider the following four portfolio enhancements before transacting: current yield, yield to worst (minimum projected annualized total return), interest rate risk, and default risk. The intents of these transactions are categorized as follows:
Pay Me Now – Enhancing current yield
Pay Me Later – Enhancing yield to worst
Cover My Assets I. – Managing interest rate risk
Cover My Assets II. – Managing default risk
We evaluate the transactions by determining whether they meet one, two, three, or all four enhancements. A baseball analogy for this: SINGLES, DOUBLES, TRIPLES, and HOME RUNS.
· We recently added Newell Brands (NWL) to our portfolio, and added a new corporate bond from Goodyear Tires (GT).
· SOLD 1.510mm FLEX 4.75% 6/15/25
· Bought 1.565mm GT 5.25% 04/30/31
*“Economic Growth Rate Slows to 2%,” CNBC, Oct. 28, 2021
**“Economic Growth Lagged in the Third Quarter, But Hopeful Signs Abound for the
Rest of 2021,” The Washington Post, Oct. 28, 2021
Note: The above trades were recent block trades and do not reflect all trades done on an individual specific basis. Sound Income Strategies, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not an indication of future results. Be sure to first consult with a qualified financial advisor or tax professional about your specific financial situation before implementing any strategy discussed herein.
You are advised to give independent consideration to, and conduct independent investigation with regards to the information above in accordance with your individual
investment objectives. Use of the Information is at the reader’s risk, is strictly intended for informational purposes in conjunction with the recipient’s due diligence, and should not be construed as a solicitation by Sound Income Strategies, LLC. Past performance will never indicate or guarantee future behavior. Sound Income Strategies, LLC does not represent or warrant that the contents of the document are suitable for you from compliance, regulatory, legal, or any other perspective. We shall have no responsibility or liability for your use or non-use of the document or any portion thereof.
Sound Income Strategies, LLC is registered as an investment advisor under the Investment Advisers Act of 1940 and is regulated by the SEC. Sound Income Strategies, LLC and its affiliates may only transact business or render personalized investment advice in those states and jurisdictions where we are registered or otherwise qualified to do so.