Index – Month / Year to Date
Dow Jones -4.10% / 13.72%
S&P 500 -4.69% / 17.24%
NASDAQ -5.58% / 13.59
SDEF US Equity -0.74% / 7.17%
SDEI US Equity -1.73% / 26.31%
AGG US Equity -0.95% / -1.37%
10-Yr Treasury yield was 1.31% at the end of August and 1.50% at the end of
Entering September, the stock market was on a seven-month winning streak, but September saw all three major indexes finish down for the month for the first time since January.* There were several factors behind the pullback, most of which could continue weighing on the markets for the rest of the year. Factor one was timing. By any measure, this market was simply overdue for a pullback. Factor two deals with the coronavirus variants. Investors have been shrugging off this issue for months. However, as infection rates continue to rise heading into winter, Wall Street may finally be taking notice. The third factor is the Fed, which met in September to discuss plans for winding down quantitative easing and raising short-term rates. The timing of these steps is
crucial for investors, and Fed Chairman Jerome Powell reassured them that he will move cautiously.
Issue four was inflation. Until recently, this was the only thing that seemed capable of worrying Wall Street this year. That worry ramped up again in September and will likely continue as long as the main drivers of inflation remain in place (high demand and/or low supply). The fifth issue is rising interest rates. Concerns over inflation coupled with the Fed’s forward guidance pushed long-term interest rates back up in September. As I’ve said before, I believe we will remain in an overall low-interest rate environment indefinitely, but with occasional spikes and drops like we’ve seen this year as the markets react to moves by the Fed. Factor six deals with Biden’s economic plan. So far, the markets seem skeptical that it will include the full $3.5 trillion in additional spending
Democrats are looking for, and it’s skeptical on all of Biden’s proposed tax increases. However, that skepticism could change quickly, and a selloff could follow. Finally, there was Evergrande, China’s largest property developer. The company announced it was at risk of defaulting in September, triggering fears of a global market shakeup similar to the
fallout during the Financial Crisis. I think that’s doubtful, but it’s still an issue that investors will continue watching closely.
So, what does all this mean for income investors? Well, for one thing, it means some of you may see a slight drop in the value of certain bonds and bond-like instruments on your September statements due to the interest rate spike. It should, however, be much less than the drop you saw early this year, when rates spiked much higher. More importantly, it doesn’t affect your income return at all. That, of course, is the main thing to remember if the markets remain volatile for the rest of the year, or even experience a correction, which for some of you could create a good buying opportunity!
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.
During the month we swapped out one of our healthcare REITs for another healthcare REIT and a single-tenant office REIT. We believe the new REITs will have stable and growing dividends in the future versus a struggling NHI.
• Sold: NHI- National Health Investors
• Purchased: MPW -Medical Properties Trust
• Purchased: PINE – Alpine Income Property Trust
*“Stock Futures Trade Sideways After September Slump,” Yahoo Finance, October 1, 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.
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