Is the economy slowing? Last Thursday the Institute for Supply Management (ISM) reported that its manufacturing index dropped unexpectedly; on Friday, employment growth was lower than expected. The strong dollar, which hurts exports, was partly to blame. But some economists think these negative reports are but two of many factors that point toward economic recession: slowing growth in China and other emerging markets, the specter of rising interest rates, dim prospects for corporate earnings this fall, evidence that corporate profit margins are falling, and even the rising power of anti-spending Republicans in the U.S. House of Representatives. #-ad_banner-#Granted, some of… Read More

Is the economy slowing? Last Thursday the Institute for Supply Management (ISM) reported that its manufacturing index dropped unexpectedly; on Friday, employment growth was lower than expected. The strong dollar, which hurts exports, was partly to blame. But some economists think these negative reports are but two of many factors that point toward economic recession: slowing growth in China and other emerging markets, the specter of rising interest rates, dim prospects for corporate earnings this fall, evidence that corporate profit margins are falling, and even the rising power of anti-spending Republicans in the U.S. House of Representatives. #-ad_banner-#Granted, some of these factors are unlikely to impact the market at the same time — notably, if the economy slows, the Fed may delay its long-planned interest-rate increases. But perception matters, and if more signals flash “slowdown” in the coming weeks and months, it will have an impact on investor decisions. As legendary investor Benjamin Graham said, in the short run the stock market is a voting machine. And it pays to be prepared if the votes seem to be tilting away from growth. One way to cope with the risk of economic slowdown — or the perception thereof — is to… Read More

The stock market’s recent swoon has created buying opportunities in several sectors, including one sector all income investors should be watching: utility stocks. Because they are sensitive to movements in short-term interest rates, utility stocks have been subject to a double whammy: not only the correction in the overall U.S. market, but also the hardening consensus that the Federal Reserve Board will raise short-term rates in the coming months.  #-ad_banner-#Rising interest rates are Kryptonite to utility stocks because as regulated businesses, they tend to reward shareholders with above-average dividend yields — funded by reliable cash flow from customers — rather… Read More

The stock market’s recent swoon has created buying opportunities in several sectors, including one sector all income investors should be watching: utility stocks. Because they are sensitive to movements in short-term interest rates, utility stocks have been subject to a double whammy: not only the correction in the overall U.S. market, but also the hardening consensus that the Federal Reserve Board will raise short-term rates in the coming months.  #-ad_banner-#Rising interest rates are Kryptonite to utility stocks because as regulated businesses, they tend to reward shareholders with above-average dividend yields — funded by reliable cash flow from customers — rather than above-average capital gains. When interest rates rise, bonds and other fixed-income investments become more attractive relative to utility stocks. In addition, rising interest rates mean higher costs of capital for utilities, which need to make significant capital expenditures in their own infrastructure (e.g., new power plants). Fed Chair Janet Yellen has stated several times that interest rates are likely to rise this year — a stance she confirmed as recently as last week. Why, then, is this a good time to pick up shares of high-quality utilities? I see two reasons. Rate Fears Have Already Discounted These Stocks —… Read More