Dividend Yield: Stocks v Bonds
Recently, there has been an increase in the number of stocks that have a dividend yield greater than bonds. Approximately 70% of stocks in the S&P 500 stock index now have a dividend yield greater than the current yield of a 10-year U.S. Treasury Bond*. Simply stated, the majority of stocks within this market index produce higher income than bonds. This metric, which peaked at near 80% in March, is the highest level since available data started in the early 1970s. Historically, this has averaged 20-30%.
What does this mean? One, investments are commonly chosen relative to other options available. An environment where a majority of stock dividend yields are higher than bond yields could support stock prices. Two, changing interest rates (bond yields) can quickly impact this comparison as bond yields currently remain at historic lows. It is prudent to remain selective and diversified within stock and bond investments. Both can serve an important role in portfolios.
Market Comments - September 18, 2020
U.S. stock markets see-sawed on the week with the S&P 500 Index finishing down
Similar to last week, large technology companies which have done well on the year, led the market lower during the week
Smaller U.S. stocks and international stocks were positive for the week
The U.S. Federal Reserve (Fed) met this week and held short term interest rates unchanged at a range of 0-0.25%
The Fed commented that they expect to keep short term interest rates low until the labor market reaches maximum employment and inflation increases to exceed 2%
Continued progress occurred during the week on congressional negotiations about a short-term funding package to keep the government from shutting down after October 1st, sidestepping a potential confrontation ahead of the November elections
The initial public offering (IPO) for cloud data warehousing company Snowflake, Inc. took place on Wednesday marking the largest software IPO ever
*source: Ned Davis Research
DAM: V20259707