A Taste of Things to Come?

With the DJIA off 230 points at this moment based upon a spike in interest rates created by Fed speak one wonders if they should be buying now.  Eric Rosengren, who has been fairly dovish and lobbying for low interest rates has now changed his tune.  In typical Wall Street fashion the markets have reacted fairly swiftly and yield stocks (utilities, REITs, MLPs, preferreds and baby bonds) are being hammered pretty hard. REITs are off 3% thus far, while utilities are off 2%.  Many preferreds and baby bonds are off 1-2%.

We are always looking for bargains as we have mentioned many times, but drops of 1-3% are hardly bargains given the level that yield stocks were trading at.  For the nimble trader types there is likely a chance for picking up some issues to quickly “flip”, given that the market will likely spring back in the days ahead.  For the buy and hold types (like us) when we look for bargains we are looking for drops of 5, 10 or even 20% so we will likely be waiting for some time before these prices are seen.  The bottom line is we are not really buyers on this minor pullback.

Today does give us a flavor of possible things to come.  If there was a rate increase by the Fed later this month I think we would be looking at a real setback in yield stocks as there is not any conviction by market players that rates will be increased before December if even then.