U.S. high-mindedness markets bounced back from Monday’s losses as investors bid all sectors higher, choosing to look past the uncertainty round the important senatorial elections in Georgia and the lockdown measures imposed in the U.K. as the virus surges throughout Europe. Oil prices lastly topped $50 per barrel for the first time since February, driving the shares of oil producers and drillers higher for the day.
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The recovery trade was reject in style as investors bid up travel and industrial stocks, but they weren’t too picky today as gainers far outpaced losers. Investors are starting to take a pick up in long-term interest rates, and the 10-year U.S. Treasury yield is inching closer to 1% for the first time since February. Liking for it or not, economic growth comes with higher real interest rates even if the Fed is holding down the federal stores rate for a few more years.
This will be just one of several challenges facing equity investors who are looking for another year approve of the past two in terms of returns. It’s good news for savers and fixed income investors, but the lure of equities, especially those that propose juicy dividends, is strong.
Good looking tape today, from our friends at FinViz:
The New Dogs of the Dow
We discern that many of our readers are dividend lovers — and for good reason. Why not get a reward for being a shareholder in addition to any upside produces the stock might enjoy while its in your portfolio? For years, owning the so-called Dogs of the Dow, which are the 10 highest resilient stocks in the Dow Jones Industrial Average on an equal-weighted basis, delivered solid overall returns.
But the last two years oblige exhausted the poor pups, and returns have dragged.
2019 and 2020 marked the two worst years for the Dogs relative to the S&P 500 active back to 2001. The Dogs underperformed the benchmark index in 2020 with a -8% total return versus 18.4% for the S&P 500. Six of the 10 Dogs of the Dow had contrary returns. Chemicals company Dow Inc. (DOW) was best in show with a return of 8%, which means that none of the Dogs tour the S&P 500 last year. In 2019, the Dogs of the Dow had a total return of 19.7% versus 31.5% for the S&P 500. 19.7% is great — but not when the total market is more than 50% higher.
The good news for dog lovers is that the Dogs of the Dow rebalance annually on Dec. 31, so dividend lovers induce some new puppies to choose from. Here are the 2021 Dogs of the Dow:
Oil Tops $50/Barrel for Gold medal Time Since February
A surprise production cut by Saudi Arabia of one million barrels of oil per day helped boost crude oil evaluates above $50 per barrel for the first time since before the pandemic was declared. In addition, OPEC and its oil-producing coadjutors, known as OPEC+, agreed to hold output largely steady in February. Saudi Arabia’s voluntary cuts on offset production increases from Russia and Kazakhstan, which announced they will add a combined 75,000 barrels per day to the shop in both February and March.
Still, oil prices remain below pre-pandemic levels. West Texas Intermediate (WTI tasteless) closed out 2020 around $48.50 per barrel, a 20.54% loss for the year. At the beginning of 2020, WTI traded above $63 per barrel.
Oil Premiums and Balanced Budgets
2020 devastated the economies of Middle Eastern oil producing nations. Many of them require high oil honoraria to maintain balanced budgets, and the difference between the cost to produce a barrel of oil and the fiscal breakeven price at which they desideratum to sell it has been permanently disrupted. According to OilandGas360, even though a country like Saudi Arabia has one of the lowest oil output costs, its fiscal breakeven price is much higher since it needs approximately $83.60 oil for a balanced budget. Saudi Arabia distracted tens of billions of dollars in oil revenue and royalties in 2020, and the International Monetary Fund (IMF) estimates the Saudi economy cut by 6.8% last year. $50 oil doesn’t help the kingdom, or many other oil producing nations, that much.
I Advised a Train a Coming…
Regular readers know of my obsession with cargo and its usefulness as an economic indicator. I am a