6 BARRON’S March1,
S&P’s dividend yield, at just under 1.5%.
Municipal bond yields also have risen
sharply, to more normal levels vis-à-vis
benchmark Treasuries’. A rush into muni
funds had lowered yields to uncompeti-
tive levels, with 10-year AAAs paying as
little as 54.7% of what comparable Trea-
suries do, according to Ying-Chen Li and
Ian Rogow of Bank of America Global
Research. That ratio has recovered to
78.4%, with a yield of 1.14%, close to their
target of 1.20%.
Muni yields could rise further in March
and April, a seasonal phenomenon related
to individual investors paying their tax bills,
they add. But with the bond battle having
quieted for the moment, bond bulls such as
Rosenberg see a buying opportunity.
I
t’s almost impossible to believe it has
been just over a year since the corona-
virus hit the global markets. So much
has happened and so much has
changed in the past 12 months that one
sometimes forgets how things were before
Covid-19 changed how we live, while end-
ing the lives of a half-million Americans.
Looking back, it’s obvious, in retrospect,
that this column was whistling past the
proverbial graveyard, citing some inves-
tors’ optimism “that the virus would spur
continued strenuous countermeasures by
monetary and fiscal authorities to cushion
its economic impact, so that the effect
would be as contained and transitory as
pandemics such as SARS in 2003.” Indeed,
with China having already taken action
against the “short, sharp shock” to its econ-
omy, one Wall Street guru argued that “the
coronavirus impact may be old news.”
Famous last words. A few weeks later,
it seemed that the bull market, which had
run nearly 11 years since the bottom of the
2007-09 financial crisis, was over. Indeed,
the economy appeared headed for its biggest
quarterly contraction since the fourth quar-
ter of 2008 or the first three months of
1980, according to that column. While Wall
Street economists scrambled to slash their
forecasts the following week, the economy
contracted at a shocking 31.7% annual rate.
Fast-forward a year, however, and mar-
kets were solidly in bull market territory.
That is, before Thursday’s downdraft.
But based on exchange-traded funds
that track major sectors, the bull is far from
dead. TheSPDR S&P 500ETF (SPY)
returned 24.61% in the 12 months through
Wednesday, according to Morningstar,
while theVanguard Total Stock Market
ETF (VTI) did even better, returning
28.31%. The latter’s outperformance was in
part a reflection of the huge gains inTesla
(TSLA), which wasn’t added to the S&P
500 until Dec. 21. Other big tech stocks
lifted theInvesco QQQ Trust(QQQ)toa
46.29% total return, while small stocks also
shone, with theiShares Russell 2000
ETF (IWM) returning 41.85%.
“Had you been told 12 months ago that
we would now have around 113 million re-
corded [Covid-19] cases [globally] and 2.
million recorded deaths (both likely under-
stated), with much of the world under lock-
down conditions for most of the year, I sus-
pect you would have found it tough to
comprehend the course of the markets,”
writes Deutsche Bank strategist Jim Reid in
a research note. “However, the Fed and the
ECB have added around $6 trillion to their
balance sheets over the year, alongside tril-
lions of fiscal injections.”
In the U.S. market, those exertions
made for some big winners. Among S&P
500 stocks, Reid listsEtsy(ETSY) at the
top of the leaderboard with a 12-month
gain of 292.5%, followed by Tesla, up
287.8%. Rounding out the top five:Free-
port-McMoRan(FCX), up 217%;En-
phase Energy(ENPH), 189.2%; andVia-
comCBS(VIAC), 137.1%.
Unlike the disparate winners, the losers
clearly were hit by the pandemic:Norwe-
gian Cruise Line Holdings(NCLH),
down 39.1%;Carnival(CCL), off 36.5%;
Boeing(BA), down 35.8%;United Air-
lines Holdings(UAL), off 35.1%; and
NOV(NOV), off 34.7%.
A traditional balanced portfolio fared
relatively well, even though bonds pro-
vided scant returns after yields did a bun-
gee jump, rebounding after plunging to
record lows. TheVanguard Balanced
Indexfund (VBAIX), which has a 60%
allocation to the total U.S. stock market
and 40% to the broad taxable U.S. bond
market, returned a respectable 17.55% over
the past 12 months.
But theiShares Core U.S. Aggregate
BondETF (AGG), which mirrors the Van-
guard balanced fund’s fixed-income por-
tion, returned just 1.20%. The bonds in a
60/40 portfolio are supposed to cushion
any stock losses, but that wasn’t the case
on Thursday, as a huge selloff in the debt
market dragged down equities. The Van-
guard fund slid 1.93% that day.
Perhaps more than any other word,
“unprecedented” was used to describe
the past 12 months. Precedents, as a re-
sult, may not provide much guidance for
the coming year.B
email: [email protected]
Up & Down Wall Street (continued)
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