Trading Post

August 19, 2014 1:59 pm

‘Tina’ case for stocks: There is no alternative

Dividend yields in the US and Europe return more than bonds

After the market’s recent geopolitical wobble, Tina is back in charge.

The acronym, oft-noted by research boutique Strategas, explains why the equity market is near record highs, and traders continue to buy on the dips.

Even investors wary of stock valuations look at the paltry offerings from bonds, sigh, and turn back to shares, muttering: There Is No Alternative.

The market’s reasoning seems simplistic, but this is how it goes.

Growth concerns in Europe and a belief that the European Central Bank may embark on quantitative easing push 10-year Bund yields to 1 per cent. Where can you get income. Japan? Even worse at 0.5 per cent. Treasuries offer about 2.4 per cent. That’s juicy. So for now you will dismiss better US growth prospects and impending rate rises and help suppress yields.

Meanwhile, the current dividend yield on the FTSE Eurofirst 300 is 3.8 per cent, according to Bloomberg data. Many of the constituents have notable sales outside Europe, so the continent’s travails are not the be all and end all.

And in the US, about 31 per cent of the S&P 500’s constituents still sport a dividend yield that is more than the 10-year Treasury.

Fine. But remember, Janet can readily tackle Tina.

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