Well the party in common stocks resumed today–of course whether it continues will depend on the CPI and PPI numbers released later in the week.
Today (and last week) we saw that preferreds and baby bonds are joining in on the party with many gainers in the 1-3% area. I know I had at least 3-4 issues gain near 2%. It seems to me that for the foreseeable future income issues should slowly move higher as folks search for a bit more yield on their money. Thus far it doesn’t appear that money is coming out of money market funds–will we see a big move here after the likely fed funds rate cut next week?
I have a lot in Money Markets and need to start moving some of that into a bond fund or something asap. I want the potential capital gains if interest rates start to come down.
Jacob–many of the gains have already been made, but it is not too late to get on board for some decent yields and further gains.
The 38 billion inflow in MMFs seems counter-intuitive, but not surprising. It looks like end-of-the-party yield chasing. In a happier world, when interest rates drop, you could go out to 6 months or 12 months to lock in a higher yield. That’s not the case now. If the rate cut is 0.25%, MMFs might still look better than 6 to 12 month Treasuries.
5.34 – Fed overnight rate
5.147 – 1 month treasury
5.015 – 3 month treasury
4.714 – 6 month treasury
4.151 – 12 month treasury
I think money will trickle out from MMFs after the cut more slowly than one might think. Most interest-rate sensitive stocks I look at have already jumped. I expect banks to immediately cut account rates. I don’t know how much stays and how much goes or where. I don’t see the average “smart” bank customer, who has been happy to get paid 1% under Treasuries on his FDIC Special High Yield Savings Account leaping into stocks. JMO. DYODD.
All time equity highs for me…preferreds and BBs smoking!