The DJIA is off about 400 points as we write. This is a continuation of the move lower from last week. It is interesting that no particular reason is seen for the move–no real catalyst. A few Dow stocks are moving sharply lower–3M and Caterpillar helping to drag the average lower, but beyond that no singular items appears to be responsible for the fall.
Interest rates are moving a bit lower – the 10 year is in the 3.15% range, but it is moving grudgingly – no wholesale movement.
While no one can really pinpoint exact reasons for movements in stocks and bonds on a day to day basis, I believe that higher interest rates are the culprit behind stock weakness. It only makes sense that investors like us are much more likely to hold cash (i.e. CD’s, money markets etc) when we are able to garner returns of over 2%. While it still seems like a low interest rate we all know that earning 50 cents a month on cash holdings of $50,000 (or some such number) was down right depressing.
At this point in time we are not concerned with our preferred stock and baby bond holdings as the equity selloffs have not been strong enough to drag all issues down, BUT if we get a 1000 point Dow selloff on a given day we are likely to see some damage to income issues as the nervous nellies exit the markets and are satisfied to sit on the sidelines to earn 2-2.5% on their cash holdings.
As we mentioned 2 weeks ago if an income investor is selling anything at this time it would be good to gather a bit more dry powder simply to have available if we get that 1000 point Dow down days which creates some bargains in the income arena.
Don’t forget that an easy way to watch damage to preferred stocks is on this page which lists issues from highest daily loss to highest daily gain. This page has turned out to be one of the most popular pages on the site. When looking at this page one would be wise to not the volume traded as some move sharply on maybe 100 shares traded. A better indicator of the move lower is higher volume.