A slower-than-expected measure of inflation released Tuesday morning provided stocks with a quick but ultimately fleeting lift.
The Labor Department reported that August's headline consumer price index grew 0.3% month-over-month (0.4% expected) and 5.3% year-over-year (5.3% expected); both figures came in slightly slower than July's consumer-price growth.
Core CPI, which backs out the volatile measures of energy and food, also came in under estimates, at 4.0% growth in August versus 4.2% expected
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Last month's consumer price index included notable drops in items such as airline tickets and used cars – a couple of key inflation drivers in 2021 that have been considered "transitory" in nature.
"The debate over whether inflation is transitory (i.e. temporary) or gaining a foothold in consumer – and producer – psychology is just starting to pick up steam, and the outcome of that debate will likely determine the timeline with which the Fed will begin raising interest rates, and thus will be a major market event," says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
Rick Rieder, BlackRock's chief investment officer of global fixed income, points to another potential inflation risk:
"We think it's hard to see a case for the recent levels of elevated inflation turning into '1970s-style' runaway price increases, but in the near-term supply shortages, including in labor, are dulling the potential growth of the economy and migrating prices in the near- to intermediate-term somewhat higher," he says. "In the context of a solidly expanding economy, these higher wages and supply-chain shocks will allow companies to achieve higher levels of pricing power for at least the next couple of quarters, if not next couple of years.
"That could risk the development of a more undesirable level of inflation to persist for a time, complicating the risk/reward of excessive monetary policy accommodation.
The major indexes initially opened in the green but quickly gave up their gains in a broad-based downturn that saw every market sector finish in the red. The Dow Jones Industrial Average (-0.8% to 34,577) and S&P 500 (-0.6% to 4,443) couldn't build on yesterday's gains, while the Nasdaq Composite (-0.5% to 15,037) extended its losing streak to five sessions.
Weighing on all three was Apple (AAPL, -1.0%), which received a less-than-enthusiastic reaction to its latest product event revealing the iPhone 13, Apple Watch Series 7 and other updates.
Other news in the stock market today:
- The small-cap Russell 2000 sank by 1.4% to 2,209.
- Is Microsoft (MSFT) due for a dividend hike? That's what Morgan Stanley analyst Keith Weiss believes. The mega-cap tech giant has consistently raised its quarterly dividend payment in mid-to-late September for the last 11 years, and Weiss is predicting a roughly 10% increase this time around. However, considering MSFT reported a 32% year-over-year rise in its fiscal 2021 operating income in July, the analyst – who has an Overweight (Buy) rating on the stock – sees the "capacity for a larger dividend increase." Currently, MSFT issues a quarterly payment of 56 cents per share, which translates to a 0.8% yield. The speculation was enough to lift the shares 0.9% today, making Microsoft the best Dow stock today (and one of just two to close in positive territory).
- Herbalife Nutrition (HLF, -21.1%) got knocked around after the dietary supplements specialist cut its guidance for both the third quarter and the full year. Citing "lower than expected levels of activity amongst its independent distributors," HLF says it now expects current-quarter net sales to contract between 3.5% and 6.5% from Q3 2020, while sales for all of 2021 are expected to improve 4.5% to 8.5% on a year-over-year basis. The company also lowered its adjusted earnings per share and EBITDA (earnings before interest, taxes, depreciation, and amortization) forecasts for 2021.
- U.S. crude futures gained a penny to end at $70.46 per barrel.
- Gold futures rose 0.7% to settle at $1,807.10 an ounce.
- The CBOE Volatility Index (VIX) rose 1.3% to 19.63.
- Bitcoin rebounded by 3.9% to $46,486.97. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
A Haven for Yield Hunters
The market's struggles this month have done little to ease the pressure on income investors looking for fresh opportunities. The S&P 500's yield remains at a paltry 1.3% – roughly on par with 10-year Treasuries after a drop in yields today.
Sure, you can secure higher future yields by targeting dividend growth – these five highly rated Dividend Aristocrats are a good place to start – but sources of high current yields are few and far between.
One place to start is real estate investment trusts (REITs), which are required to deliver at least 90% of their taxable profits to shareholders in the form of dividends.
"A pretty common question that we get asked is, 'Where do we find yields?'" says James Ragan, director of wealth management research at investment banking firm D.A. Davidson. "It's hard to just chase the highest yield; that doesn't lead to the best outcomes. We are looking for high-quality companies that have been able to raise their dividends through the pandemic. And the REIT sector has some high-quality areas that are fairly attractive yields in the current environment."
Investors can easily invest in dozens of REITs at once via these seven real estate funds. But if you prefer to make more concentrated bets on some of the sector's top opportunities, consider this shortlist of appealing REITs.
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