Lower stock prices persist

Despite the encouragement about the largest US spending bill in history, stocks keep sinking. Last week the Dow fell 400, bringing the YTD decline to over 900 (or 10%). There is recognition that "make it up as we go along" carries risk of failure or only mediocre success. It's sad that all this spending had to be rushed thru Congress. There is an old saying, "haste makes waste." That thought is probably weighing down markets.

Even though stocks have gotten off to a bad start, one group, has done very well, MLPs. The first chart shows their rise this year compared to the sinking bars for the Dow. Record high yields of 12% at the start of the year for the Alerian MLP Index brought back buyers. Higher MLP prices caused the yield come to fall to 10.3% (& some distributions were raised in the last few weeks).

Meanwhile REITs (represented by the Dow Jones REIT Index), another high yield group, as shown in the 2nd graph, have followed the Dow down & did much worse in the last week. The strongest in the group have 10% yields, others offer yields well into double digits.


Dow Jones vs MLPs --- YTD





Dow Jones vs REITs --- YTD





How long the REITs can buck the negative trend in the market is uncertain. This performance has come in spite of the decline in oil prices (much of their business is moving oil). REITs are facing the threat of losing tenants while they have to continue paying expenses (i.e. interest). Uncertainty about their future is being priced into the stock prices, producing record yields.

Passing the stimulus bill is only another step in trying to help the economy. Bank bailout II has to be dealt with. Because of the lack of success with the first $350B, there is more scepticism in Congress. It's future is uncertain. In addition, auto companies will give Congress an update report of what they've done with their bailout money. Markets have to decide whether to go with the optimism shown by the MLPs or succumb to the pessimism of the REITs.