{"id":11054,"date":"2020-12-06T18:20:44","date_gmt":"2020-12-07T00:20:44","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=11054"},"modified":"2020-12-07T11:33:57","modified_gmt":"2020-12-07T17:33:57","slug":"credit-and-housing-are-key-attributes-to-sp-500-upside-this-year","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=11054","title":{"rendered":"Credit and Housing are Key Attributes to SP 500 Upside This Year"},"content":{"rendered":"

On March 20th, 2020, the HYG or high-yield ETF was down 18.11% YTD, after the Covid-19 issue struck and the stock and credit markets started becoming unglued. Today, the HYG is +6% YTD, and the SP 500’s total return as of Friday, December 4th was 16.6%.<\/p>\n

An 18% drop for the HYG is a steep correction and during that week in March ’20 it could have been worse. High-yield as an asset class bottomed with a 25% yield in late 2008, early 2009.<\/p>\n

\"\"<\/a><\/p>\n

This section of Bespoke’s Credit outlook for 2021 published this weekend, shows how high-yield credit has recovered since the March – early April ’20 high yields. The fascinating thing about this is that the Fed’s liquidity programs were – for the most part – untouched since March, and the recovery in the credit markets was all on its own. The Fed did buy a little HYG in July per some reports, but for the most part many of the liquidity programs put in place were not needed.<\/p>\n

Like the big brother behind you on the playground, all the Fed needed to do was announce the presence of the liquidity facilities and – voila – spreads started to come back in, undoubtedly helped by the fiscal stimulus too.<\/p>\n

Housing is another positive contributor. Several clients are in the real estate business either here in Chicago or Denver and many seem to be having a record year, particularly if their specialty is residential.<\/p>\n

\"\"<\/a><\/p>\n

The bottom 2 charts of this larger Bespoke chart from this weekend shows the extremely low single-family housing inventories and the rapid appreciation in the median “existing home price” seasonally adjusted.<\/p>\n

For most of my clients, there largest asset is usually their single-family home, particularly if they are under the age of 40. For older clients who have done more saving in the last 10 – 20 years, their portfolio and their 401k’s can be their largest asset.<\/p>\n

Summary \/ conclusion:<\/strong><\/em>\u00a0 During the weekly SP 500 earnings update done this week, and with the Covid-19 lockdowns, and the election headlines, the forward SP 500 EPS estimates have done nothing but consistently trek higher the last 6 – 7 months, and I do think corporate credit spreads and housing are a BIG part of that improvement.<\/p>\n

All of client’s investment-grade and mortgage exposure has been sold. There isn’t much value in the high-grade corporate credit market today (in my opinion) or mortgages, so we are looking elsewhere. Even Emerging market bonds have come in substantially.<\/p>\n

While junk bond credit spreads are at or near absolute low yields, with a 95 basis point 10-year Treasury, credit spreads have not yet the maximum “tights” from 2006 as the first Bespoke chart demonstrates.<\/p>\n

There is still room in high-yield for relative credit spread improvement, particularly with the improvement in the Energy sector.<\/p>\n

Thanks for reading.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

On March 20th, 2020, the HYG or high-yield ETF was down 18.11% YTD, after the Covid-19 issue struck and the…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[244,40,39],"tags":[],"class_list":["post-11054","post","type-post","status-publish","format-standard","hentry","category-high-yield-credit","category-hyg","category-jnk"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/11054","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11054"}],"version-history":[{"count":7,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/11054\/revisions"}],"predecessor-version":[{"id":11065,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/11054\/revisions\/11065"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11054"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11054"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11054"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}