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11/16/2016 10:00 am EST
Marvin Appel, president of Signalert Asset Management, LLC, assesses his model portfolios following the election. Here, he looks at some winners and losers from a President Trump.
Trump's promises to build infrastructure while cutting taxes looks like it will increase the federal budget deficit. Increasing infrastructure spending when unemployment is already below 5% may also fuel inflation.
Inflation is already trending higher now that wages are rising and energy prices have stopped falling.
Both of these considerations have led to a big jump in interest rates, hitting bonds as well as defensive and high-yielding stocks.
I think it likely that 10-year Treasury note yields will touch 2.3%, the level where they started the year. That would imply a potential 1.5% decline in the price of investment-grade bonds.
Municipal bonds are among the worst affected areas, perhaps because they did so well in 2015 that they became overvalued, and perhaps because Republican policies are expected to be harder on local governments.
On the other hand, high yield bonds and especially floating rate bond funds are holding up relatively well. Nonetheless, I expect that we will eventually get sell signals for the high yield corporate bond funds and the high yield municipal bond funds in our portfolios.
We may also get a preferred sell. Note that this would apply to trading the iShares Preferred Stock ETF (PFF), but not to individual preferred stocks.
In fact, my favorite mortgage REIT preferred stocks for long term holding - Annaly Capital Management (NLY-E) and AGNC Investment Corp. depository shares (AGNCB) - have fallen and are now trading slightly below par.
If the yields (now greater than 7.6%) on these REIT preferreds appeal to you, I recommend that you buy them at or below $25/share for long-term holding. Note that price volatility in any preferred stock can be extremely high, so limit your exposure accordingly.
Consumer staples stocks have outperformed the S&P 500 Index on a risk-adjusted basis over the past 15 years. However, Trump's election may make this sector less attractive. Much of their business is overseas, which would be vulnerable in the event of increased trade disputes.
Verizon's dividend yield is almost 5%. If that appeals to you, buy at $47 or lower. If you want to wait for a possibly better price than $44 should be your entry point.
With a dividend yield of 5.3%, AT&T is appealing as a long term holding. I recommend buying it at $36.50 or lower if the current yield appeals to you. If you want to wait for a lower price, $33.50 would be the entry point.
By Marvin Appel, president of Signalert Asset Management, LLC.
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