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Paul's Insights
Date: March 11, 2021
Paul Schatz, President, Heritage Capital

Fox Business TODAY, The 10-Year Boogeyman & Dow 33,000

I am excited to join my friend, Charles Payne, on Fox Business’ Making Money today at 2:45pm today (Thursday) discussing SPACs and the epic greed and euphoria in the financial markets.
The other day, I joined my friend, Tim Lammers, on Fox61’s Morning News to discuss my recently published e-book. Tim is the consummate pro and I really enjoyed sharing tips and strategies that anyone can follow as they plan for retirement. In fact, I am going to do a short series of either videos or blogs on the super important topics of retirement planning.
You can watch the segment by clicking the link below. The second link allows you to download a free copy of the e-book.
Speaking of e-books, since my first was so well received, I am in the process of writing a second one in what will become a series of e-books on retirement planning. The new one will be on one of my favorite topics, Social Security and when folks should file for their benefits. In my 32 years in business, this has been one of the most misunderstood topics and I do not want to see anyone make critical mistakes. Remember, planning for retirement is one of the few things you do not get to do over!
I am going to finish up with a very quick market update. As usual, I will much more on the blog. Many of you have read or heard that the recent pullback in stocks has been all about the yield skyrocketing on long-term bonds.
While the Fed controls very short-term interest rates, the market controls the rest. Since August the yield on the 10-Year Treasury has gone from roughly .50% to 1.60%, a more than 200% jump as you can see below. Remember, my 2021 Fearless Forecast had rates topping out below 1.50%. Now, getting a 1.60% return per year over 10 years isn’t going to excite the masses to dump stocks and buy bonds. However, 1.60% is more than the dividend yield of the S&P 500. And those a popular measure for those who allocate billions of dollars between stocks and bonds.
Going a step further, it’s not the absolute level of long-term rates that has created the recent volatility and the 10% correction in the NASDAQ 100. Rather, it is the pace at which it took place. I have always said that our markets can adapt and adjust to almost anything, much like the U.S. Marines.
However, when something changes very rapidly and in straight line form, it will cause some disruptions and dislocations in the capital markets. Sooner than later, and I would argue it is already happening, the rise in rates will decelerate and eventually flatten out before finally going down again when the weather warms.
The markets are already adapting and adjusting. I do not see a continuation of this huge move the rest of 2021. And for those who missed the generational opportunity to refinance a mortgage, I think there will be another chance late in Q2 or Q3 although not back to the levels we saw in 2020.
The stock market is doing just fine, especially if you can divorce yourself from the nonsense around Gamestop, Bitcoin, cannabis and SPACs. The Dow Industrials just hit a fresh all-time high and are getting closer to my next target of 33,000. I always chuckle when I write about my targets. I can’t tell you how many people told me that if the market ever got to 15,000 or 20,000 they would sell everything and buy bonds. Numbers are just numbers, but our quantitative target algorithm has been so beyond spot on for years and years. More on that another time.
My general theme for 2021 has not changed. You already know about my very unpopular call last August to sell some or all of Apple and the other overowned and overloved mega cap tech stocks. For 2021, I wanted to focus on banks, transports, energy, industrials and other cyclical stocks at the expense of technology and defensive names. Small caps over large caps.
I sense this trend will continue for at least the first 6-8 months before reversing, but let’s take week by week and month by month. Try to enjoy what the markets give us now as risk should increase later in the year.
Author:

Paul Schatz, President, Heritage Capital

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