Let's take a deep breath and gauge where we are and where we're going. As we've been saying for months, these twists in the yield curve are ominous but rarely point to more than an immediate jolt and cloudy conditions beyond.
You'd think the world ended yesterday when the spread between 2- and 10-year Treasury interest rates briefly inverted. Investors were evidently watching for that moment as a sell signal, because within minutes all of Tuesday's tariff relief evaporated. By the end of the day, all but two members of the S&P 500 were down.
(One of them was our own recommendation Ventas, which illustrates the defensive power of Real Estate. The other was precious metal giant Newmont Goldcorp.)
Curve inversions are serious business. While they don't necessarily lead to a recession, they've preceded every economic downturn since the 1950s, and in the meantime they play havoc on business models that depend on borrowing cheap to buy higher-yielding debt. That's why we pulled the plug on our Mortgage REITs yesterday. They're going to have a hard time making enough money to pay their dividends. The longer this goes on, the harder it gets.
We'll give them another look when conditions for their business start improving. For now, we have plenty of high-yielding recommendations that should be a less bumpy ride until the curve recovers. If you want to ride out any storms, it's all about our remaining REITs, which have hard assets and cash flow that don't rely on this kind of leverage strategy. They just collect rent and pass it on to shareholders.
We'll say more about this in the weekend Bull Market Report. Here, however, we want to put yesterday behind us with a few statistics that put the current downswing in context. While it doesn't cure the anxiety or restore anyone's positions overnight, simply being able to quantify the losses and balance them against previous upside is its own reward. A lot of investors right now are running on pure instinct, letting the tides lead them into waters they may not rationally enter on their own. If it gets rough, they can easily dump great stocks simply to get liquid and get away from what they see as nightmarish risk ahead.
On the other hand, we hope you are liquid and that you have enough income-paying stocks to cushion a bumpy season or even expand your positions on the dip. Granted, the BMR universe is down 7% since the Fed cut rates and the trade war heated up, but our stocks are still up 35% YTD so there's room to give up a little ground without cutting into actual capital.
But YTD numbers don't reflect last year's correction, do they? Stocks plunged between October and December, so even the meteoric recovery that followed barely took the market as a whole back to breakeven. The S&P 500 took 10 months to gain 5% from the September peak, which is now almost a year ago. Since then, the index has fallen far enough that the market now has a 6% loss to show for all that time, patience and uncertainty.
The stocks we had back in September and still recommend today are up 18% over that period. That's not a zero-sum game and it's not an empty circular path to nowhere. If you've been here a year, you've experienced the extremes of life in the market . . . but you should be ahead of the game, with a healthy profit to show for your time.
And because we recommended a lot of stocks on the dip, there's a lot of fresh upside in our world. Alteryx has doubled since October. Anaplan has given subscribers 50% since March. CyberArk is up 65% since December. How about Roku. It's getting hard to quantify how much they are up this year! They haven't all been instant winners, but they're definitely doing well enough to give our slower recommendations time to mature. That's what it's all about. Now let's see what the market gives us today.