Investment Week at a Glance

Stocks finished down last week. The Dow Jones Industrial Average was down 1.9%, the S&P 500 fell 1.2%, and the NASDAQ dropped 1.0%. Foreign stocks (MSCI EAFE) were also down 1.4% for the week. Bond prices were down for the week, with the 10-year U.S. Treasury yield ending the week at 4.98%. (Data source: Wall Street Journal)

FOMC to Make Decision On Interest Rates Wednesday

On Wednesday, September 16th, the Federal Open Market Committee (FOMC) will release a highly anticipated decision about US interest rates. Markets have been pricing in a 25-basis-point rate hike for several weeks now, and last week’s inflation data increased those odds. Central bankers will likely aim to bring inflation under control by tightening monetary policy, so financial markets could see some volatility after the decision.

Treasury Yields Continue to Climb, Potentially Putting Pressure On Equity Markets

At the end of last week, yields on the 10-year Treasury neared 5%, the highest level in nearly 20 years. If fixed-income yields continue to rise, stocks with low or no dividend payments could become less attractive to investors. Additionally, long-term yields often reflect investors’ expectations for economic growth, inflation, and the likelihood of default. If long-term yields continue to rise because investors demand higher returns for taking on more risk, it will drive the cost of borrowing up for businesses and the government, driving down equity valuations.

Morgan Stanley Stock Up 17% Year to Date, As Investment Banking Division Boosts Revenue

Morgan Stanley (MS), one of the leaders in the financial sector, has seen its stock price increase over 17% so far this year as the company’s investment banking division has increased its revenue by nearly 60% in the last year (Morgan Stanley Investor Relations). Over the last two quarters, Morgan Stanley has crushed earnings per share estimates and is expected to perform well again when the company reports earnings next month. Morgan Stanley investors also should benefit immensely from the IPO’s of Anthropic and OpenAI, as the company should play a major role in underwriting both companies within the next year (CNBC).

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Quiz

What is the approximate dividend yield of the S&P500 Index?  (Scroll Down for Answer)

1. 1%
2. 2%
3. 3%
4. 4%

Answer:

1. 1%. Currently, the S&P500 dividend yield sits around 1%, about half of the long-term historical average. This is largely due to the heavy technology weighting in the index, as tech stocks traditionally pay few dividends. Additionally, more companies are implementing share buyback policies as a more tax-efficient way to return profits to shareholders.

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