Barron’s Weekend Summary: Given bonds’ stubbornly low yields, analysts and advisors have urged investors to reconsider the traditional 60/40 blend of stocks and bonds in a portfolio
Cover Story:
-Given bonds’ stubbornly low yields, analysts and advisors have urged investors to reconsider the traditional 60/40 blend of stocks and bonds in a portfolio. The “bond king” himself, Bill Gross, has called bonds “garbage.” Jim Grant, a Barron’s alumnus and publisher of Grant’s Interest Rate Observer, has said that bonds offer “return-free risk.” In turn, experts suggest income-seeking investors to broaden their focus to stocks and more equity-like areas of fixed-income markets, such as convertible securities and junk debt.
Interview:
-Barron’s interviews Anthony Klotz, a professor of business administration and an associate professor of management at Texas A&M University. Klotz has made a career of studying resignations. A year ago, Klotz predicted what has come to be known as the Great Resignation—a term he unwittingly coined for a phenomenon that has left economists puzzled, central bankers flat-footed, and the U.S. economy grappling with shortages of goods and services. While some workers finally re-entered the labor market in November, the Covid-era workforce-participation rate remains below pre-pandemic levels, defying expectations for a mass return to work that would have thawed supply chains and cooled inflation.
Tech Trader:
2021 proved tricky for tech investors. While the Nasdaq Composite—a reasonable proxy for the sector—was up 23% for the year through the middle of this past week, that trailed the return of the S&P 500 by about five percentage points. It’s the first time that’s happened since 2016. Tech stocks overall were solid, but the indexes proved misleading, with strong performances by a few of the largest components masking some ugly stuff under the surface. Barron’s suggests that Nvidia could be next company to join the trillion-dollar club, thanks to a 132% rally that lifted its market value to $750 billion.
The Trader:
-In 2022, the Federal Reserve could begin increasing its target interest rate around the middle of next year—lifting the rates that banks can charge on loans they extend—while more of that excess capital could be returned to shareholders via higher dividends, stock buybacks, or both. The Invesco KBW Bank ETF (KBWB), which provides concentrated exposure to the group, returned about 38% in 2021.
-The Trader, edited by Ben Levisohn evaluates its own advice, as dispensed through 2021: “Looking back on 2021, there was only one right answer for anyone playing the stock market: Buy and hang on. Every dip turned out to be short-lived and small enough to be ignored. There were no bear markets, no corrections, and even 5% declines were few and far between—there was just one. The S&P 500 index will finish the year up around 27%, and near its all-time high.”
Features:
-IBM could be one of the big turnaround stories of 2022. Barron’s highlighted the company’s improving outlook in a recent cover story, calling it Microsoft Jr. Under CEO Arvind Krishna, IBM has spun off a pedestrian business of managing data centers into Kyndryl Holdings, refocused on the cloud and artificial intelligence, and vowed to start growing again for the first time in about a decade.
-Johnson & Johnson is shaking off its stodgy image as it moves to develop a broad and underappreciated drug portfolio and spin off its consumer business. The stock, now priced around $173, trades for a reasonable 17 times projected 2022 earnings of $10.38 a share and has a secure 2.5% dividend yield.
European Trader:
-Europe’s biggest online-only fashion retailer Zalando has had a tough year, as shoppers returned to physical shops after pandemic lockdown restrictions eased. The Berlin-based e-commerce player mainly sells clothes, beauty products, and footwear from third-party vendors to customers in 23 countries. It also makes some of its own branded items.
Emerging Markets:
-Barron’s suggests that a Korean electric-vehicle battery powerhouse LG Energy Solution, India’s dominant life insurer Life Insurance Corp. and a Chinese online fast-fashion site run by Bytedance (parent of TikTok) that had more U.S. downloads than Amazon.com might offer some of the top opportunities in emerging markets investment for 2022. These and other emerging market companies may launch initial public offerings in 2022. Tech unicorns from Colombia to Indonesia could turn the stream into a flood—or not, depending on how much 2021’s IPO flops quash animal spirits.
Commodities:
Poor winter weather conditions combined with already-low global inventories could send prices for wheat higher by up to 19%, experts say. War in Eastern Europe could catapult them further. “Europe, Ukraine, and the U.S. face some very unfavorable weather that will really set off a supply shortage concern,” says Shawn Hackett, president of Hackett Financial Advisors.