Weekly Risk Report 03/30/2009
March proved to be a reasonable month; certainly a welcome change from the previous six months. The good news is the i-Wave risk indicator remains very bullish. All four components remain in their own very low risk territories (below their 10th percentile).
While there is now measurable speculation returning (more so in the smaller cap stocks) it statistically has had little impact on our risk indicator so far. When we look at our Speculation component in particular we see 38 company stocks that have more than doubled in the last 13 weeks. As an industry, pharmaceutical and biotech companies make up a significant portion of these rapidly rising stocks.
Just a few weeks ago the Value Line median dividend yield was at about 4%. Because of the rise in prices of stocks that yield is now down to an effective 3.3% as of this week. That’s a big move. But it is worth remembering that the median yield in 2007 at the market peak was only 1.6% or less than half the current level. U.S. Treasury yields are very low on shorter term notes. Only when one reaches out past 10 years does one see yields similar to the current Value Line level. So, while the longer treasury notes and bonds have relatively low risk of principal, they only just compete with current average stock market yields.
