Is a Yield Curve Inversion Bad for Stock Returns?

Many investors see yield curve inversions—when short-term bond yields exceed long-term yields—as foreboding. Do they signal a stock market downturn? Data from the US and other major economies show yield curve inversions have not historically predicted equity market downturns. As markets incorporate news and events around the world, bond yields change, which causes yield curves...

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Surprisingly Benign: How Stocks Respond to Hikes in Fed Funds Rate

On May 4, the US Federal Reserve increased the target federal funds rate1 by 50 basis points as part of what the central bank said will be a series of rate increases to combat soaring inflation in the US. Some investors may worry that rising interest rates will decrease equity valuations and therefore lead to relatively...

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Four Ways to Improve the Probability of a Good Retirement

Around the world, individuals are being asked to take on greater responsibility for their own retirement. In the US, for example, a combination of limited Social Security funding and a reduction in the number of defined benefit (DB) employer plans—historically, the primary retirement savings vehicle for many—is causing investors to make decisions they have never...

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Should You Chase Dividend Stocks to Combat Inflation and Rate Hikes?

Inflation in the US has surged to the highest level in nearly 40 years, reaching 7.9% in February 2022.1,2 This, coupled with the US Federal Reserve’s decision to raise interest rates, has alarmed many investors.3 Some are turning to dividend-paying stocks, hoping to receive more income protection and higher returns.4 Will it work? Before diving into the performance...

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Do Stock Market Downturns Lead to Down Years?

Stock market downturns over a few days or months may lead investors to anticipate a down year. But a broad US market index had positive returns in 17 of the past 20 calendar years, despite some notable dips in many of those years. Even in 2020, when there were sharp market declines associated with the...

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Meme Investing? Try Human Ingenuity Instead.

We’ve all been conditioned to see meme investors and Wall Street in opposition, but it seems to me that they have a lot in common. Both believe in picking stocks and think they can beat the market. In my mind, the important distinction is that Wall Street stands to make a lot of money off...

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Factors Can Help in Bond Investing. But Choose Carefully.

A bond investor’s options today may seem like having to choose between a rock and a hard place. Either settle for low expectations in terms of what you may earn on a bond, or try to reinstate yesterday’s fixed income returns by reaching for yield earned through additional risk. But what if there’s a third...

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All Eyes on the Fed? A Look at Federal Funds Rate, Bond Return, and Term Premium

US consumer prices were up 7.9% for the year ending February 2022, the largest annual increase since January 1982.1 Against this macroeconomic backdrop of inflation, the monetary policy response of the US Federal Reserve has become the center of attention for many US and global fixed income investors. With Fed officials recently signaling a more hawkish...

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Five Things I Know about Investing

In this essay, Dartmouth finance professor Kenneth R. French explains five investment principles that he uses as the foundation for a holistic approach to portfolio design. I have been passionate about investing since I started studying finance in 1977. The first investment class I took was dominated by the Capital Asset Pricing Model (CAPM) of...

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Intangibles Are Noisier than You Think

Suppose you want to estimate the potential salary of a friend who is looking for a job based on her spending so far on educational degrees and professional certificates. The estimated salary might be substantially higher or lower than the actual income she will earn. This is because other factors will also affect her compensation,...

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