There has been a lot of uncertainty surrounding domestic equities over the past few years. In fact, different commentaries have shown that someone investing in low-rate term deposits would have outperformed an equity investor who invested instead in the S&P 500. While there are some merits to risk-adjusted, inflation-adjusted as well as tax-adjusted rates of return comparisons, there is plus some truth to the fact that staying invested meant for the long-term works just as well, if not better.
But this is not about remaining invested. Instead, this is brief article is regarding the facts behind an outstanding year of returns for domestic equities starting the third quarter of 2010 plus continuing throughout the 2011 year. These facts are easily found virtually everywhere on the internet, so feel free to double check each of the three suggestions listed below:
one. Dividend increases on the horizon. Starting with General Electric increasing its dividend in mid 2010, the stage has been set for the more successful, cash rich companies to start bumping their dividends as well as provide greater yield meant for investors. This has been seen in Microsoft's recent boost of 23% to its dividend payout as well as tech giant, Cisco recently announced that it would target a one single% to 2% dividend yield on its shares prices for 2011 as well. Increases to dividends to an interesting story: one that the companies are generating enough cash to share returns with investors.
2. Merger and Acquisitions activity. While the markets have been fairly even on a YTD basis (up to the time of writing), merger as well as acquisitions activity has been on its unsurpassed tear since before the credit crisis. The oil industry has seen its paramount M&A growth in the past decade; technology firms take pleasure in HP have done billion dollar acquisitions of companies take pleasure in 3Par; AOL has recently purchased social website, TechCrunch for an undisclosed sum of money; also so on. M&A activities tells us that credit lending has loosened up some as well as that companies are confident in their ability to make such purchases.
3. History does duplicate itself. Interestingly enough, much of the skepticism has been around a "new economy" where the US does not compete, or cannot compete. There are job losses in a dying automotive industry to "support" this claim. However, there was plus a time where railroads employed a generous percentage of the workforce... no longer. Just as railroad employment has gone by the wayside, the automotive manufacturing industry and seems on the brink of extinction... something we have been planning meant for decades thanks to automation. History will repeat itself in that more works in various fields will open up as well as allow people to earn a living once again. It is named as evolution, something Ken Fisher recently commented about at Bloomberg.
These three items show just how powerful the domestic economy is. It always will be this powerful; it just takes some changing of gears as well as focus for it to go on its tear. Plus a final indicator: bond yields show an aggressive economic expansion on the horizon.
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