Within the past week, common stock prices have gyrated widely (again). The bias has been to the downside. The cause du jour is high yield bonds and concerns over the solvency of some of the issuers of this low rated debt, and liquidity for buyers and sellers of their debt securities. In particular, energy companies that may have borrowed too much thinking oil prices would never go down, are now dealing with a prospect of lower revenues due to the weakened oil price, thus leaving the companies short of cash to pay interest on their debt or maybe even principal payments. In addition, the Federal Reserve Board has telegraphed that interest rates will be rising – soon.
It is difficult to discern whether this is a hiccup or a harbinger of sustained downturn in common stock prices. The reality is that periodic declines in stock prices are a normal part of the landscape and portfolios. Sigma client portfolios are positioned to weather these periods.
All comments and suggestions are welcome.
Bob Bilkie, CFA®