Has the Fed tightened dramatically and just not told us? Have bonds actually gone down in price and up in yield?
Of course, neither is true, but if you own a higher-yielding stock, whether it be in oil and gas or food and beverage, it has ceased to protect you from losses -- another sign that the bear is growling.
Consider Merck (MRK), down 12% for the year and yielding a very safe 3.5%. Normally, you would think that could amount to a safety net for the stock. But what's really going on here isn't that rates are going higher. What's going on here is a recognition that a 3.5% yield means nothing in the face of what is most likely an expected 5% to 10% decline from here. You have to figure that's the calculus if you are selling the stock, right?
I feel the same way about Kraft-Heinz (KHC), a company that is poised to raise its dividend for multiple years considering the multitude of restructurings ahead of it now that it is controlled by the king of restructuring, the brutal 3G Capital from Brazil.
Unlike Caterpillar (CAT), Cummins (CMI) hasn't pre-announced but the market is factoring in the possibility, hence, its nearly 3.5% yield isn't bothering to stop the slide in this terrific engine-maker, which is already down 24% for the year.
I could make the exact same case for Emerson (EMR) and Eaton (ETN); again, these are heavy-equipment companies that simply aren't that bad, although Emerson shares are doing badly. Nobody cares not to sell because of the belief these companies' stocks are going far below the yield's offset.
Only Procter & Gamble (PG), which has a yield that's pretty sticky at 3.76%, seems to have found buyers, in part because this high-quality blue chip is already down 22%.
The entire problem as I see it right now is that unlike 2009, there is no accidental high-yield protection even as the earnings, cash flow and buybacks are much more robust and none of these companies is truly dividend challenged.
This is a case for a lower market, one where yield matters and the downside is fathomable. It just hasn't happened yet.
Right now, the S&P 500 trades at a 16.9 price-to-earnings multiple and that's too high based on the worries these stocks are manifesting. It's another example of how we just have to wait until stocks go where they want to go and the protection from the yield is palpable.
We just aren't there yet.