The reports of TINA’s demise may be greatly exaggerated. If the acronym TINA is not part of your daily vocabulary, I can understand. The concept of “there is no alternative” is a term some market savants have used to explain the market’s strength over the past few years. There is no alternative to stocks simply because rates are so low, close to zero, and stocks were the only place you could get a return. There have been many times in the past ten years where the S&P 500 has yielded nearly 2% (this is with a long history of growing that dividend) while the 10-year US Treasury note has yielded but 50 to 75 basis points.

Of course, people had the same feeling about owning stocks at the end of the last great secular bull market (Y2K). I mean where else could you get “8%, 9% or 10% on your money?” They were in it for the long haul, men and women on the street lauding the virtues of equity investing as they walked out of their broker’s offices. Why would they, at the time, want to buy a 6% 10-year Treasury when the keys to the vault lie in the equity market? For them 6%  bonds were not an alternative. TINA!

I do not believe a move to 1.5%, 2% or even 2.5% will change this equation. My opinion may be controversial, and rates will be a continuing topic of media concern moving forward. Check out this headline from Barron’s “Up and Down Wall Street” column: “Rising Interest Rates Don’t Trouble Equity Investors—at Least Not Yet.” (Barron’/WSJ subscription needed to view.

Here is another cut at the concept “Real-rate rally threatens the TINA trade and mega-cap dominance…”

I concur with the concern about mega-cap and high multiple stocks as I believe we are transitioning from the “haves” to the “have-nots.” My definition of “haves” are those stocks that could survive and thrive in the lock-down environment of Covid-19, namely big tech,  the Apples, Amazons,  Alphabets, and Zooms. These companies breezed right through it and their valuations have more than reflected this.  The “have-nots” were basically everything else … all those industries impacted by the virus … energy, travel, entertainment, food service, financials, manufacturing, etc. Their valuations were punished. The all-clear signal appears to have been given with the advent of safe effective vaccines.  Stir in a massive amount of fiscal stimulus, continuing historically low-interest rates, pent up demand (13.7% savings rate Dec 2020), and you have the ingredients for a very strong economy moving forward and relative outperformance by the “have-nots” …unloved, under-owned stocks with strong earnings momentum going forward.

Investors continue to vote their assets in fear

All during the third quarter of last year investors continued to vote their assets with skepticism. In the face of a very strong market off the March lows they poured money into ‘safe’ fixed income.

According to Fidelity Investments, Equity ETF flows were swamped by their fixed income alternatives in the third quarter.

“US equity ETFs accumulated $15 billion in net assets during Q3 (1/3 of this went to technology ETFs), and developed markets ex-US gathered $12 billion. Global equity ETFs added $12 billion in net flows last quarter—a dramatic improvement from a mostly flat prior quarter. Commodity ETFs also had a stellar Q3, attracting $12 billion in net flows—a significant tally relative to historical trends—as the price of gold, silver, and some other metals trade near relatively high historical price levels.”

“Standing above them all, bond fund flows brought in $55 billion in net assets during Q3. This is now a multiyear story, as bond fund flows have led all asset classes since early 2019.”

This was happening with a backdrop of the US Treasury 10-year yielding about 3/4 of 1%.

The Investment Company Institute in a release dated February 17, 2021, indicates that  flows into fixed income mutual funds continue to dominate the picture while equity mutual funds appear to have been in liquidation since the first of the year.

Parting thoughts

• TINA is alive and well. A  2% or 2.5% 10-year is not the end of the world especially if you can get 3, 4 or 5% dividend yields on good companies flushed out during the Covid rout.
• The flight to ‘safe’ bonds (except their prices will decline in a rising rate environment and they provide zero protection from inflation) continues.
• Media obsession with potential inflation and higher interest rates will provide further opportunities to own quality stocks away from the recent hot spot in ‘big tech.’
• The continued flow of funds into bonds indicates a formidable “wall of worry” and that there is plenty of fuel on the sidelines for future market advances.
• The old adage that it is a market of stocks still holds true. What has been working may be yielding to new leadership. Carpe Diem!

What do you think?