REITs and bank shares don’t need rising rates to lose money

One of the time worn-dumbest sales slogans heard from long-always financial types goes something like this “so long as rates are low, or not rising, dividend paying stocks are attractive”.  “Attractive for whom?” one should ask.

Here we see the price performance of the Real Estate Investment Index (XRE in green), along with the Canadian Financial Index (XFN in blue) and US 10 year Treasury yield (TNX in red) between 2006 and 2009, when, it should be noted, all three fell by 50%.
Reits and financials fall with rates
The truth is that every cycle Central Banks start cutting rates once economic downturns begin–and it’s while they are cutting policy rates, that asset prices take a drubbing.

Except this cycle, they have no rate room left to cut; no buffer left to tender.  Their magic confidence powder has already been used up the past 6 years cajoling the market recovery.  This time, price discovery will be free to run its course, with no monetary leash left to yank it to a premature end.  Then dividend paying equities and corporate bonds will definitely be “attractive”, but only for those designed to limit losses now and keep capital liquid for then.

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