The 1%’s Favorite Yield Buy for 2025 and Beyond By Lucas Downey, Contributing Editor, TradeSmith Daily Here in TradeSmith Daily, we’ve been vocal about an epic wealth transfer set to unwind. It all ties back to the record level of wealth hiding in money market funds. Bloomberg reports money market balances now exceed $7 trillion. That’s a wickedly large tally. Back in September, we put together some killer data on the wealth transfer from the wealthiest U.S. households. Basically, over a trillion bucks was shipped into high-yielding short-term paper… And as those yields melt away like ice on a summer day, investors will need to find income replacements. If you ask us, some of that greenback hoard will find its way into dividend-rich areas of the market. And a recent development suggests one sector is set to thrive above the rest: real estate stocks. The great news is this group offers a compelling yield today… while the S&P 500 has the lowest yield in over two decades. The 1% wealth shift is coming. Here’s how you can prepare… S&P 500 Dividend Yield Collapses to Multi-Decade Low At TradeSmith, we not only seek to inform you on many of today’s biggest stories… but we also prepare you for headlines that will likely hit in the future… One off-the-chart reality is coming into focus right now, and not many are discussing it. It’s the fact that the S&P 500 has climbed so rapidly that the dividend yield has reached rock-bottom levels. Below is a monthly chart revealing the inverse relationship between the S&P 500 price and the trailing (last 12 months) dividend yield, which sits at a lowly 1.18%: 
This is a key development simply because so many investors think of stock market dividend yields solely through the lens of the S&P 500. When the 1% begins to seek yield, it will scoff at the S&P 500’s rate – half the pace of inflation. Further, some will compare the S&P 500’s yield to the 10-year Treasury yield to get a gauge of relative yield. Let’s look at where things stand now from a historical perspective. Currently the stock market yields 1.18%, and the latest 10-year Treasury yield sits at 4.21%. To get a relative yield, divide the S&P 500 yield of 1.18% by the 10-year Treasury yield of 4.21%, and you’ll get 0.28. That measure sits at the bottom of the below chart. Using monthly data, notice how 0.28 is in the lower end of relative yield going back to 2000: 
At first glance, it’s easy to assume buying equities as an income play is a bad idea. However, diving through historical data points to the real estate sector as a big opportunity given this setup. REITs Shine When the S&P 500 Yield Gets This Low Back in May, TradeSmith was bold enough to suggest picking up real estate investment trusts (REITs) as the group was left for dead. In that piece you’ll find a study that pointed to a super-low price-to-earnings ratio that often precedes big rallies. Then in August, we doubled down on the real estate sector, highlighting how REITs could have a monster year in 2025. Today we’ll triple down on this out-of-favor group, providing a signal study that blew me away. Given the relatively low yield for the S&P 500 vs. 10-year Treasury yields, I went back and isolated all periods when the relative yield dropped below 30%. I found 31 prior instances back to 2000. So, this is quite rare, to say the least. Here’s where the data blew me away. By using the iShares U.S. Real Estate ETF (IYR) as a proxy for REITs, I was able to get forward performance going back to June of 2000. In total, there were 22 discrete months where one to three years of forward performance was measurable. Here’s why real estate could boom in 2025, 2026, and 2027. When the relative yield of the S&P 500 vs. the 10-year Treasury yield drops below 0.30: - 12 months later, IYR climbs 9.7% on average
- 24 months later, IYR ramps 25.6% on average
- 36 months later, IYR vaults 57.8% on average
And the icing on the cake is the fact that all instances of 24- and 36-month hold times are positive. Yes, it’s time to REITerate REITs! If you’re looking for income alternatives to money markets, high-quality real estate equities could provide healthy dividends and price appreciation in the years ahead. Given rates are on the downswing, it’s only fitting that this group will find its footing again. There’s a real estately opportunity just waiting. Regards, Lucas Downey
Contributing Editor, TradeSmith Daily Note from Michael Salvatore, Editor, TradeSmith Daily: You’re going to want to block some time tomorrow at 1 p.m. Because Luke Lango, senior analyst of our corporate partner InvestorPlace, is set to unleash his groundbreaking Auspex system… Auspex is a simple stock trading strategy with serious muscle. Every month, it determines the best 10 stocks to hold for the next calendar month. These are the best names on momentum, growth, and a whole host of other algorithmically selected factors. Thirty days later, Auspex refreshes the list… and you rotate into the new names. Rinse and repeat. Sounds simple… but you can’t deny the results. Luke’s team recently found that Auspex beat the market more than 29x in a 20-year backtest. And in actual practice, during a live test running since July, Auspex has now also beat the market for five months in a row during one of the strongest periods of performance ever. The evidence overwhelmingly shows this strategy beats the market. So you should put Luke’s new system in your corner as we head into 2025. Details here. | 
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