Below is an excerpt from today’s Fixed Income Weekly, which is sent out each Wednesday to recap and analyze developments in fixed income markets both in the US and around the world.  Sign up for Bespoke Institutional with our Annual Outlook special to read it today and beyond.

From a price return perspective, preferred share ETFs have been in a world of hurt. Major preferred share ETFs like VRP (Invesco Variable Rate Preferred ETF), PFF (iShares US Preferred Stock ETF), PGX (Invesco Preferred ETF), and PGF (Invesco Financial Preferred ETF) are at or near 52-week lows. Worse, price has gone nowhere since 2014, with prices down almost 6% since the inception of VRP back in May of 2014. That’s pretty brutal.

Fortunately for fixed income investors with preferred exposure, price is not the driver of returns for the product. As shown in the chart below, despite the horrible price returns, total returns on average across all four ETFs listed above are a solid 21% since 2014. Interest returns are significantly higher at more than 26%. Moreover, while day-to-day volatility is almost entirely a function of the price return, interest return is the overwhelming driver of aggregate total returns. As with other fixed income ETFs, failing to account for interest accruals in the form of dividends is a critical mistake that can lead to missed opportunities.

This is becoming a trend.  New Home Sales for the month of October were released earlier today and once again missed expectations.  While economists were expecting the headline reading to come in at 575K, the actual reading came in 31K below that consensus forecast at 544K.  The last time we’ve seen a monthly print in New Home Sales this low was back in March 2016.  Not only is this month’s report notable for the fact that sales printed at a 2.5 year low, but it also marked the fifth straight month where sales missed expectations.  Usually after a couple of months of weaker than expected reports, economists adjust their forecasts to account for the weakness, but in this case, they haven’t been able to catch up.  Using our Economic Indicator Database, we looked to see how the current streak of weaker than expected New Home Sales reports stacks up over time, and what we found was pretty amazing.  Going all the way back to 1999, there has never been a streak where New Home Sales missed expectations for five straight months.  During the housing crisis and in the early stages of the recovery, there were three streaks where New Home Sales missed expectations four months in a row but never for five straight months.

Not only have economists consistently overestimated New Home Sales, but they have also been way off the mark.  The chart below shows the rolling five-month spread between the actual initially reported print for New Home Sales versus consensus expectations.  With misses of -31K, -72K, -1K, -18K, and -37K in the last five months, the total deviation between actual and estimated New Home Sales has been -159K.  Looking back over time, there haven’t been a whole lot of periods where the spread was this wide indicating just how weak recent housing activity has been relative to expectations.

The major indices have managed to edge out gains so far this week but the index ETFs in our Trend Analyzer for the most part still have some room to go before they have recovered from last week’s losses.  Currently, every major US Index ETF is within 1% of their levels from 5 days ago.  Only two of these—the Russell Mid-Cap (IWR) and Nasdaq (QQQ)—are positive.  Eleven of these names are oversold while the remaining three are neutral.  The oversold ETFs are teetering on neutral, so a little more upward movement would likely shift them to neutral.  Unfortunately, longer-term trends remain negative with ten of the names in this group sitting in downtrends.

Below is a chart comparing the market caps of Apple (AAPL) and Microsoft (MSFT) going back to 1986.  While Microsoft (MSFT) dominated Apple (AAPL) during the 80s and 90s, Steve Jobs finally one-upped Bill Gates with the release of the iPod and then the iPhone in the mid-2000s.

After peaking in market cap at the highs of the Dot Com bubble in 2000, MSFT began a slow drift lower in size before finally putting in a bottom at the lows of the Financial Crisis.  At the same time, Apple saw its market cap skyrocket higher and higher as the iPhone took over the world.  While MSFT began to see a pick-up in market cap again in the early 2010s, it couldn’t keep up with Apple.

Over the last few years, however, Microsoft has turned into a Tech juggernaut again as its Windows 365 “cloud subscription” model has worked to perfection.  You can see in the chart that MSFT’s market cap has been rising nearly as quickly as Apple’s market cap since 2016.

Below is a look at the spread between the two market caps going back to 1986.  While Apple maintained a healthy lead in size over the past few years, the company’s recent swan dive has left it only marginally larger than Microsoft.  As of this morning, Apple’s market cap stands at $821 billion, while Microsoft is worth $816 billion!