Salient to Investors:

Shares of high-dividend-yielding companies are trading near the lowest level in almost 3 years relative to the market.

Jack Ablin at BMO Private Bank said the favorable investment backdrop of low interest rates is reversing and if the US economy stays on its current path, 10-yr Treasury rates could hit 4 percent in 2014 pushing high-yielding dividend stocks further out of favor.

William Dudley at the New York Fed said the harsh winter won’t harm the economy enough to prompt a fundamental change in the outlook for the Fed’s reduction in bond purchases.

The median economist expects the 10-yr Treasury yield to rise to 3.35 percent by the end of 2014, and GDP will grow 1.9 percent in Q1 and 3 percent by year-end.

Jeff Mortimer at BNY Mellon Wealth Mgmt said we are in a transition period to higher rates, indicated by the weakness in high-dividend-paying stocks – high dividend stocks track closely with 10-yr Treasuries, so over the next 12 months to 18 months stocks with a bond-like component will be weighed down by rising interest rates. Mortimer said rotation out of the group is underway, but recommends investors pair select high-dividend payers with high-growth stocks in industries such as technology, health care and biotechnology that don’t have as high a payout.

Jim Stellakis at Technical Alpha said the group has been trading in a series of declining peaks relative to the market, and indicates investors want progressively less exposure to high-dividend paying companies. Stellakis said the dividend index is trading near a big support level and if it trades below a March 2012 threshold in a decisive manner, would signal the appetite for these stocks has deteriorated much more.

Andrew Wilkinson at Interactive Brokers said 10-year Treasury rates could fall to 2.25 percent in 2014 because there is no sign of inflation and the consensus forecast calls for belief that the economic recovery will be sufficiently strong to withstand a rise in interest rates that won’t impact demand, particularly in housing.

William O’Donnell at RBS Securities forecasts the 10-yr T-yield will increase to 3.2 percent and Treasuries will become a better alternative to riskier assets like high-dividend-paying stocks – a larger portfolio adjustment won’t be triggered until interest rates breach at least this level.

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