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Stock Market This Week
Stock Market This Week – 09/02/23
The stock market rejoiced this week on weaker economic data. The job opening report showed declining openings and fewer voluntary quits. Many economists, analysts, and investors viewed this positively because it may mean the U.S. Federal Reserve pauses interest rate hikes. Furthermore, the unemployment rate moved up to 3.8%.
However, the Gross Domestic Product (GDP) growth was weaker than expected but still higher than the first quarter, indicating the economy’s strength. Lastly, the Personal Consumption Expenditures (PCE) report came in at 3.3% for July 2023, slightly higher than June 2023. But inflation is still down from its high values in 2022.
Stock Market Overview
As shown by data from Stock Rover*, the stock market performed well this week. The Russell 2000 was the best-performing index, followed by the Nasdaq Composite, the S&P 500 Index, and the Dow Jones Industrial Average (DJIA).
Nine of the 11 sectors rose this week. Technology, Basic Materials, and Energy were the top three sectors for the week. But the Healthcare, Consumer Defensive, and Utilities sectors performed worst.
The Energy sector climbed on an almost 8% gain in oil prices. Oil prices rose to ~$86 per barrel. The VIX plummeted more than 23% to below the long-term average. The price of gold continued its reversal and rose to $1,966 per ounce.
The Nasdaq is performing the best for the year, followed by the S&P 500 Index, the Russell 2000, and the Dow 30. The Nasdaq extended its bull market, and the S&P 500 is less than two percentage points away. In addition, nine of the 11 sectors are up year-to-date. The three best-performing sectors are Technology, Communication Services, and Consumer Cyclical. But the worst-performing sectors are Consumer Defensive, Healthcare, and Utilities.
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The dividend growth investing strategy has returned to positive results across all categories. The recent market volatility has lowered returns, but the trend has reversed. The table below shows their performance by category.
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Stock Market Valuation This Week
The S&P 500 Index trades at a price-to-earnings ratio of 25.78X, and the Schiller P/E Ratio is about 31.04X. These multiples are based on trailing twelve months (TTM) earnings.
The long-term means of these two ratios are approximately 16X and 17X, respectively.
The market is still overvalued despite the recent correction and a bear market and rebound. Earnings multiples of more than 30X are overvalued based on historical data.
Economic News This Week
Provided by Stock Rover*.
Job Openings
The U.S Bureau of Labor Statistics Job Openings and Labor Turnover Survey, or JOLTS, reported 8.827 million job openings on the last day of July, 338,000 lower than June’s 9.165 million reading. The job openings rate fell to 5.3% from 5.5% in June. July’s reading was the weakest since March 2021. Industries contributing to the decrease included professional and business services (-198,000); health care and social assistance (-130,000); state and local government, excluding education (-67,000); state and local government education (-62,000); and federal government (-27,000). Job openings increased in information (+101,000) and transportation, warehousing, and utilities (+75,000).
The number of people voluntarily left their jobs decreased (-253,000) to 3.549 million. The number of people who quit their jobs for other opportunities made up 2.3% of the workforce in July, little changed from the previous month. Quits decreased in accommodation and food services (-166,000), wholesale trade (-27,000), and arts, entertainment, and recreation (-17,000). The number of hires decreased slightly (-167,000) to 5.773 million in July. The hiring rate decreased by 0.1% to 3.7%. There were 1.5 jobs for each unemployed person in July, down from 1.6 in June.
Gross Domestic Product
The Bureau of Economic Analysis’ second estimate on second-quarter gross domestic product (GDP) growth reported an economy expanding at a seasonally adjusted annual growth rate of 2.1%, down from the first estimate of 2.4% but slightly above the 2.0% pace set in the first quarter. Private inventories were revised, showing a decline at a (-$1.8B) pace instead of increasing at the previously reported (+$9.3B) pace. Inventories negatively affected GDP growth instead of adding 0.14 percentage points per the first estimate. There were also downward revisions to business spending on equipment (from +10.8% to +7.7%) and intellectual products (+3.9% to +2.2%).
Consumer spending, which accounts for over two-thirds of the U.S. economy, was revised slightly (from +1.6% to +1.7%), but it is still down significantly from the (+4.2%) Q1 of 2023. The PCE price index, one of the primary measures of inflation and consumer spending, increased at a (+2.5%) annual rate, down from the (+4.1%) pace in the first quarter.
Personal Consumption Expenditures
The Bureau of Economic Analysis reported the Personal Consumption Expenditures (PCE) price index increased by 3.3% from July 2022, as compared to readings of (+3.0%), (+3.8%), (+4.3%) and (+4.3%) over the previous months. Although above the 3.0% pace set in the last month, it is well below the 40-year high of 6.98% set in June 2022. The PCE is watched closely by the Fed as it portends future inflation. On a monthly basis, the headline number showed a (+0.2%) increase, as compared to (+0.2%), (+0.1%), (+0.3%), and (+0.1%) over the previous months. Consumer spending increased (+0.8%) in July as personal consumption expenditures increased by $144.6B. The $144.6B increase reflected increases of $102.7B in expenditures for services and $41.9B in spending for goods.
The PCE price index increased (+0.2%) in July, as prices for goods decreased (-0.3%) and prices for services increased (+0.4%). Food prices increased (+0.2%) and energy prices increased (+0.1%). The closely watched core PCE index, which strips out the more volatile factors of food and energy, continued on a somewhat level trajectory with a year-over-year (+4.2%) increase; this follows readings of (+4.1%), (+4.5%), (+4.6%), and (+4.6%) over the previous months.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.
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