Stock Market This Week – 04/06/24

Stock Market This Week

Stock Market This Week – 04/06/24

The largest company by market capitalization in the mid-1990s was General Electric (GE). It held the position until the dot-com boom when Microsoft (MSFT) surpassed it. After the dot-com crash, GE retook the number one spot. GE was number one and occasionally number two until rising oil prices caused Exxon Mobil (XOM) to surpass it. Although known as an industrial conglomerate, GE had significant financial operations in GE Capital. It also owned NBC and many other companies. GE made many millionaires and was a dividend growth stock.

Because of its financial operations, the company’s fortunes turned during the subprime mortgage crisis and the Great Recession. Demand for many of its industrial and consumer products plunged. The company’s market capitalization fell, and the dividend was cut. GE was a Dividend Aristocrat but lost its status. 

However, the end of the Great Recession did not stop the firm’s travails. GE faced years of sub-par performance because of complexity, overpaying for acquisitions, and lack of strategic focus. The stock price recovered but failed to regain its previous highs before falling, and the dividends were cut again in 2017 and 2018.

We discuss GE because the company has returned. It recently split into three corporations: GE Aerospace, GE HealthCare Technologies, and GE Vernova. The legacy firm is GE Aerospace. The stock price is the highest since about 2016. Moreover, the dividend was boosted 250% to $0.26 per quarter from $0.08. It will be many years before GE returns to its former dividend glory, but it has a path to get there now.

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Stock Market Overview

Data from Stock Rover* showed a mediocre week for the stock market. All the main indexes were negative. The Nasdaq Composite led the way, followed by the S&P 500 Index, the Dow Jones Industrial Average (DJIA), and the Russell 2000 trailed.

Two of the 11 sectors had positive returns this week. The Energy, Communication Services, and Basic Materials sectors were top performers. Energy is performing well because of rising oil prices. However, the Consumer Defensive, Real Estate, and Healthcare sectors were the worst performers. Real Estate is again being hit by climbing interest rates.

Oil prices rose to ~87. The VIX climbed 23.6%+ to 16.03 on geopolitical risks, but it is still below its long-term average. Gold ended the week at ~$ $2,349 per ounce. People gravitate to the metal because of higher energy costs and geopolitical risks.

Despite the recent turmoil, the markets continue to move upward because of the American economy’s strength and the bull market’s continuation. The S&P 500 leads the way, followed by the Nasdaq, the DJIA, and the Russell 2000. Ten of the 11 sectors have positive returns. The top performers in 2024 have been Energy, Communication Services, and Industrials, while the Utilities, Consumer Cyclical, and Real Estate sectors are trailing. Only the Real Estate sector has a negative return because of high-interest rates.

The dividend growth investing strategy started the year down. Larger market capitalization stocks are performing better than smaller ones. The table below shows their performance by category. However, dividends and passive income streams continue to grow.

Stock Market Valuation This Week

The S&P 500 Index trades at a price-to-earnings ratio of 28.25X, and the Schiller P/E Ratio is about 34.55X. These multiples are based on trailing twelve months (TTM) earnings.

The long-term means of these two ratios are approximately 16X and 17X, respectively. 

Despite the recent correction, bear market, and rebound, the market is still overvalued. Based on historical data, earnings multiples of more than 30X are overvalued.

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