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Stock Market This Week
Stock Market This Week – 05/05/23
Another bank failed this past week. Government regulators seized First Residential (FRC), and JP Morgan Chase (JPM) bought most of its assets for $10.6 billion. The market dropped in response as fears of broader banking contagion accelerated selling.
Adding injury to insult, the U.S. Federal Reserve increased the Federal Funds rate by another 0.25%, reaching a target range of 5% to 5.25%. The Fed Chair indicated a pause may be in the works after the latest increase. However, short-term U.S. Treasury yields are over 5% and a great deal. As a result, investors can park cash for a few months and earn the highest interest rate in a decade, essentially risk-free. That said, the debt ceiling battle adds risk to the U.S. economy.
But good earnings from Apple (AAPL) and another excellent job report caused buyers to come out of hiding on Friday. Despite recession fears, job growth is robust, and the unemployment rate is 3.4%, tied for the lowest on record. The United States may still experience a recession, but we are skirting it for now. However, slowing Gross Domestic Product (GDP) and manufacturing data may push the U.S. into a recession.
Stock Market Overview
The stock market had a mixed week.
As shown by data from Stock Rover*, the Nasdaq finished up, but the Russell 2000, the S&P 500 Index, and the Dow Jones Industrial Average (DJIA) declined for the week.
Four of the 11 sectors had positive returns for the week. Technology, Healthcare, and Industrials were the top three sectors for the week. But the Consumer Services, Financial Services, and Energy sectors performed worst.
Oil prices plunged 7.1% to $71 per barrel. The VIX rose and is still near its long-term average. Gold traded moved upward to above $2,000 per ounce.
The Nasdaq is performing the best for the year, followed by the S&P 500 Index, the Dow 30, and the Russell 2000. In addition, 7 of the 11 sectors are up year-to-date. The three best-performing sectors are Technology, Communication Services, and Consumer Cyclical. Conversely, the worst-performing sectors are Utilities, Financial Services, and Energy.
The dividend growth investing strategy has put in mixed returns as banks and energy stocks declined but are bouncing back. The table below shows their performance by category. Three of the four categories are in positive territory.
Dividend Increases and Reinstatements
Search for a stock in the list of dividend increases and reinstatements. This list is updated weekly. In addition, you can search for your stocks by company name, ticker, and date.
Dividend Cuts and Suspensions List
The dividend cuts and suspensions list was most recently updated at the end of April 2023. As a result, the number of companies on the list has risen to 638. The list is updated monthly.
Ten new additions indicate companies are starting to experience headwinds in April 2023.
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Stock Market Valuation This Week
The S&P 500 Index trades at a price-to-earnings ratio of 22.94X, and the Schiller P/E Ratio is about 29.14X. 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*.
Manufacturing
The ISM® (Institute for Supply Management®) Manufacturing PMI® reported 47.1% for April, as business activity increased by 0.8 percentage points from the previous month. A value below 50% is indicative of a shrinking economy. This marks the sixth consecutive month in contraction territory after 29 months of growth. “The U.S. manufacturing sector contracted again; however, the Manufacturing PMI® improved compared to the previous month, indicating slower contraction,” said Timothy Fiore, the ISM® Manufacturing Business Survey Committee chairman. Of the six largest manufacturing industries, only petroleum & coal products and transportation equipment recorded growth in April. The forward-looking new orders sub-index, which has been in contraction territory for eight consecutive months, increased by 1.4 percentage points and improved to 45.7%.
The Prices Index, which measures what companies pay for raw materials and other supplies, showed an uptick in inflation, jumping four percentage points to 53.2%. The index returned to expansion territory after one month of contraction. The Employment Index increased by 3.3 percentage points to 50.2% and followed two months of contraction. The Backlog of Orders Index declined 0.8 percentage points to 43.1% and has now contracted for the seventh consecutive month following 27 months of expansion.
Federal Open Market Committee
The Federal Open Market Committee (FOMC) announced raising its benchmark federal funds rate by 25 basis points, putting it in the range of between 5.00% and 5.25% — the highest level since October 2007. Fed policymakers voted unanimously to raise their benchmark interest rate. The move marked the tenth increase since March 2022 and followed 25-basis point increases in February and March, a 50-basis point increase in December, and four consecutive FOMC meetings ending with a 75-basis point climb.
The FOMC statement stated, “The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time”. The statement’s wording further softens the FOMC’s stance, hinting at a possible pause. For example, March’s statement indicated – “The Committee anticipates that some additional policy firming may be appropriate to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time “.
Jobs Report
The U.S. Bureau of Labor Statistics reported 253,000 jobs were added as the unemployment rate dropped slightly to 3.4% in April from 3.5% the previous month. February and March’s employment readings were revised downward for a combined (-149,000) fewer jobs. As a result, the number of unemployed workers dropped slightly to 5.7 million. Professional and business services added (+43,000) jobs, followed by health care (+40,000), leisure and hospitality (+31,000), social assistance (+25,000), financial activities (+23,000), and government (+23,000). Employment was mostly the same in other major industries, including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, and other services.
The number of people jobless for less than five weeks dropped (-406,000) to 1.9 million. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.2 million, accounting for 20.6% of the total unemployed. The labor force participation rate held steady at 62.6%, leaving it below the pre-pandemic level of 63.4%. Average hourly earnings increased by 0.5% in April. At $33.36, average hourly earnings are up 4.4% from a year ago.
Resources
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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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