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Stock Market This Week
Stock Market This Week – 07/15/23
Inflation in the United States has come down significantly. The June 2023 Consumer Price Index (CPI) report showed only a 3% percentage change over the past 12 months. Energy costs are down, and prices in other categories are decreasing. Whether credit should be given to the United States Federal Reserve, or the administration is a question for debate. But the bottom line is consumer inflation is down from its peak of 9.1% in June 2022.
Despite high-interest rates and predictions of a recession, unemployment remains low at 3.6%. Lower inflation and unemployment rate are causing consumer sentiment to soar. It reached 77.5, the highest level in nearly two years.
Furthermore, stocks continued their upward trend with another solid week because the economy is performing well, inflation is coming down, unemployment is low, and the regional bank crisis is fading in memory. Technology stocks are setting a blistering pace, up more than 40% in 2023.
Stock Market Overview
As shown by data from Stock Rover*, the stock market had a stellar week. All the major indexes rose this week, with the Russell 2000 leading the way, followed by the Nasdaq, S&P 500, and the Dow Jones Industrial Average (DJIA).
All 11 sectors had strong positive returns for the week. Consumer Cyclical, Communication Services, and Technology were the top three sectors for the week. But the Healthcare, Consumer Defensive, and Energy sectors performed worst.
Oil prices climbed to over $75+ per barrel. The VIX dropped more than 15% and remained below the long-term average. Gold is now over $1,950 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 is in the bull market territory, and the S&P 500 is closing to +20%. In addition, 8 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 Healthcare, Utilities, and Energy.
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The dividend growth investing strategy has returned to positive results because bank and financial stocks are recovering. 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 26.08X, and the Schiller P/E Ratio is about 31.40X. 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*.
Energy Outlook
The U.S. Energy Information Administration (EIA), in its July 2023 Short-Term Energy Outlook (STEO), expects that U.S. crude oil production will rise by 670,000 barrels per day (bpd) to 12.56 million bpd in 2023 and by another 290,000 bpd to 12.85 million bpd in 2024. The EAI forecasts the Brent crude oil spot price will average $78 per barrel (b) in July and gradually increase, reaching about $81/b by the year’s end and an average of $83.51/b next year; contributing factors include production cuts and rising demand. The EIA projected U.S. gasoline prices to average $3.40 per gallon this summer, unchanged from the previous estimate. U.S. gasoline prices are expected to average $3.51 per gallon for 2023 and $3.46 per gallon for 2024.
U.S. refinery capacity is expected to average 18.3 million b/d in 2024, up from 18.0 million b/d in the January STEO. U.S. dry natural gas production is expected to remain flat, and inventories are expected to decline, putting upward pressure on prices. Henry Hub prices are forecast to average more than $2.80 per million British thermal units (MMBtu) in the second half of 2023, up from about $2.40/MMBtu in the year’s first half.
Consumer Price Index
The U.S. Bureau of Labor Statistics reported the consumer price index increased (+0.2%) in June after readings of (+0.1%), (+0.4%), and (+0.1%) over the previous months. The all-items index had the smallest 12-month increase since the period ending March 2021 at (+3.0%) before seasonal adjustment. This compares to (+4.0%), (+4.9%), and (+5.0%) over the previous months. The index for shelter (+0.4%) was the most significant contributor to the monthly all-items increase, followed by an increase in the index for motor vehicle insurance (+1.7%). The food index increased (+0.1%) in June after increasing (+0.2%) in May and remaining unchanged in March and April. The index for energy increased (+0.6%), with increases in the indexes for gasoline (+0.8%), fuel oil (+1.0%), and electricity (+0.9%) offset by a decrease in natural gas (-1.7%).
Core CPI inflation excludes food and energy increased (+0.2%) in June and follows a (+0.4%) reading for the previous three months – this is the smallest 1-month increase since August 2021. The annual rate of core CPI inflation is now at (+4.8%), as compared to (+5.3%), (+5.5%), and (+5.6%) over the previous months. The shelter index increased (+7.8%) year over year, accounting for two-thirds of the total increase in Core CPI. Other indexes with significant gains over the last year include motor vehicle insurance (+16.9%), recreation (+4.3%), household furnishings and operations (+3.6%), and new vehicles (+4.1%).
Producer Price Index
The producer price index for final demand edged up a seasonally adjusted (+0.1%) in June; this follows (-0.4%), (+0.1%), and (-0.4%) readings from the previous months. The PPI is seen as a bellwether for inflation as it measures what suppliers charge businesses. The PPI index continued to decelerate to an annualized (+0.1%) in June; this follows (+0.9%), (+2.1%), and (+2.7%) reported for the prior three months. This is the lowest annualized rate in nearly three years; the high-water mark was set in March 2022 at (+11.7%). Much of the rise in June’s final demand prices is attributable to a (+0.2%) increase in the index for final demand services, while the prices for final demand goods were unchanged.
A (+5.4%) increase in the index for deposit services was a major factor in the June price increase for final demand services. The indexes for food and alcohol retailing, traveler accommodation services, insurance, hospital inpatient care, and airline passenger services all moved higher. The so-called core PPI increased (+0.1%) in June, excluding food, energy, and trade services. The core PPI continued to decelerate to an annualized (+2.6%) in June; this follows (+2.8%), (+3.3%), and (+3.7%) readings for the prior three months. The high-water mark was set in March 2022 at (+7.1%).
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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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