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Stock Market This Week
Stock Market This Week – 08/26/23
This week’s main news was the annual Jackson Hole Economic Policy Symposium for economic, financial, and government decision-makers. It is the place where policy is discussed and potentially set. A highlight of the 3-day conference is the speech by the U.S. Federal Reserve Chairperson.
Chairman Powell’s speech highlighted several key points but had a hawkish tone. Notably, he said, “Although inflation has moved down from its peak—a welcome development—it remains too high.” As a result, more rate hikes are still on the table because the Fed wants “below-trend growth.”
However, the neutral rate is now undefined. “We see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring, and inflation. But we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint,” Powell said.
Stock markets liked the tone and content of the speech because the major indices surged, finishing the day strongly, snapping a three-week losing streak for the S&P 500 Index and Nasdaq Composite. However, the Dow Jones Industrial Average (DJIA) finished down for a second week.
Stock Market Overview
As shown by data from Stock Rover*, the stock market finished the week mixed but generally positive because of the Fed Chairman’s speech. The Nasdaq was the best-performing index, followed by the S&P 500 and Russell 2000. The worst performing was the DJIA, which declined.
Seven of the 11 sectors climbed this week. Technology, Real Estate, and Consumer Cyclical were the top three sectors for the week. But the Financial Services, Consumer Defensive, and Energy sectors performed worst.
The Energy sector declined on lower oil and natural gas prices. Oil prices fell slightly to ~$80 per barrel on concerns about China’s slowing economy and more output from Iran and Venezuela. The VIX fell more but is still below the long-term average. The price of gold reversed direction and rose to $1,943 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 a bull market, and the S&P 500 is close. 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 Real Estate, Healthcare, and Utilities.
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The dividend growth investing strategy has returned to positive results across all categories. But the recent market volatility have lowered returns. The table below shows their performance by category.
Stock Market Valuation This Week
The S&P 500 Index trades at a price-to-earnings ratio of 25.15X, and the Schiller P/E Ratio is about 30.39X. 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*.
Existing Home Sales
The National Association of Realtors reported that existing home sales fell 2.2% in July to a seasonally adjusted annual rate of 4.07M, down (16.6%) compared to July 2022. “Two factors are driving current sales activity – inventory availability and mortgage rates,” said NAR Chief Economist Lawrence Yun. “Unfortunately, both have been unfavorable to buyers.” Sales of single-family homes slid 1.9% to a 3.65M annual rate (-16.6% Y/Y), and existing condo sales decreased to a 420K annual rate (-19.2% Y/Y). Total housing inventory was up at 1.11K (-14.6% Y/Y). Properties typically remained on the market for 20 days, up slightly from 18 days in June.
Unsold inventory was reported at a 3.3-month run rate, up from 3.1 in June and slightly up from 3.2 months from July 2022. Seventy-four percent of homes sold in July were on the market for less than a month. The median sales price increased to $406,700 (+1.9% Y/Y). The median existing single-family home price was $412,300 in July (+1.6% Y/Y), while the median existing condo price was $357,600 (+4.5% Y/Y). Regionally, they all saw a decrease from the previous year: Northeast (-23.8%), Midwest (-20.0%), South (-14.3%), and the West (-12.5%).
New Home Sales
The U.S. Census Bureau reported new home sales increased in July to 4.4% above the revised number in June. The new home sales in June were revised to 684,000. July’s seasonally adjusted rate is 714,000 units. Sales increased in the West (21.5%) and Midwest (47.4%), while sales decreased in the Northeast (-2.9%) and South (-6.3%). The regional year-over-year figures show an increase across all the regions: West (60.2%), Midwest (58.5%), the Northeast (43.5%), and South (17.5%).
The median new house price is 4.8% higher than last year at $436,700; the average sale price was $513,000. There were 437,000 new homes for sale at the end of July, up from 428,000 units in June. Houses under construction comprised roughly 46.8% of the July new home sales, with homes not started accounting for 13.0% and completed homes accounting for about 40.2%.
Oil
The US Energy Information Administration reported that US commercial crude oil inventories decreased by 6.1M barrels to 433.5M (2% below the five-year average) for the week ending August 18th. Crude oil refinery inputs averaged 16.8M barrels per day, an increase of 30K per day compared to the previous week’s average. Gasoline inventories increased by 1.7M barrels (5% below the five-year average), and distillate inventories increased by 0.9M barrels (16% below the five-year average).
Refineries operated at 94.5% of their operable capacity, as gasoline production increased to an average of 9.7M barrels per day. Crude oil imports came in at 6.9M barrels per day, a decrease of 225K per day compared to the previous week. Crude oil imports averaged about 6.9M barrels per day over the last four weeks, 6.3% more than the previous year’s period. Total commercial petroleum inventories decreased by 3.0M barrels last week.
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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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