Stock Market This Week
Stock Market This Week – 12/02/23
If you watch specific news channels or listen to certain podcasts, according to them, the economy is about to enter a recession. But I like to look at the data. The United States currently has sub-4% unemployment, the third quarter GDP came in at +5.2%, job growth is still happening, the stock market is up, interest rates are down, inflation is nearly 3%, and the federal budget deficit is falling. Overall, these are excellent pieces of data and not suggestive of a recession. Also, they are all positive and good for stocks.
Chairman Powell likes to keep perspective. He indicated interest rates may go higher, and it is premature to discuss cuts. In any case, the Fed will keep rates elevated for the period. However, the market is bullish; yields on Treasury bonds have declined quickly, and stocks are responding positively, especially interest rate-sensitive industries.
Analysts and most retail investors were wrong about International Business Machines (IBM). The negativity surrounding the stock has stretched back for years. But the structural changes of buying RedHat, divesting Kyndryl, and acquiring Apptio seem to have worked. RedHat is helping sales of hybrid cloud. The managed infrastructure business was not profitable and had declining revenue and exiting it was a plus. Apptio allows IBM to gain traction in artificial intelligence. In addition, the monopoly in mainframes creates a moat. As a result, the share price is now $160.55, the highest since 2017.
The time to buy IBM was when the yield was over 5% and, in a few instances, over 6%. But it is still yielding 4%+. However, the stock is probably fairly valued now. Read about IBM’s dividend safety and check the latest earnings release. Although I am not buying shares at the moment, I am an owner and did buy when the stock was down, and ultimately, my patience paid off.
For more on IBM and other stocks, sign up for Portfolio Insight and check the dividend growth rate and safety.
Stock Market Overview
Data from Stock Rover* shows that the stock market had another week of gains, the fifth one in a row. The end-of-year market rally is obviously here. The Russell 2000 led the way after lagging most of the year. Its performance was followed by the Dow Jones Industrial Average (DJIA), the S&P 500 Index, and the Nasdaq Composite.
Ten of the 11 sectors rose this week. The Real Estate, Basic Materials, and Financial Services were the top three sectors. The Real Estate sector is benefitting from lower interest rates. However, the Healthcare, Energy, and Communication Services sectors finished at the bottom. Only Communications Services had a down week.
Oil prices continued downward and finished the week at ~$74.40. Demand remains weak, supply is strong, and the quantity in storage is increasing. These trends suggest oil prices will remain under pressure. Even though OPEC+ agreed to more production cuts, it is unlikely that the countries will stick to it. Lower oil prices mean some countries must pump more to finance bloated budgets or wars. As a result, gas prices are less than they were at the same time last year in the United States.
The VIX is still below its long-term average. Traders are obviously bullish. Gold advanced 4.5%, reaching $2,092 per ounce, an all-time high.
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![Stock Market Returns This Week](https://www.dividendpower.org/wp-content/uploads/2023/12/Stock-Market-Returns-This-Week.png)
The Nasdaq is performing the best for the year, followed by the S&P 500 Index, the Dow 30, and the Russell 2000. Bullish sentiment is still strong for technology and growth stocks. The Nasdaq Composite has recovered all its losses and then some. The S&P 500, DJIA, and Russell 2000 are all positive year-to-date. 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. Lower interest rates are causing the Real Estate sector to bounce back.
![YTD Stock Market Returns](https://www.dividendpower.org/wp-content/uploads/2023/12/YTD-Stock-Market-Returns.png)
![YTD Stock Market Returns](https://www.dividendpower.org/wp-content/uploads/2023/12/YTD-Stock-Market-Returns.png)
The dividend growth investing strategy has returned to positive results across all categories. All the categories now have positive returns for the year. 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 25.38X, and the Schiller P/E Ratio is about 31.10X. 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.
Resources
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Here are my recommendations:
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- Simply Investing Report & Analysis Platform or the Course can teach you how to invest in stocks. Try it free for 14 days.
- Sure Dividend Newsletter is an excellent resource for DIY dividend growth investors and retirees. Try it free for 7 days.
- Stock Rover is the leading investment research platform with all the fundamental metrics, screens, and analysis tools you need. Try it free for 14 days.
- Portfolio Insight is the newest and most complete portfolio management tool with built-in stock screeners. Try it free for 14 days.
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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.