Fusion Breakthrough – Week in Review

Fusion Breakthrough

The U.S. Department of Energy recently reported an exciting fusion breakthrough that could change the future of power production. The Lawrence Livermore National Laboratory reported more energy was produced from a fusion reaction than was used to power it. If accurate and confirmed, it means the reaction made a net gain in energy.

Scientists have struggled to produce a fusion reaction where the output energy is greater than the input energy for decades. It is the same process that powers the sun and starts. However, recreating it is a daunting task.

In this research, researchers focused 192 lasers on a small amount of deuterium–tritium fuel in a magnetic field, compressing it and inducing ignition. The result was a controlled fusion reaction that released more energy than was used. Although scientists have been able to fuse hydrogen before, this event was the first time a controlled reaction was achieved.

The experimental success is impressive, but we are far from sustained energy production in the foreseeable future. Despite the hype, many more years will pass before it becomes viable.

Stock Market Performance Overview

12/17/22

The stock market had a negative week because of continuing fears about a recession and the U.S. Federal Reserve hiking the Federal Funds rate by 0.5%. Moreover, the Fed remained hawkish about further rate increases. 

Tent of the eleven sectors fell for the week. As shown by data from Stock Rover*, all the major indices were negative, with the Russell 2000 performing the best while the tech-heavy Nasdaq was performing the worst.

The Energy sector was the only positive one and had the best week. However, Financial Services, Communication Services, and Consumer Cyclical had the worst week.

For the year, the Dow 30 is doing the best, and the S&P 500 Index is still in a correction, while the Nasdaq is still in a bear market. However, the Utilities sector is still positive for 2022.

The dividend growth investing strategy has performed relatively well, outperforming the S&P 500 Index and Nasdaq in all instances. The table below shows their performance by category. All categories are now in positive territory except the Dividend Challengers.

Category	YTD Return (%)
Dividend Kings	(-6.0%)
Dividend Aristocrats	(-5.8%)
Dividend Champions	(-2.8%)
Dividend Contenders	(-16.6%)
Dividend Challengers	(-11.8%)

Crypto News

The FTX fallout continues to expand. The former CEO of FTX was arrested in the Bahamas after the United States filed criminal charges. Overall, it looks like the problem relates to Alameda Research making high-risk trades using FTX customer deposits. At some point, news about the hedge fund surfaced, and the exchange could not meet withdrawals.

The new CEO, John J.Ray III, said,

“Although our investigation is ongoing and detailed findings will have to await its conclusion, the FTX Group’s collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people’s money or assets.”

The bottom line is that cryptocurrency is risky, and many are now worthless or delisted from exchanges.

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 November 2022. As a result, the number of companies on the list has risen to 589. Thus, well over 10% of companies that pay dividends have cut or suspended them since the start of the COVID-19 pandemic. The list is updated monthly.

Fourteen new additions indicate companies are starting to experience headwinds in November 2022.

The new additions were Southern Copper (SCCO), Lumen Technologies (LUMN), B&G Foods (BGS), Sturm, Ruger (RGR), United-Guardian (UG), Generation Income Properties (GIPR), Medalist Diversified REIT (MDRR), BP Prudhoe Royalty Trust (BPT), Devon Energy (DVN), Fortress Transportation (FTAI), Sachem Capital (SACH), MV Oil Trust (MVO), VOC Energy Trust (VOC).

Market Valuation

The S&P 500 Index is trading at a price-to-earnings ratio of 20.04X, and the Schiller P/E Ratio is about 28.19X. 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.

S&P 500 PE Ratio History

Shiller PE Ratio History

Stock Market Volatility – CBOE VIX

This past week, the CBOE VIX measuring volatility was up about 3.5 points at 22.62. The long-term average is approximately 19 to 20. The CBOE VIX measures the stock market’s expectation of volatility based on S&P 500 Index options. It is commonly referred to as the fear index.

Yield Curve

The yield curves are the 10-year U.S. Treasury Bond minus the 3-month U.S. Treasury Bill from the New York Fed and the 10-year U.S. Treasury Bond minus the 2-year U.S. Treasury Bond from the St. Louis Fed.

Economic News

The U.S. Bureau of Labor Statistics reported the consumer price index rose 0.1% in November. Over the last 12 months, the all-items index is up 7.1% before seasonal adjustment compared to 7.7% in October. The CPI peaked at 9.1% in June, the fastest rate since 1981. Continuing a trend, the index for shelter (+0.6%) was a primary contributor to the monthly all-items increase. The indexes for communication (+1.0%), recreation (+0.5%), motor vehicle insurance (+0.9%), personal care (+0.7%), education (+0.3%), and apparel (+0.2%) were among those that increased over the month. Offsetting the increases were declines in used cars and trucks (-2.9%), medical care (-0.5%), and airline fares indexes (-3.0%). Core CPI inflation rose (+0.2%) in November. It is the smallest increase since August 2021. The annual rate of core CPI inflation is now at 6.0%.

The Federal Open Market Committee (FOMC) announced raising its benchmark federal funds rate by 50 basis points, putting it in the range of between 4.25% and 4.50% — the highest level since December 2007. This is the seventh rate hike since March and follows four consecutive FOMC meetings ending with a 75 basis point climb. The FOMC statement mirrored previous releases stating, “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time”. FOMC members projected increases in the 2024 funds rate until it hit a median of 5.1%, equivalent to a target range of 5.0%-5.25%. This is up from the 4.6% forecast in September. The median forecast for the 2024 funds rate is projected to drop to 4.1% and 3.1% in 2025. In addition, the FOMC lowered its growth forecast for 2023, putting the expected GDP increase at 0.5%. In the September projections, the committee had expected 1.2%.

The Commerce Department reported advance U.S. retail and food services sales were down 0.6% to $689.4B in November, a significant drop from October’s 1.3% increase. This is the third negative reading in the past five months. Retail sales are up 6.5% year over year. Total sales for September 2022 through November 2022 were up 7.7% year over year. A primary contributor to the slowdown was a 2.3% decline in motor vehicle & parts dealers. The sales decline was broad-based, with sales falling at department stores (-2.9%), home furnishings (-2.6%), garden centers (-2.5%), appliance (-1.5%), internet retailers (-0.9%), and gas stations (-0.1%). Restaurants, the only services category, increased (+0.9%) for the month and is up (+14.1%) year over year. Offsetting the decreases were increases in sales for personal care (0.7%) and miscellaneous retail (+0.5%). When sales for gas stations and autos were excluded, retail sales decreased by 0.2%.

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