Stock Market This Week – 02/25/23

Stock Market This Week

Stock Market This Week – 02/25/23

The stock market had poor week with all indices finishing down. Monthly inflation was higher than expected. The Personal Consumption Expenditures (PCE) Price Index annul rate was up at 5.4%. Investors’ fear further interest rate increases and thus sold off stocks.

As shown by data from Stock Rover*, the major indices had a poor week, with the Russell 2000, the Nasdaq, the S&P 500 Index, and the Dow Jones Industrial Average (DJIA) declining. The Nasdaq performed the worst because the wholesale inflation report spooked investors. Oil and the VIX rose.

Ten of the eleven sectors declined for the week, while one increased. The Energy sector rose, which occurred in response to high inflation expectations. The Consumer Cyclical sector performed the worst, followed by the Communication Services and Real Estate sectors. 

The Nasdaq is performing the best for the year, followed by the Russell 2000 and the S&P 500. However, the Dow 30 is down. In addition, 7 of the 11 sectors are up year-to-date. The three best-performing sectors are Consumer Cyclical, Communication Services, and Technology. Only more defensive sectors, like Healthcare, Utilities, and Consumer Defensive, were down. The Energy sector is also down. Utilities are the worst performing sector on fears of higher interest rates.

The dividend growth investing strategy has performed relatively well, with positive returns. The table below shows their performance by category. All categories are now 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 February 2023. As a result, the number of companies on the list has risen to 616. 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.

Six new additions indicate companies are starting to experience headwinds in February 2023.

Stock Market Valuation This Week

The S&P 500 Index trades at a price-to-earnings ratio of 21.22X, and the Schiller P/E Ratio is about 28.84X. 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.

Stock Market Volatility This Week – CBOE VIX

This past week, the CBOE VIX measuring volatility ended at 20.02. 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.

Economic News This Week

Provided by Stock Rover*.

Existing Home Sales

The National Association of Realtors reported that existing home sales fell 0.7% in January to a seasonally-adjusted annual rate of 4.0M, down (-36.9%) compared to January 2022. Home sales have now dropped for twelve consecutive months. Sales of single-family homes fell to a 3.59M annual rate (-36.1% Y/Y), and existing condo sales dropped to a 401K annual rate (-43.1% Y/Y). Total housing inventory was reported at 980K, up 2.1% over December’s inventory (+15.3% Y/Y). Properties typically remained on the market for 33 days, up from 26 days in December.

Unsold inventory is at a 2.9-month run rate, unchanged from December but up from 1.6 months in January 2022. Fifty-four percent of the homes sold in January were on the market for less than a month. The median sales price increased to $359,000 (+1.3% Y/Y). The median existing single-family home price was $363,100 in January (+0.7% Y/Y), while the existing condo price was $320,000 (+5.2% Y/Y). Regionally the West (+2.9%) and the South (+1.1%) held steady in monthly existing-home sales, while the Northeast (-3.8%) and Midwest (-5.0%) saw declines.

Gross Domestic Product

The Bureau of Economic Analysis’ second estimate on the fourth-quarter gross domestic product (GDP) growth reported an economy expanding at a seasonally adjusted annual growth rate of 2.7%, a deceleration from the 3.2% pace set in the third quarter, and down slightly from the first estimate of 2.9%. For all of 2022, the GDP grew by 2.1%, down from 5.9% in 2021. A revision in consumer spending from a 2.1% rate to 1.4% was a primary contributor to the downward revision.

Household spending accounts for some 70% of U.S. economic activity. A partial offset was a business investment that grew at a 3.7% pace compared to a previously reported 1.4%. Inflation rose at an annual 3.7% pace in the fourth quarter, compared to 4.3% in Q3. The PCE Price Index was revised to 3.7% from the first estimate of 3.2%. Core PCE, which strips out volatile food and energy costs, was revised to 4.3% from an initial estimate of 3.9%.

New Home Sales

The U.S. Census Bureau reported that sales of newly built homes increased 7.2% in January from an upwardly revised December rate of 625,000. This month marks the second consecutive month of increases and the strongest reading since March 2022. The headline numbers show that while new home sales jumped, prices fell. The January seasonally adjusted annual rate of 670,000 is down 19.4% from a year earlier. The South leads the way with a significant jump in sales (+17.1%). New home sales decreased in the other three regions; Northeast (-19.4%), Midwest (-6.9%), and West (-7.3%).

The average sale price for a new home sold in January was $474,400, down from $544,200 the previous month. The median new home sales price dropped from $465,600 in December to $427,500 in January. There were 439,000 new homes for sale as of the end of January, most of which were either under construction (280,000) or still needed to be started (91,000). The supply of new homes for sale decreased to a 7.9-month supply in January, compared to 8.7 months in December. The supply of new homes for sale in January 2022 was 5.7 months.

Curated Weekend Reading From Around The Web

Portfolio Management and Investing

• How Closely Do Index Funds Track Their Benchmarks (Morningstar)
• A Dark Winter for Value Stocks (Alpha Architect)
• Peter Lynch: Confessions of an Investoholic (Neckar Substack)

Retirement

• Retirement Income: Six Strategies (Enterprising Investor)
• Berkshire Hathaway as an Income Stock? (The Rational Walk)
• The Unspoken Risks of Not Retiring Early (The White Coat Investor)

Financial Independence

• Valuing the Unknowable (Investment Talk)
• Turning 50? Improve your health and well-being (The Conversation)
• Lessons from Charlie Munger at the 2023 DCJO Meeting (Novel Investor)