Stock Market This Week – 04/01/23

Stock Market This Week

Stock Market This Week – 04/01/23

The recent banking crisis seems to be fading with support from the U.S. Federal Reserve and FDIC. Overseas, central banks provided help to banks, too, especially in Switzerland. But the big news was that wholesale inflation was down. The Personal Consumption Expenditures (PCE) Price Index rose 0.3% in February 2023. The rolling 12-month rate was 5.0%, a significant drop from over 9% in June 2022. The Fed’s work is not done, but inflation is trending in the correct direction.

Investors seemingly rejoiced, and the stock market had a positive week. Notably, the Nasdaq 100 is in a bull market. While this upswing could be a dead cat bounce, the market may head higher if inflation goes lower and companies continue to remain upbeat.

Stock Market Overview

As shown by data from Stock Rover*, the major indices had a positive week. The Russell 2000 had the best week, followed by the S&P 500 index. The Nasdaq was next, and the Dow Jones Industrial Average (DJIA) trailed but still finished positively. Tech and growth stocks continued their recovery in 2023.

Additionally, oil prices recovered by 9%+, reaching $75 per share. But the VIX fell again and is near its long-term average. Gold also fell.

All 11 sectors had positive returns for the week. The Energy, Consumer Cyclical, and Real Estate sectors led the way on higher oil prices, lower inflation, and interest rates. This week’s last three sectors were Communication Services, Consumer Defensive, and Healthcare.

The Nasdaq is performing the best for the year, followed by the S&P 500 Index. The Russell 2000 and the Dow 30 are trailing with negative returns. In addition, 7 of the 11 sectors are up year-to-date. The three best-performing sectors are Technology, Communication Services, and Consumer Cyclical. The worst-performing sectors are Healthcare, Energy, and Financial Services.

The dividend growth investing strategy has struggled with negative returns as banks and energy stocks declined. The table below shows their performance by category. All categories are now in positive territory.

Category	YTD Return (%)
Dividend Kings	+0.9%
Dividend Aristocrats	+2.0%
Dividend Champions	(-0.2%)
Dividend Contenders	(-1.2%)
Dividend Challengers	(-1.1%)

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 March 2023. As a result, the number of companies on the list has risen to 628. The list is updated monthly.

Twelve new additions indicate companies are starting to experience headwinds in March 2023.

Stock Market Valuation This Week

The S&P 500 Index trades at a price-to-earnings ratio of 21.97X, and the Schiller P/E Ratio is about 29.35X. 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 18.70. 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*.

Trade Deficit

The Commerce Department reported that the U.S. trade deficit in goods rose (+0.6%) to $91.6 billion in February, as exports exceeded the decline in imports. The figure for January was revised down from $91.5B. The trade gap was the widest since October 2022. The advance economic indicators report showed exports in February declining (-3.8%) to $167.8B, which was $6.7B less than the previous month. A drop in the exports of automobiles (-11.9%) and consumer goods (-4.6%) contributed to the decline. Imports fell (-2.3%) to $259.4B in February, as fewer automobiles (-7.1%) and consumer goods (-5.6%) were imported. 

Wholesale inventories were estimated at $920.3B in February (+0.2%) and followed a (-0.5%) drop the previous month. Retail inventories were estimated at $747.3 billion (+0.8) in February and followed a (+0.2%) gain in January. A (+1.9%) increase in automobile inventories to $204.1B contributed. Excluding automobiles, retail inventories rose (+0.4%) to $543.1B. This component is incorporated into the calculation of gross domestic product.

Pending Home Sales

The National Association of Realtors (NAR) Pending Home Sales Index rose for the third consecutive month, up 0.8% in February to 83.2. The Pending Home Sales Index tracks the transactions of home sale contracts not yet completed in the US, where an index of 100 is the average contract activity in 2001. Month over month, pending home sales increased in three of four regions – signings increased in the Northeast (+6.5% to 72.5), followed by the South (+0.7% to 99.3), and the Midwest (+0.4% to 84.9). Only the West saw a decrease (-.2.4% to 64.6). Year over year, pending sales, have dropped (-21.1%). 

Year-over-year figures fell in all regions, with the West leading the way (-28.4%), followed by the South (-21.7%), Northeast (-17%), and the Midwest (-16.5%). Lawrence Yun, NAR’s chief economist, stated, “The affordable U.S. regions – the Midwest and South – are leading the recovery,” Yun added. “Mortgage rates have improved in recent weeks after the federal government guaranteed the status of most mortgages amidst uncertainty in the financial market. As a result, while access to commercial mortgage loans could become increasingly difficult, residential mortgage loans are expected to be more readily available.”

Gross Domestic Product

The Bureau of Economic Analysis’s final estimate on the fourth-quarter gross domestic product (GDP) growth reported an economy expanding at a seasonally adjusted annual growth rate of 2.6%, a downward revision from last month’s 2.7%, and the first estimate of 2.9%. For all of 2022, the GDP grew by 2.1%, down from 5.9% in 2021. Another downward revision in consumer spending to 1% from 1.4% last month and a first estimate of 2.1% was the primary contributor to the final reading. Household spending accounts for some 70% of U.S. economic activity. 

A downward revision in exports also contributed. A partial offset was a business investment revised up for the third time to a 4.5% annual growth rate, from 3.7% the last month to an original reading of 1.4%. Imports, which are a subtraction in the calculation of the GDP, were revised down. Inflation rose at an annual 3.7% pace in the fourth quarter, compared to 4.3% in Q3. Core PCE, which strips out volatile food and energy costs, was revised to 4.4% from 4.3% last month and the initial estimate of 3.9%.

Curated Weekend Reading From Around The Web

Portfolio Management and Investing

• Why Investment Complexity Is Not Your Friend (Morningstar)
• Our investment and economic outlook, March 2023 (Vanguard)
• Understanding the Banking Panic of 2023 (Three Minute Macro)

Retirement

• Retirement Planning – 4% Rule vs. Monte Carlo (Bogleheads Live)
• Why retirees still require rainy day funds (Investment News)
• Reality Meets Expectation (Fortunes & Friction)

Financial Independence

• How to Build General Wealth (Of Dollars and Data)
• What are the world’s safest holiday destinations? (Which?)
• The impact of relationships on long-term health and wealth (Of Money and Meaning)