Stock Market This Week
Stock Market This Week – 09/16/23
Higher oil, fuel, heating, and insurance prices caused an uptick in inflation metrics last month. Both the Consumer Price Index and Producer Price Index were higher. The main cause is that OPEC+ reduced output, leading to higher oil prices. That said, oil, fuel, and heating costs are still lower than when the Russo-Ukrainian War started.
The United Auto Workers (UAW) also went on strike against the “Big Three” after union employee four-year contracts expired. The walkout against General Motors (GM), Ford (F), and Stellantis (STLA) is the first one simultaneously affecting all three. The two sides are still far apart on the percentage pay raise, which may take government involvement to resolve. The primary beneficiaries will likely be competitors like Tesla (TSLA) and other automakers without a unionized workforce.
Lastly, AMR Holdings plc (ARM) conducted its IPO and surged higher to a $70+ billion market capitalization. The main shareholder, Masayoshi Son’s Softbank, sold over 95.5 million shares but still owns a 90% stake. He intends to hold onto shares, presumably to sell later. However, most tech IPOs have surged, followed by a steep decline in the past two years. Furthermore, ARM is already significantly overvalued.
Stock Market Overview
As shown by data from Stock Rover*, the stock market had a mixed performance this week, with some leading indices and composites gaining and others declining. The S&P 500 Index was the best-performing index, followed by the Dow Jones Industrial Average (DJIA). However, the Nasdaq Composite and the Russell 2000 fell.
Seven of the 11 sectors decreased this week. Utilities, Financial Services, and Consumer Cyclical were the top three sectors for the week. But the Basic Materials, Industrials, and Technology sectors performed worst.
Oil prices continued their upward trend and are now more than $91 per barrel. The VIX increased nearly 4% but remained below the long-term average. The cost of gold was flattish at $1,945 per ounce, supported by central bank purchases to build gold reserves and renewed consumer demand.
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 remains in a bull market, and the S&P 500 is less than three percentage points away. 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.
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The dividend growth investing strategy has returned to positive results across all categories. The recent market volatility has lowered returns, but the trend has reversed. The table below shows their performance by category.
|Category||YTD Return (%)|
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Stock Market Valuation This Week
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*.
Consumer Price Index
The U.S. Bureau of Labor Statistics reported the consumer price index increased (+0.6%) in August, the biggest monthly gain in 2023. This follows seasonally adjusted readings of (+0.2%), (+0.2%), and (+0.1%) over the previous months. The all-items index has increased (+3.7%) over the last 12 months. This compares to (+3.2%), (+3.0%), and (+4.0%) over the previous months. The index for gasoline (+10.6%) was the most significant contributor to the monthly all-items increase, accounting for over half of the increase. The shelter index, about one-third of the CPI weighting, rose (+0.3%) in August. This marks the 40th consecutive monthly increase. The energy index rose (+5.6%) in August, with gains coming from all energy sub-indexes.
Other indexes that increased in August include rent of primary residence (+0.5%), owners’ equivalent rent (+0.4%), motor vehicle insurance (+2.4%), medical care (+0.2%), and personal care (+0.3%). The indexes for lodging away from home (-3.0%), used cars and trucks (-1.2%), and recreation (-0.2%) all saw decreases over the month. Core CPI inflation, which excludes food and energy, increased (+0.3%) in August and follows readings of (+0.2%), (+0.2%) and (+0.4%) over the previous months. The annual rate of core CPI inflation is now at (+4.3%), as compared to (+4.7%), (+4.8%), and (+5.3%) over the previous months. The shelter index increased (+7.3%) year over year, accounting for over 70% of the total increase in Core CPI. Other indexes with significant gains over the last year include motor vehicle insurance (+19.1%), recreation (+3.5%), personal care (+5.8%), and new vehicles (+2.9%).
Producer Price Index
The U.S. Bureau of Labor Statistics reported the producer price index for final demand was up a seasonally adjusted (+0.7%) in August. This follows (+0.4%), (-0.1%), and (-0.3%) readings from the previous months. The PPI is seen as a bellwether for inflation as it measures what suppliers charge businesses. The PPI index accelerated to an annualized (+1.6%) in August, this follows (+0.8%), (+0.1%), and (+1.1%) readings for the prior three months. Eighty percent of the rise in August’s final demand prices was attributed to a (+2.0%) increase in the index for final demand goods. This is the most considerable rise since June 2022. Sixty percent of the increase in final demand goods was attributed to gasoline, which jumped (+20%). The indexes for diesel fuel (+41.1%), jet fuel (+23.6%), and home heating oil (+18.1%) all moved higher.
The prices for final demand services reported up (+0.2%). This follows (+0.5%), (-0.1%), and (+0.2%) readings from the previous months. A (+1.1%) increase in the index for residential real estate services (partial) primarily contributed to the August price rise for final demand services. Excluding food, energy, and trade services, the so-called core PPI increased (+0.3%) in August, the most significant increase since February. The core PPI was held at an annualized (+3.0%) in August. This follows (+2.9%), (+2.8%), and (+2.9%) readings for the prior three months.
The Commerce Department reported increased U.S. retail and food services sales (+0.6%) to $697.6B in August. This follows a downwardly revised (+0.5%) increase for July. Retail sales are up 2.5% year over year. This marks the fifth straight month of sales growth. Retail sales are primarily goods and are not adjusted for inflation. Total sales for June 2023 through August 2023 were up 2.2% year over year. Much of the increase in retail sales was driven by a (+5.2%) increase in sales at gasoline stations.
The increase in retail spending was broad-based, with increases in clothing (+0.9%), electronics & appliances (+0.7%), personal care (+0.5%), grocery (+0.4%), autos & parts (+0.3%), food services (+0.3%), and building materials (+0.1%). Only sporting goods (-1.6%) and home furnishings (-1.0%) saw sales declines. When sales for gas stations and autos were excluded, retail sales increased (+0.2%). Core retail sales, a measurement that excludes spending on autos, gasoline, building materials, and food services, increased (+0.1%) in August. July’s core retail sales were revised to show sales increasing (+0.7%) instead of (+1.0%).
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Curated Weekend Reading From Around The Web
Portfolio Management and Investing
- An Updated on the Stock-Bond Correlation (Verdad)
- On Dividend Investing Strategies (The Italian Leather Sofa)
- Sing Me a Song of Valuation (Wisdom Tree)
- What to Do About These High Interest Rates (Mr. Money Moustache)
- The Evolution of Retirement (A Wealth of Commons Sense)
- How to know when it’s time to quit your job (Fast Company)
- Americans’ Credit Card Debt is Now $1 Trillion (Simple Money)
- On Second Thought (Humble Dollar)
- Will I just keep sending more and more money forever? (Vox)
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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.