Stock Market This Week – 09/23/23

Stock Market This Week

Stock Market This Week – 09/23/23

Stop worrying about your dividend stocks. Peter Lynch said, “People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”

However, money flow data has indicated people are pulling money out of equities, with $16.9 billion of outflows this week alone. The money is obviously heading mainly into cash and U.S. Treasuries. Investors parked more than $1 trillion into cash and $147 billion into Treasuries, attracted by high yields.

That said, dividend growth and income investing is a long game. Buy excellent, undervalued companies increasing their dividend, and be patient. Right now, some dividend growth stocks are at their highest yields since 2020. Moreover, dividend increase and decrease data show that the former far outpace the latter, usually when companies are stressed reductions and omission spike, which has yet to happen to any significant extent.

Investors should look at water utility stocks that have declined nearly 18% as a group in 2023, and the yields are the highest in a decade. Simultaneously, gas and diversified utilities have dropped almost 11%, pushing the average dividend yield over 4.1%. Again, many of these equities have the highest yields in a decade. In fact, investors have focused mainly on tech and growth stocks at the expense of income and dividend growth, making some a relative bargain.

Stock Market Overview

As shown by data from Stock Rover*, the stock market had one of its worst weeks this year. All the leading indices and composite declined. The Russell 2000 was the worst-performing index. The Nasdaq Composite, S&P 500 Index, and the Dow Jones Industrial Average (DJIA) were also negative.

All 11 sectors fell this week. Healthcare, Utilities, and Consumer Defensive were the top three sectors for the week. But the Basic Materials, Real Estate, and Consumer Cyclical sectors performed worst.

Oil prices were flat for the week at $90 per barrel. The VIX increased nearly 20% because of investor fear. However, it is still near the long-term average. Gold was unchanged at $1,945 per ounce.

The Nasdaq is performing the best for the year, followed by the S&P 500 Index, the Dow 30, and the Russell 2000. The Nasdaq remains in a bull market. In addition, seven 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 Healthcare, Real Estate, and Utilities.

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 (%)
Dividend Kings	-3.8%
Dividend Aristocrats	+1.8%
Dividend Champions	-2.4%
Dividend Contenders	-1.3%
Dividend Challengers	-1.3%

Stock Market Valuation This Week

The S&P 500 Index trades at a price-to-earnings ratio of 24.66X, and the Schiller P/E Ratio is about 29.70X. 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.

Economic News This Week

Provided by Stock Rover*.

Housing Permits and Starts

The U.S. Census Bureau reported new residential building permits were up 6.9% in August to a seasonally adjusted 1.543M (-2.7%) below the August 2022 rate of 1.586M. Single-family permits were up (+2.0%) to 949K from a July figure of 930K. Single-family permits increased in the Northeast (+5.9%), Midwest (+2.6%), South (+1.8%), and West (+1.5%). Permits for 2 to 4 units were reported up (+25.5%), while five units or more were up (+14.8%). Privately-owned housing starts dropped (-11.3%) to 1.283M, from a downwardly revised July estimate of 1.447M and (-14.8%) below the August 2022 rate of 1.505M. 

Single-family starts were down (-4.3%) to 941K as single-family homebuilding decreased in the West (-26.9%), Midwest (-12.3%), and Northeast (-1.8%), while only the South (+8.1%) saw an increase. Housing starts for five units or more fell (-26.3%) to 334K in August, down (-41.0%) year over year. Privately-owned housing completions reported at 1.406M, up (+5.3%) from July’s upwardly revised 1.335M reading and up (+3.8%) over August 2022. Single-family housing completions were reported at 961K, a (6.6%) decrease from July’s upwardly revised rate of 1.029M, down (-5.8%) from August 2022.

U.S. Federal Reserve

The Federal Open Market Committee (FOMC) announced that it would keep its benchmark federal funds rate in the range of between 5.25% to 5.5%. The central bank has raised its benchmark borrowing rate 11 times. The FOMC statement stated, “The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time”. 

The FOMC’s latest projections show the economy is improving marginally and that there will likely be one more interest rate hike before the end of the year. The FOMC forecast increased the annual GDP growth to 2.1% for 2023 from a 1.0% forecast in June. The unemployment rate was revised to 3.8% from a 4.1% forecast in June. The personal consumption expenditures (PCE) price index was adjusted to 3.3% from 3.2%. Core PCE, which excludes the more volatile food and energy costs, was revised to 3.7% from 3.9%. The median projection for where the federal funds rate will be at the end of the year was 5.6%, suggesting a one more quarter-point rate increase at either the November or December meetings. The median federal funds rate for 2024 was projected at 5.1%, up from June’s 4.6% forecast.

Composite PMI

S&P Global reported that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell slightly to 50.1 in September from 50.2 in August. The headline reading fell for the fourth month, signaling a broad stagnation in activity across the private sector. Driving the slowdown was the service sector, where firms recorded the slowest rise in business activity in the current eight-month sequence of growth. Companies attributed the deceleration to high-interest rates and inflationary pressures, weakening client demand. 

Business confidence across the private sector dipped to a nine-month low at the end of the third quarter. On the positive side, job creation has quickened to the fastest since May, with staffing increases in manufacturing and services firms. The S&P Global Flash U.S. Manufacturing PMI reported up slightly to 48.9, from 47.9 in August. Manufacturing firms continued to register a decline in production, albeit at a slower pace from August. Higher input inventories and slower demand meant firms reduced their purchasing activity in September.

Resources

• Stock Market Holidays
• Dividend Stock Lists
• Investor Relations Guides
• Checking and Savings Account Resources
• Dividend Investing Resources
• Reviews

Curated Weekend Reading From Around The Web

Portfolio Management and Investing

• It’s Time to Consider TIPS (Morningstar)
• 4 Ways to Diversify Concentrated Stock Positions (The Long Term Investor)
• The Power of Investment Journals (The Rational Walk)

Retirement

• 6 factors affecting your retirement health care costs (Vanguard)
• Morgon Housel on the New Way We Think About Money (Odd Lots)
• On Second Thought (Humble Dollar)

Financial Independence

• Yes, people often forget to cancel their monthly subscriptions (NPR)
• Is AppleCare+ Worth Buying for Your iPhone (Consumer Reports)
• Why I Let My Kids Go In Debt (Frugalwoods)