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Market Talk ⏪

The stock market enjoyed another week in the green, and since the lows in mid-October, the S&P 500 has climbed nearly 15%. The bounce has been nice given the year we have seen so far, as all three major indexes are still in the red for the year.

Although the bounce has been nice, I feel that you subscribed to this newsletter, not for me to cheer markets higher, but instead to give my opinion. That is exactly what I strive to do each and every week with this newsletter. Give you another point of view from someone who has worked in the financial field as a CPA for roughly 15 years.

Last week investors got some data that was a bit mixed and the markets as a whole are looking for a catalyst. The November jobs report that came out on Friday of last week showing 263,000 jobs added during the month, well above the 200,000 economists had estimated. Unemployment stood at 3.7%, which proved that, although it is backwards looking data, the labor force still remained quite strong.

The thing is, is that the Federal Reserve is trying to slow the economy, and part of that means trying to crack the labor market. Fed Chair Jerome Powell during his speech at the Brookings Institution last week even alluded to that.

The hot jobs data could give the Fed the green light to continue hiking rates at a fast pace in their next meeting, which comes Dec 13-14. Given that the Fed meets next week, this week is considered a “quiet week” so we will hear nothing new from any Fed officials this week.

The majority of economists still believe the Fed will only hike rates a total of 50 basis points in their next meeting, and if you have been reading my newsletters on a weekly basis than you know this has been my expectation for quite some time. A 50 basis point hike would be a slowdown in pace from prior meetings, meaning this tightening cycle could be closer to be completed.

Jerome Powell signaled a similar thought process when he mentioned seeing the Fed “in position to reduce the size of rate hikes as soon as next month (December).” The Fed Chair made these remarks prior to the jobs reports, but I do not think the reports was enough to change their plans for the next meeting. The day Powell made those remarks, the markets sped higher by 2% with the Nasdaq jumping over 4%.

The US Dollar as well as US Treasuries also pulled back during last weeks session, which is a positive for stocks, but markets are looking for a catalyst higher to close the year, and I do not see it.

There is not a ton of economic data to sift through this week, so markets could be flat heading into a big week the following week when we get a new reading on inflation followed by the Fed meeting.

In the near term, I am bearish on the broader stock market, as I believe the headwinds are still quite strong. I do believe we are nearing the end of the rate hiking cycle, unemployment could tick higher, and the S&P 500 is trading at a P/E ratio above 20x, which is expensive.

Fed policy changes are not something that impact the economy all that quickly. The effects of policy on inflation tend to take over one year at times for impacts to start taking place.

The Fed started this hiking process back in Q1 of this year, meaning we have not even hit a year yet, which is why I envision a much slower economy entering 2023.

Going back to valuation, with the S&P 500 above 20x earnings, which is similar to what we saw in 2020 and 2021, but the policy is so much different, different in a way that makes it more difficult for equities. In 2020/2021, we had a Fed Funds rate near zero percent. We also had a Federal Reserve that was buying billions of dollars in bonds EVERY month to stimulate the economy. Fast forward to today and we are tightening and selling bonds off the balance sheet, very different, yet we are trading above 20x.

The areas of the market that I will continue to look at for opportunities are in defensive sectors, which include: REITs, Healthcare, Defense Contractors, and Energy. REITs are offerings some great valuations in certain areas, as the sector has been hit hard due to rising rates. As I mentioned earlier, I believe (my opinion) we are near the end of the hiking cycle and we have seen that the economy is still performing quite well, which means these real estate landlords create real earnings and have pricing power to increase rents.

Internationally, we have seen large protests break out in China as citizens are pushing back against the strict COVID restrictions that continue to be in place throughout the country. Unemployment has hit nearly 20% and citizens have had enough.

The European Union placed a $60-per-barrel price cap on Russian oil , which is seen as a political and economic maneuver designed to keep Russia’s supplies flowing into global markets, but also lower the amount of Russian oil being sold in the region.

Deep Dive 📰

Last week I dropped a new Deep Dive on The Home Depot (HD). If you have not checked it out yet, CLICK HERE.

Stratosphere.io is a great tool I am using to perform my research when studying for these Deep Dives. Here is a summary snapshot of what you can see when using the tool.

Give it a try!

If there is a specific stock you would like me to consider for a future Deep Dive, then send me an email at [email protected] and I would be happy to consider it.

Monthly Portfolio Updates 💰

As a subscriber to The Dividend Investor’s edge, I will begin publishing monthly portfolio updates in the Portfolio Update tab. The November monthly portfolio update will be published this week, so look out for it. This monthly write up will not only show my dividend portfolio, but it will also detail out any buys or sells I made during the most recent month, in addition to the growth in my Dividend income.

One of the many perks to being a Dividend Investor’s Edge subscriber.

US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

When it comes to the Fear and Greed Index, we have seen the markets continue its push higher off the October lows, which has not only lowered the VIX, but also move F&G Index into EXTREME GREED levels. Currently, the index has a reading of 75, which is not much change from the prior week reading of 63.

Source

Earnings on Deck 💰

The majority of the earnings season is behind us, but one Dividend stock I am focusing on this week is Costco (COST). Costco reports monthly metrics still and November missed the mark, so we could see a quarterly report that could miss the mark.

Source

Notable Analyst Updates 📝

• Deere (DE) PT increased to $450 at BMO after a strong report recently.

• Oppenheimer increased the PT of Dollar General (DG) to $285.

• Citi increases the PT of Domino’s Pizza (DPZ) to $441.

• Barclay’s increased their PT on Honeywell (HON) to $229.

• Citi increases their PT on FedEx (FDX) to $190.

• Wells Fargo increases their PT on Ulta Beauty (ULTA) to $450 and Oppenheimer increased their PT to $535.

This Week 📆

Monday

• Services PMI

• ISM Services

• Factory Orders

Tuesday

• International trade

Wednesday

• Consumer Credit

Thursday

• Initial jobless claims

Friday

• PPI

• Consumer Sentiment

• Wholesale Trade

Other Resources 📺

If you have not done so yet, definitely check out my growing YouTube community where I publish weekly videos on Dividend Stocks I am looking at.

Here is a look at my latest video in which I discussed 4 Best Dividend Stocks To Buy In December.

Also during the week, I did a video breaking down how the Power of Compounding Dividends can compound your wealth.

Here are a few others of my latest videos:

3 Monthly Paying Dividend Stocks

Better Buy: Apple or Microsoft

Warren Buffett’s Top 5 Dividend Stocks

10 REITs To Buy

Better Buy: Coke or Pepsi

Better Buy: Home Depot vs Lowe’s

Earn Dividends EVERY Month

5 FOREVER Dividend Stocks

If you enjoyed the newsletter, leave a LIKE and COMMENT down below. Also, if there is someone that could benefit from this newsletter, consider sharing it.

Have questions? You can email me directly at [email protected].

Have a Great Week!

Mark