- The Stock Investor's Edge
- Posts
- Key CPI Report Looming Could Weigh On Stocks
Key CPI Report Looming Could Weigh On Stocks
The Fed is expected to continue increasing rates in the near term. Is their policy starting to work on inflation?
Mark Roussin
September 12, 2022
The Dividend Investor’s Edge is a weekly newsletter designed to give you, the investor, a better understanding on where the stock market is, and to better equip you with information to help you make more informed decisions.
This newsletter is designed for investors of all levels. Whether you are just starting out or a seasoned investor, it is our goal to deliver information in a format that is easy to articulate.
Thanks for reading The Dividend Investor's Edge! Subscribe today so you are notified anytime we drop new content.
Please COMMENT below on your thoughts of the newsletter.
📈 Quick Look At The Markets 📉
The S&P 500 bounced back last week, snapping a three week losing streak. This was a welcome sign to investors as negativity had started to gain momentum that we could once again test the June lows.
The 10-year treasury bond yield continued its upward momentum closing the week at 3.32%. As an investor, it is important to keep an eye on the bond market as it is much larger than the stock market. Historically, higher yields tend to put more pressure on stocks.
The past week was slow in terms of economic data and earnings releases. In terms of economic data, we saw initial jobless claims of 222,000, which was lower than the prior week.
In last week’s newsletter, I did mention the big Apple event that was to take place, in which they released their new iPhone 14 models and a new version of their Apple AirPods and Apple Watch. Many of the new features included new chips, upgraded cameras and a lot of new safety features on the iPhone as well as the Apple Watch. AAPL shares did not move all that much on the week, only up 0.9% the past five days.
Economic data this week will be focused on the August CPI report, which I would expect another slowdown, considering what we have been seeing with gasoline and food prices alone, which have fallen.
Here is a look at the heat map over the past week for the S&P 500. Year-to-date the S&P 500 is down 15.2%, after gaining 3.3% last week.
Top Sectors For The Week
Materials +4.85%
Consumer Discretionary +4.74%
Financials +3.51%
Worst Sectors For The Week (No sectors in the red this week)
Consumer Staples +0.50%
Communication Services +0.94%
Information Technology +1.91%
Fear Factor
Fear and uncertainty is often expressed in the stock market through volatility. One way for investors to understand where the market as a whole is at in terms of volatility is by monitoring the CBOE Volatility Index (VIX). The VIX represents the market’s expectations for near-term price changes within the S&P 500 index. The index is derived based on S&P 500 index options with near-term expiration dates, projecting a 30-day forward projection.
The VIX ended the week with a reading of 22.8 with the 50-day moving average finishing at 23.81. Both the closing and the 50-day were both lower than prior week as it was a slower week for traders looking at volume levels. A reading under 20 is when I consider things to be closer to normal.
Here is a look at the VIX chart with the 50-day moving average:
Another resource you can look at is the Fear & Greed Index, which 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, there was not much change on the week as the rating barely moved. Currently, the index has a reading of 45. This reading is slightly up from a rating of 41 last week.
📰 Stock Market: A Look Ahead 📰
In this section labeled “Stock Market: A Look Ahead” I will discuss a variety of different topics that face the market in the coming week(s) ahead. Remember that the stock market is forward looking , typically looking roughly six months ahead.
We are still two weeks away from the Federal Reserve’s next rate decision, in which I suspect they will once again increase rates by another 75 basis points.
The CPI data is set to hit at 8:30am ET on Tuesday September 13th.
The CPI data will be a major focus for the Fed and investors, but I also think regardless of the report, the Fed has largely made up their mind for the rate hike decision coming in two weeks. We have to remember that the Fed was behind the curve when inflation started rising and they believed it was just “transitory” which we unfortunately saw it was not, as such, they are in a position where they want to do more now and nip this in the bud. This was evident based on Charman Powell’s latest words in which he used the phrase “more pain ahead.”
However, we must remember that the stock market is forward thinking by about six months, so a lot of this is already priced into the markets. Looking at the latest results from the CME FedWatch, investors overwhelmingly expect a 75 basis point rate hike in a few weeks over a 50 basis points hike by a margin of 90% to 10%, respectively.
Looking on the horizon, if we do in fact get a 75 basis point hike in a few weeks, investors believe we have another 100 basis points worth of hikes between now and Q1 2023.
Given all this information, where do we go from here? From a technical standpoint, the market still appears to have room to move higher in the near-term. Last week, the S&P 500 bounced off its $3,880. Closing the week at $4,067, the next resistance levels is around $4,140 and eventually $4,300, which is the high that was hit in mid-August.
With that being said, I believe this week ahead could be very similar to what we just went through last week.
💵 3 Quick Pick Dividend Ideas 💵
In this section, I will share 3 high level dividend ideas that are at the top of my watchlist. Please remember that I am not a financial advisor, so please perform your due diligence before investing.
Quick Pick #1 - Starbucks (SBUX)
Stock Price: $88.69
Current P/E: 30.67x
Forward P/E: 26.16x
5-Yr Avg P/E: 30.45x
Comment: Investor Day this week, so I will be listening for new strategies and growth initiatives moving forward.
Quick Pick #2 - FedEx Corporation (FDX)
Stock Price: $209.07
Current P/E: 9.89x
Forward P/E: 9.27x
5-Yr Avg P/E: 13.6x
Quick Pick #3 - Spirit Realty Capital (SRC)
Stock Price: $41.61
Current P/AFFO: 11.95x
Forward P/AFFO: 11.30x
5-Yr Avg P/AFFO: 12.50x
Comment: Net Lease REIT
💰 Dividend News
In this section I will detail what I am watching and any Dividend related news.
VICI Properties (VICI) increased their dividend by 8%
Kilroy Realty (KRC) increased their dividend by 4%
Kimco Realty (KIM) increased their dividend by 10%
Wells Fargo lowered 3M (MMM) price target to $125 from $140.
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 most recent video in which I detailed out my latest Dividend Portfolio update. Give it a view and a LIKE here:
Here are a few other YouTube videos to watch:
New to investing or looking for a new brokerage? Check out Webull where they have a special promotion where they will give you 12 FREE stocks valued up to $30,600. Sign up, deposit ANY amount of money BEFORE the end of the month and get your free stocks. Click HERE for the promotion.
That concludes today’s newsletter. I hope you all have a great week and wish you the best of luck on your investing journey.
If you do not already follow me on social media, give me a follow as I put out weekly content.
Thank you for reading my newsletter! Please comment down below and share the newsletter with someone that may find it useful.
Have questions? You can email me directly at [email protected].
Have a Great Week!
Mark
Reply