Stock Market Tanking | 3 Things I Am Doing To My Portfolio

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 going forward.

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📈 Quick Look At The Markets 📉

Wow, what a week for the stock market last week, and we ended by retesting the June lows. Many economists had been expecting a retest of the June lows (including myself, although I am not an economist), and we finally got there…quickly.

The markets sold off hard last week with the S&P 500 falling over 4% on the week and the Nasdaq falling 4.6%. It was a rough week for investors to say the least.

During the week we saw the Federal Reserve yet again hike rates another 75 basis points, which was largely expected by investors, even though some thought there was an outside chance at a 100 basis point hike.

No surprises there, so why the large sell-off? What many investors were focusing on, outside of the rate hike, was some sort of indication on how far the fed is looking to go when it comes to rate hikes. In layman’s terms, investors were focused on where the Fed was aiming to take the terminal rate, or how many more rate hikes do they foresee until this process ends.

Given the 75 basis point hike, the current terminal rate has now been raised to 3%-3.25%, the highest since 2008. In the speaking session following the rate hike, Fed Chairman Jerome Powell explained that the Fed is aiming for a peak terminal rate of 4.6% in 2023. Economists were forecasting the peak terminal rate to be closer to 4%.

The Fed was expected to be “hawkish” but they took things to an even more hawkish level, which is exactly what spooked the market.

This pain in the market is not expected to end anytime soon, and the saying goes…

“Do NOT fight the Fed.”

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 23.0%, after falling 4.1% last week.

Source

Top Sectors For The Week

All sectors were RED

Worst Sectors For The Week (No sectors in the red this week)

Energy -9.0%

Consumer Discretionary -7.0%

Real Estate - 6.4%

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 is beginning to climb higher as fear heightens with investors. The VIX ended the week with a reading of 29.9 with the 50-day moving average finishing at 23.72. Given that the VIX now has an elevated reading, it is expected that we will see volatility remain high in the markets for the near future. A reading under 20 is when I consider things to be closer to normal, something we are inching further away from.

Here is a look at the VIX chart with the 50-day moving average:

Source

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, in a matter of roughly two weeks we went from a neutral reading to an Extreme Fear reading. Inflation hot, rates moving higher for longer, and earnings needing to come down all leading to more pain in the markets. Currently, the index has a reading of 24. This reading continues to fall from a rating of 36 last week.

Source

📰 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.

The past two weeks have painted a picture of Doom and Gloom for the markets. Between red hot inflation not coming down, to rising interest rates, to a surging bond yield, this is setup to be a tough period for equities.

Warren Buffett said it best years ago, “Interest rates are like gravity to equities.”

When one is valuing a stock using a Discounted Cash Flow analysis, or DCF, one of the input figures is a risk-free rate. Usually this is a US Treasury yield, and it is saying, you need AT LEAST this return to invest in an equity, otherwise it would not make sense because you can obtain this risk free return.

As such, when interest rates are rising, the pricing on equities also comes down, especially for those will lower cash flows.

Keep this in mind when buying any stocks in this period of time, focus on high-quality cash flowing assets that are considered “Defensive Stocks.”

This week, we will start the week off with a few Fed officials have some speaking arrangements, and those always have the ability to move the markets. On Tuesday, Fed Chair Jerome Powell speaks at Banque de France conference. Tuesday will also bring some housing data as well as Consumer Confidence readings. Thursday we will get the regular initial jobless claims data.

With that being said, I believe we will continue to see turbulence in the market this 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. My personal plan will be less focused on adding shares this week and more focused on my options plays. I will be selling covered calls and cash secured puts.

This week, given where the markets are, I want to focus on the plan I have been carrying out, with the hopes it may help some of you wanting to panic sell. Panic selling is never the answer.

Let’s look at 3 things I am doing in this market.

#1 - Raising Cash

Whether it is your normal input into your investing account or you have some growth equities to sell, I am looking for areas to raise cash. As such, I have some growth names that I did not sell out of but instead trimmed in order to raise more cash. There will be a time for those growth stocks again, but now is not it.

#2 - Getting Defensive

Any stock that I have bought over the past few months has been a defensive name. REITs, Healthcare, Defense Contractors, Consumer Staples, have all been sectors I have been looking at. Not all have held up, but for the most part they have. Some of the defense contractors especially come to mind given the continued geopolitical tensions we see that are not going away any time soon, and names like Lockheed Martin (LMT) and Raytheon Technologies (RTX) appear to be trading at solid valuations. Other names I have added to include Alexandria Real Estate (ARE) which is a healthcare office REIT, Coca Cola Company (KO), which has performed well in these inflationary times. Energy, by way of XLE, was an ETF I added to on the sell-off on Friday, as I see some upside there with OPEC focused on defending $90 oil prices.

#3 - Utilizing Options

Option trading can seem like a very scary thing at first and very complex. And to be frank, it can be. However, the option strategies that I use and also teach our members at Cashflow University, are conservative approaches to options.

We are not only focused on educating, but also showing our trades for members to follow.

Leveraging positions you already own is a great way to trade options in this market via covered calls.

If you are interested in learning more about options, come give Cashflow University a try for only $29.99. I am pretty confident that you would earn that money back rather quickly. Not only do you get content on options, but we have multiple teachers focused on topics including: Dividend Stocks, Real Estate Investing, Turo Car Rentals, Flipping Products, and other ways for you to build Passive Income.

Try CASHFLOW UNIVERSITY TODAY!

CLICK HERE to join

💰 Dividend News

• NIke (NKE) downgraded to equal weight at Barclays

• Cisco Systems (CSCO) downgraded to equal weight at Barclays

• JPMorgan increases Price Target for AbbVie (ABBV) to $180

• Barclays lowers PT of United Parcel Service (UPS) to $180 from $200

• Domino’s Pizza (DPZ) has PT lowered to $415 from $475 at Citi

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 3 Top Dividend ETFs for those looking for Dividend Growth. Give it a view and a LIKE here:

Want a look at my personal Dividend Portfolio? Here is my latest update.

Here are a few other YouTube videos to watch:

HUGE DIVIDENDS From These 3 REITs

5 Best Dividend Stocks To Buy and Hold FOREVER

5 Dividend Growth Stocks To Buy Now

5 Best Dividend ETFs To Buy

2 Must Own REITs

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.

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Have a Great Week!

Mark

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