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- The Dividend Investor's Edge Newsletter - April 11th 2022
The Dividend Investor’s Edge is a weekly newsletter designed to give you, the investor, a full picture of where the stock market is, and to equip you with important information I came across during the week, and what to look for in the week ahead, all constructed in an easy to understand format.
This newsletter is designed for investors of all levels.
Each Week I will discuss:
• An update on the Stock Markets major averages
• Stock Market: On The Horizon
• Notable Upgrades/Downgrades
• Dividend News
📈 Quick Look At The Markets 📉
As a reminder or for those of you new readers, in the “Quick Look At The Markets” section I plan to give you a recap on the prior week for the S&P 500 as a whole as well as the top performing and worst performing sectors. In addition, I will touch on volatility and fear in the market currently, which are important factors to consider when investing.
The first full week of April saw the broader market fall nearly 1.5%, continuing the April struggles with the S&P 500 down 2.5% on the month thus far. The tech sector was hit pretty hard last week as the tech heavy Nasdaq fell nearly 4% just last week alone.
Inflation, supply chain issues, and rising bond yields continue to be front and center for investors. On Friday we saw the 10-year bond yield, which is a commonly watched security, hit a three year high.
This is a HUGE week for the stock market. This week, not only do investors get an updated look on inflation as the March CPI numbers are due out on Tuesday, but we also officially begin the Q1 earnings season. Bank will begin reporting earnings on Wednesday, with JPMorgan up first.
Volatility in the market creeped back up last week as different Fed officials started giving takes on the Fed’s plan on rate hikes, lower their balance sheet, and how they are looking at inflation numbers.
How the Fed approaches this can have a major effect on all of us. Higher rates make the cost of borrowing much higher, naturally. As the Fed raises rates, it forces banks to increase their loan rates, plus consumers with variable interest rate debt will see their debt costs increase. This is one reason growth stocks have been getting pummeled. Growth stocks, especially those will little to no free cash flow, are forced to borrow money to fund growth.
The effects of rising interest rates are also intended to slow the economy in a way, by essentially lowering demand. If one has to borrow money to make a purchase, and the cost of borrowing is more than it was a few months ago, plus the prices have increased due to the high demand, maybe one will rethink making that purchase.
All of this, while lowering demand is just part of the issues we see right now with the economy. Demand is high, yes, but supply is not normal. Supply, which is the other half of the economics equation, is not impacted by higher rates. The supply chain shortages are still a concern, which is why inflation issues will not be solved quickly. If the supply chain was clicking away like normal and shipping containers and semiconductors were able to produce at regular capacity all along, we would not be in this big of a predicament.
Lastly, consider all we just discussed, and then also add on the disruptions from the war in Ukraine. This has had a big impact, especially on gasoline prices which soared 38% year over year.
Looking at the heat map below, a lot of red from the big technology names, but in the middle you can see a lot of the higher quality dividend stocks remaining in the green. Year-to-date the S&P 500 is still down 6.4%, after falling 1.2% last week.
Here is look at the S&P 500 heat map from last week:
Top Sectors For The Week
Health Care +3.44%
Energy 3.21%
Consumer Staples 2.73%
Worst Sectors For The Week
Information Technology -4.03%
Consumer Discretionary -3.28%
Consumer Services -2.72%
Fear Factor
Volatility levels creeped back higher last week, bringing a sign that volatility and fear is returning to the market.
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 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 from index options with near-term expiration dates, projecting a 30-day forward projection.
The VIX ended the week with a reading of 21.16 with the 50-day moving average finishing at 25.72. A reading under 20 is when I consider things to be closer to normal, which is where things stand currently.
Here is a look at the VIX chart with the 50-day moving average:
Another resource you can look at is the Greed and Fear Index that 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 the the Greed and Fear Index, things have been improving on this front as well, in line with what we have been seeing from the VIX as this index moved to a NEUTRAL reading. Currently, the index has a reading of 46, which is roughly where things stood the prior week.
📰 Stock Market: On The Horizon 📰
In this section labeled “Stock Market: On The Horizon” I will discuss a variety of different topics that have gone on in the market and are on the horizon.
I have already highlighted a few things in the sections above that investors will have their eyes on. March CPI numbers will be a focus, any further commentary from Fed officials about their policy changes, and the kick-off to Q1 earnings season.
Based off how the market was trading last week, I expect much of the same this week. It could be a good idea to look for spots where you could raise some cash to have on hand when opportunities strike. I fully expect the March inflation numbers to be extremely high, I mean how could they not? Have you not been to the grocery store lately or reviewing your monthly budget just to see how you blew the Food and Groceries line item. That is all due to inflation and how costs across the board have spiked.
The key for me is to continue looking for opportunities in high-quality, cash flowing dividend stocks that could weather any type of economic slowdown or even recession.
If you are not yet subscribed to my YouTube Channel, head over and click that subscribe button so you are notified any time I drop a new video. Speaking of cash flow, if you are looking to add some Real Estate exposure to your portfolio, check out my latest video in which I dive into 2 REITs that are MUST own stocks, especially during times of high inflation. Watch as I explain more:
DId you know that since 1972, REITs have been a TOP performing asset class? They are great for income investors or investors looking to add Real Estate exposure to their portfolio.
You can also check out my latest Dividend Portfolio update from a few weeks back to see the positions I currently own in my Dividend portfolio. Here is that video:
I will be releasing a new video on Wednesday, which will be an update to my Dividend portfolio, so make sure you are subscribed to the channel because you will not want to miss it.
In terms of game-plan for the week, I will be looking to raise some cash by selling off any of my high growth positions, as I believe they could have some tough sledding in the months ahead especially if we move closer to a recession. In terms of buying, I will be looking for cash flowing companies that can be resilient to recessions. Think of companies that have products or services that are necessary regardless of the economic backdrop. Something like Costco (COST) or Proctor & Gamble (PG) are good examples of this.
⏫ Stock Upgrades/Downgrades ⏬
In this section moving forward, I will add any notable analyst Upgrades or Downgrades I came across during the previous week.
Target (TGT) upgraded to BUY at Gordon Haskett
United Parcel Service (UPS) downgraded to neutral at Bank of America
Kroger (KR) upgraded to BUY at Bank of America
Proctor & Gamble (PG) initiated with a BUY rating at Raymond James
Raythen (RTX) initiated with a BUY rating at RBC and a PT of $125
Home Depot (HD) sees a PT cut to $314 at Piper Sandler. Wells Fargo cut price target to $350.
Lowe’s Companies (LOW) gets a price target cut to $260 over at Wells Fargo and $243 at Piper Sandler
Costco (COST) got a PT increase to $645 at Oppenheimer
Morgan Stanley (MS) sees a PT cut at Piper Sandler to $100
Qualcomm (QCOM) gets a PT cut to $205 from JPMorgan
3M (MMM) sees a PT cut from Barclays to $155
💰 Dividend News
In this section I will detail what I am watching and any Dividend related news.
Starbucks (SBUX) interim CEO Howard Schultz suspended the company’s share buyback program to invest more into the people and stores as the company is seeing pressure from more stores unionizing
Constellation Brands (STZ) increases the dividend by 5.3%
PNC Financial (PNC) increases their dividend by 20%
Other Resources
Here are a few of my latest YouTube videos to watch:
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Have a Great Week!
Mark
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