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- The Dividend Investor's Edge Newsletter - March 28th 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, which are important factors to consider when investing.
What a strong move we saw in the markets the past few weeks, even considering the backdrop in the economy right now. The past few weeks investors have shrugged off a Fed looking to aggressively increase interest rates to combat surging inflation. Oil prices continue to remain high and are impacting consumers in a very big way, which could have a major impact on the economy as a whole in the next 12-months. If consumers are having to spend an extra $200 or so on gas every month, that leaves less available to spend on other things, so we will have to watch that closely.
Spending more on gas at the pump and food seeing inflation that has been out of control is bound to impact sectors outside of food and oil. However, this has a lot to do with the decisions made months ago by the government regarding its position on financial policy. When you hand out monthly subsidies for too long and you are dependent on other countries for energy needs, the bill eventually comes due. This is economics 101, when the demand is strong, you need supply to catch up, but if you increase demand through subsidies, things like inflation are primed to get even worse.
We already saw our first rate hike from the Fed a few weeks back and we some are forecasting another five to six hikes the remainder of the year, with three more in 2023. The aggressive approach is necessary at this point, and could have an impact on many growth stocks that are in a phase where they have an aggressive debt approach in order to continue growth. Either way, consumers are not expected to see much change in the near-term.
Looking at the heat map below, it was another solid week of green, especially for big tech. Year-to-date the S&P 500 is still down 5.7%, even after climbing nearly 1% last week and over 7% the past 2 weeks.
Here is last weeks heat map for the S&P 500:
Top Sectors For The Week
Energy +7.42%
Materials 4.10%
Utilities 3.45%
Worst Sectors For The Week
Health Care -0.23% (Only sector in red last week)
Fear Factor
Volatility levels continued easing last week, which is evident in the strong move up in the markets we have seen the past few weeks. The VIX as a whole has moved closer to a more normal level in recent weeks, but will it continue given the uncertain backdrop?
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 22.03 with the 50-day moving average finishing at 26.95. We have seen the 50-day MA move higher for six consecutive weeks now, continuing to show that investors remain fearful at least in the near term, although we did see the real-time reading lower this week, which is positive. 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 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 really taken a turn as it currently reads FEAR. Currently, the index has a reading of 47, which is higher than we were a few weeks when the index had an Extreme Fear reading, with a prior weeks weeks reading of 37, indicating even higher levels of fear.
📰 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.
With all the major averages up a healthy amount the past few weeks, investors are feeling much better than at the start of the year, but can we expect this to continue?
Here is my take on the market as a whole, at least in the near-term. Given what we have seen the past few weeks, one has to ask themselves, what is the catalyst higher?
We have a lot of uncertainty and headwinds right now as investors, at least in my view.
Rising Interest rates
Surging inflation
Surging gas prices
Supply chain issues
Geopolitical tensions
What is the catalyst to take things higher?
It is a serious question one has to ask themselves, so with that, my approach right now is to raise a little cash by trimming some positions and also selling some covered calls.
What is your approach in the weeks ahead? Let me know in the comment section down below.
A great approach, especially in times of uncertainty, but really any time, is to have a well-diversified portfolio. One way to do that is by utilizing ETFs, or exchange traded funds. In my video produced last week, I discussed 3 Top Vanguard ETFs to look at for your portfolio.
Check out that video here:
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:
No plans to add to any positions this week, but if an opportunity presents itself, I will be ready. Qualcomm is a name I am watching closely as they have fallen quite a bit and present a good long-term opportunity.
⏫ Stock Upgrades/Downgrades ⏬
In this section moving forward, I will add any notable analyst Upgrades or Downgrades I came across during the previous week.
Nvidia (NVDA) rated a BUY at both Bank of America and BMO Capital
Mizuho put out a positive note on Ventas (VTR)
FedEx (FDX) PT lowered to $277 at Wells Fargo
Bank of America reiterates “top pick” for Marvell Technology (MRVL)
💰 Dividend News
In this section I will detail what I am watching and any Dividend related news.
No notable stock increases this week
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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