Top Heavy Rally Looking Very One-Sided

Slow week for the markets before the next Fed meeting

Author

Mark Roussin
June 05, 2023

Welcome to The Dividend Investor’s Edge, the premiere investing newsletter for those looking to keep up with the stock market and dividend stocks. If this is your first time reading, but you have not yet subscribed, join our growing investing community of like-minded investors looking to reach financial independence.

Market Talk ⏪

We always begin with 5 important topics from the week prior and/or related to the week ahead for investors to be mindful of:

  1. Market breadth showing a disconnect in this rally thus far. Market breadth measures the difference between stocks that are advancing vs declining. Right now the gap is wide with many of the tech heavy, some of the largest weightings within the S&P 500 are driving the index higher. Another way to see this is by comparing the S&P 500 return with that of the Equal Weight S&P 500 ETF (RSP). YTD, the Equal Weight S&P 500 ETF is up 1.85% compared to the S&P 500 being up 12.4%, showing a huge disconnect. This is showing some trouble under the service and little strength in the 2023 rally thus far.

  2. Red hot labor market. On Friday we got the much anticipated jobs report, which gave us an update on the strength of the labor market. The report showed an increase of 339,000 jobs for the month of May, which was far better than the 190,000 estimated by Dow Jones. Regardless of the rising interest rates combined with stubborn inflation, the labor force continues to be hot, which makes the Federal Reserve’s fight against inflation much more difficult.

  3. Debt ceiling behind us. Last week in the newsletter we got word of an agreement, but now I can confirm that the new debt deal has passed through COngress, much easier than expected, and was signed into order by the President. The essentially kicks the can down the road for the US, but also side steps any potential hiccups for the economy and the government’s debt.

  4. The AI craze carries on. There is no doubt that AI is playing a HUGE role in many business moving forward, and it is also impacting human jobs. In fact, during the earnings calls for the likes of Meta Platforms, Apple, Alphabet, Microsoft, and Amazon, the term “AI” was mentioned nearly 200 times. It seems like every company this year is trying to mention AI after seeing the likes of META and Nvidia double so far in 2023.

  5. Student loan forgiveness plan shot down. The senate passed a bill to repeal the Biden administration’s plan for student loan forgiveness, which the President has vowed to veto. In addition, this week, those with student loan debt will be expected to continue making monthly payments again this week, which will further add pressure to a weakening consumer. This has the potential to make a decent size impact on the near-term future of the economy. Do not expect the effects to be felt quickly, but after a few months of making payments, we should start to see some signs of a weakening consumer, which will further impact the fight against inflation. That extra money a consumer had is now no longer being used to buy goods, and instead being used to pay down debt.

Deep Dive 📰

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This week, PREMIUM subscribers will receive my May June Portfolio Update showing all my positions, my monthly dividend income, and all my buys and sells for the month.

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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.

The Fear and Greed Index was little changed this week with the index remaining squarely in Greed, as the Nasdaq yet again had another strong week. Currently, the index has a reading of 65, which is in line with the prior week reading of 67.

Earnings on Deck 💰

Earnings season is coming to a close with fewer notable earnings reports due out this week. Here is a look at who's reporting this week:

Dividend News 📝

Here are some notable analyst upgrade/downgrades from the previous week:

  • Jefferies upgrades Ford to buy from hold

  • Morgan Stanley upgrades Medtronic to overweight from equal weight

  • Morgan Stanley downgrades Abbott Labs to equal weight from overweight

  • Wells Fargo names American Express a top pick

  • JPMorgan Chase upgrades Chevron to neutral from underweight

  • Goldman Sachs downgrades Advance Auto Parts to neutral from buy

  • JPMorgan downgrades Target to neutral from overweight

  • RBC downgrades ExxonMobil to sector perform from outperform

  • JPMorgan upgrades Domino’s Pizza to overweight from neutral

  • UBS upgrades CSX to buy from hold

  • Piper Sandler downgrades Dollar General to neutral from overweight

Economic Data This Week 📆

Monday

  • S&P Global Services PMI (May)

  • Durable goods and factory orders (April)

  • ISM services PMI (May) 

Tuesday

  • None

Wednesday

  • Trade balance (April)

Thursday

  • Initial jobless claims (week ending May 27)

  • Wholesale inventories (April)

Friday

  • None

Other Resources 📺

If you have not done so yet, check out my growing YouTube community where I publish weekly videos focused on building wealth through investing.

Here is the latest video I put out last week: 5 Top Dividend Stocks FFor June 2023:

Here is another video I put out last week: 4 of the BEST Dividend Growth ETFs:

Here are a few others of my latest videos:

4 of the BEST Dividend Growth ETFs

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

Happy Investing!

Mark

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