The Dividend Investor's Edge Newsletter - January 24th 2022

Volume 1

Jan 24, 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 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 Related News

📈 Quick Look At The Markets 📉

Welcome to the FIRST Edition of The Dividend Investor’s Edge where it is my goal to keep you up to date on the important areas of the stock market in an easy to understand format.

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 when you are thinking about entering or exiting a position.

With that being said, the stock market has gotten off to a rough start with the S&P 500 down ~8% year-to-date. This past week in particular was the WORST week in the S&P 500 and Nasdaq since March 2020, which was the start of the pandemic.

Here is the 1-week heat map for the S&P 500:

Source

Top Sectors For The Week

Energy: -0.71%

Consumer Staples -1.34%

Utilities -1.43%

Worst Sectors For The Week

Consumer Discretionary -8.90%

Financials -7.38%

Communication Services -6.55%

Fear Factor

Fear has certainly been running high in the stock market since the turn of the calendar, hence the worst week in the S&P 500 since 2020. This is the case for a number of different reasons from sky high valuation multiples, rising interest rates, high inflation, and uncertainty around COVID to name a few.

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 50-day average for the index has been 20.63 and at the close of last week the index shot up to 28.85, indicating that investors are fearful about stocks in the near-term.

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.

Currently, the index has a reading of 43, which is down from the prior weeks reading of 58, also indicating higher levels of fear.

Source

📰 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.

As I mentioned earlier, the S&P 500 and Nasdaq are coming off their worst week since the START of the pandemic. At the start of the pandemic, in early 2020, we saw what I call a “Quick Recession,” where stocks TUMBLED for what felt like forever. However, the fall was sharp and steep, but short lived and from there the markets took off for the remainder of 2020 and all of 2021.

The rebound was strong and fierce. Much of the rebound was centered around technology stocks as many businesses were forced to temporary halt in-person gatherings and shift to a more work from home environment. In fact, many businesses to this day have still not returned to the office forcing many businesses to upgrade their technology offerings to ensure work continued and think about different ways to run their business.

In addition, we saw record amounts of stimulus handed out by both the Federal Government to help combat high unemployment numbers as well as the Federal Reserve who not only kept interest rates near zero, but they were buying $120 billion of bonds each month. What this does is pump huge amounts of financial supply into the markets/economy, which is known as Quantitative Easing, a type of monetary policy that has been used in the past by the Federal Reserve.

Fast forward to the start of ‘22, and what all this has created is massive amounts of inflation. High inflation is something all of you have felt whether you were simply shopping for your weekly groceries to buying a new or used car.

One of the tools the Federal Reserve has to take inflation on is by lowering its bond buying program (Quantitative Easing or QE) and by increasing the interest rates. Fed Chairman Jerome Powell has already lowered their bond buying amount and expect that to be fully completed by “late winter or early spring.” Once that is completed is when the Fed expects to begin the process of raising rates. Listening to many different Fed members and economists, we are expecting around three to four rate hikes in 2022.

How does this impact investors? These ultra-growth companies that have little to no profit will see debt related expenses rise and it also lowers the future value of growth stock earnings.

As much as this causes near-term choppiness, it was something that was and is needed to combat whats going on within the financial markets and inflation. The sell-off is due to investors trying to price in these future rate hikes. Ultimately, I believe we continue to see some near-term pressures, and this is one catalyst for Dividend Stocks to outperform in 2022 as investors look for some sort of safety.

This week will be huge for the stock market with some big companies reporting earnings. Being that valuations are still a high in certain sectors, those companies will need strong earnings and guidance to keep from having nasty sell-offs like we saw in Netflix last week.

Here is a look at companies that are reporting earnings this week (via @eWhispers).

Notable Earnings Calls I am watching closely:

JNJ
VZ
LMT
MMM
RTX
MSFT
BA
TSLA
MCD
MO
AAPL
V

On Wednesday January 26, we will get an update from Fed Chair Jerome Powell when he hosts the FOMC press conference at 2:30pm ET.

⏫ Stock Upgrades/Downgrades ⏬

In this section moving forward, I will add any notable analyst Upgrades or Downgrades I came across during the previous week.

Mastercard (MA) PT cut from $455 to $430 at Barclays
Visa (V) PT cut to $250 from $270 at Barclays (I have a position)
UnitedHealth (UNH) maintains a Strong Buy rating from Raymond James and they increase the PT to $540
Apple (AAPL) PT raised to $205 from $165 at Wells Fargo (I have a position)
Broadcom (AVGO) PT raised to $750 from $680 at Piper Sandler
AbbVie (ABBV) a top holding of mine, got a PT boost at Cowen from $130 to $150.

2⃣ Stocks I Am Watching

In this section I will detail what I am watching in the week ahead.

Normally, I would briefly touch on a few stocks on my watchlist for the week, but being that we are just beginning a huge earnings season, there will be a lot of stocks I am watching.

Johnson & Johnson

Verizon

Lockheed Martin

Microsoft

Altria

Apple

Visa

These are all stocks I own in my portfolio currently, so I will have a close eye on the latest results and any guidance they put out.