Dividend Investing Weekly: P/E Ratios Getting Squeezed on Slower Growth Prospects

You are receiving this email because you signed up to receive our free e-letter Dividend Investing Weekly, or you purchased a product or service from its publisher, Eagle Financial Publications. [Dividend Investing Weekly] [Cash Machine]( [Quick Income Trader]( [Breakout Profits Alert]( [Hi-Tech Trader]( P/E Ratios Getting Squeezed on Slower Growth Prospects by Bryan Perry Editor, [Cash Machine]( 09/09/2024 Sponsored Content [The Biggest Financial Event of 2024?]( Right now, the world's wealthiest investors are preparing for what could become 'the biggest financial event' of 2024. 31 billionaires (including: Warren Buffett, Jeff Bezos, and Elon Musk, and more) are MOVING their stocks as we speak... To discover where they're moving their money... Why... And how you can profit alongside them... [Click here to find out.]( Coming off the second quarter and now halfway through the third quarter, the stock market has become volatile and considerably more defensive. Clearly, the sharp downward revisions in the year-over-year and previous monthly employment statistics reveal a job market that is not as healthy as reported. The three-month average for total nonfarm payrolls decreased to 116,000 from 141,000. July nonfarm payrolls revised to 89,000 from 114,000. June nonfarm payrolls revised to 118,000 from 179,000. It is disturbing that the numbers are so off the mark of reality and that the greatest number of people being hired are illegal aliens. A review of the second quarter runs counter to the current bearish narrative that has emerged of late. Consider the following takeaways from Q2: the S&P 500 reported growth in earnings of 11.3% -- the highest year-over-year growth since Q4 2021. Only 67 companies issued negative earnings-per-share (EPS) guidance for Q2 -- the lowest number since Q4 2022. 80% of S&P 500 companies reported actual EPS above estimated EPS -- above the five-year average of 77%. Nine sectors reported higher earnings due to upward revisions to EPS estimates and positive EPS surprises. Pretty impressive one would think. But the rub on the market now brought about the worst week of performance for the major averages since March 2023, in what is called multiple compression, when price over earnings (P/E) ratios shrink due to a lower outlook for GDP growth. The S&P dropped about 4% and the Nasdaq 100 fell nearly 6% fueled by the weak August jobs report, which raised concerns about a potential recession instead of the soft landing that had embraced investor sentiment through mid-July. The forward 12-month P/E ratio for the S&P 500 is 20.6 and is above the five-year average (19.4) and above the 10-year average (18.0). 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Conversely, in the same report, the analyst community increased EPS estimates for calendar year 2025 by 0.3% to $279.52 from $278.79 over this same June-August period. The rising level of market anxiety is whether that 2.8% reduction will increase, and the Fed will be slow to react more aggressively to prevent the labor market from exhibiting negative growth. It is thought the Fed’s telegraphing of a rate cut at the Sept. 18 Federal Open Market Committee (FOMC) meeting would provide some real-time action to address investor handwringing, but the new narrative is calling for the Fed to take bolder action. There are increasing odds the Fed will consider a 50-basis-point cut instead of a quarter-point hike if they are truly as data dependent as they claim. Between now and the FOMC meeting, the market will digest both the Consumer Price Index (CPI) and Producer Price Index (PPI) inflation reports, the University of Michigan Consumer Sentiment report, Industrial Production, August Retail Sales and both Housing Starts and Housing Permits. This set of reports could well pave the way for a half-point cut, something the bond market has already voted in favor of. While the Fed has maintained the fed funds rate at 5.25-5.50%, the yield on the 2-year Treasury has declined from 5.04% back in early May to 3.65% as of last Friday, Sept. 6. This 150-basis-point move in yield to the downside is nothing short of dramatic as the Fed has stood pat and watched energy prices fall, commodity prices fall and consumer credit spike to all-time highs. In my opinion, the Fed should have cut rates following the July Nonfarm Payroll report released the first week of August, and even more so following the 181,000 year-over-year downward revision. 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The suddenly weaker job market data should send a strong signal to Fed officials to get in front of this reality check in the labor market before risking a negative monthly Nom-Farm Payroll print that would surely rattle the market further. Taking into account the historically tough months of August-October it makes sense that investors are hunkering down somewhat in defensive areas of the market. Sector rotation has been swift, with technology, consumer discretion, energy, industrials, transportation, travel/leisure and materials all experiencing selling pressure as consumer staples, utilities, health care and real estate are seeing strong fund flows. Amid the volatility and multiple-hundred-point swings in the Dow and 2-3% daily moves in the S&P 500 and Nasdaq, there are some very bullish charts at work -- namely, the four sectors noted that are on the receiving end of positive inflows. At this juncture, the bond futures market is forecasting a full point of cuts by year from the three scheduled FOMC meetings (Sept. 18, Nov. 7, Dec. 18). Oddly enough, the CME Fed Watch Tool shows the half-point cut coming at the December meeting. Why not pull the half-point cut forward to next week and shore employer confidence? The Fed has a dual mandate -- low inflation and full employment. The Fed already botched inflation and had to spend 18 months getting back control over soaring prices. Now is not the time to lose control of the other mandate. Sincerely, [bryan-perry-sig] Bryan Perry Editor, Cash Machine Editor, Premium Income PRO Editor, Quick Income Trader Editor, Breakout Options Alert Editor, Hi-Tech Trader Editor, Micro-Cap Stock Trader About Bryan Perry: [Bryan Perry]Bryan Perry specializes in high dividend paying investments. This weekly e-letter combines his decades-long experience in income investing with a simple, easy-to-read format that investors of all stripes can work into their portfolios. Bryan also serves as Editor of these services: [Cash Machine]( [Premium Income PRO]( [Quick Income Trader]( [Breakout Profits Alert]( [Hi-Tech Trader]( and [Micro-Cap Stock Trader](. About Us: Eagle Financial Publications is located in Rosslyn, VA. – Blocks from the Capitol. Our products have been helping investors build their wealth for several decades. Whether you’re a long-term investor or short-term trader, you’ll find the right strategy for you, including how to earn more steady income to spend now, preserve and grow your capital to enjoy later, and whatever other investment goals you have. 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