The Gross Domestic Product came in red hot at 4.9% for the third quarter, driven by exports, consumer and business spending, government spending, and residential spending. To put this in context, the American economy is growing faster than most of Europe and even some emerging market countries. However, sub-4% unemployment and excellent economic growth probably means another interest rate hike by the United States Federal Reserve. A recession may still be in the cards, but it’s not showing up in the data.In the meantime, stocks have been hammered, especially those that pay dividends. The markets have viewed good as bad, selling off on positive news. From one perspective, buying and holding income stocks is painful because share prices are trending down. However, dividends are climbing, yields for some sectors are at decade highs, and cuts or suspensions are minimal compared to the Great Recession and COVID-19 bear market.Intrepid investors may want to hold on or add to existing positions where it makes sense. Downward trending markets eventually reverse, but the time is always uncertain.
Stock Market Overview
As shown by data , the stock market had another awful week. The Nasdaq Composite performed the worst, followed by the Russell 2000, the S&P 500 Index, and the Dow Jones Industrial Average (DJIA). All the major indexes were down at least 2%.Ten of the 11 sectors fell this week, while only Utilities had a positive week. Utilities, Basic Materials, and Consumer Defensive were the top three sectors. But the Healthcare, Communication Services, and Energy sectors performed worst.Oil prices fell 4% for the week to ~$85 per barrel. The VIX was flat but is now slightly above the long-term average. Gold is the only asset benefitting in the current economic and geopolitical environment. It has recovered much of its losses and gained $2,016 per ounce.
Source: Stock Rover* The Nasdaq is performing the best for the year, followed by the S&P 500 Index, the Dow 30, and the Russell 2000. Despite recent weakness, the Nasdaq remains in a bull market. However, the DJIA and Russell 2000 are now down for the year. In addition, five of the 11 sectors are up year-to-date. The three best-performing sectors are Technology, Communication Services, and Consumer Cyclical. But the worst-performing sectors are Healthcare, Real Estate, and Utilities. 
Source: Stock Rover* The dividend growth investing strategy has returned to positive results across all categories. The recent market volatility has lowered returns, but the trend has reversed. The table below shows their performance by category.
Source: Stock Rover Stock Market Valuation This WeekThe S&P 500 Index trades at a price-to-earnings ratio of 23.50X, and the Schiller P/E Ratio is about 28.14X. These multiples are based on trailing twelve months (TTM) earnings.The long-term means of these two ratios are approximately 16X and 17X, respectively. The market is still overvalued despite the recent correction and a bear market and rebound. Earnings multiples of more than 30X are overvalued based on historical data. Economic News This WeekProvided by Stock Rover.
Composite PMIS&P Global reported that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to 51.0 in October from 50.2 in September. The reading marks the fastest expansion since July and indicates an uptick in private sector output. The S&P Global Manufacturing PMI reported at 50, the highest value in six months, slightly up from September’s 49.8 reading. The Manufacturing PMI reading signaled that operating conditions at manufacturing firms had stabilized. The S&P Global U.S. Services PMI increased to 50.9 from 50.1 in September, marking a 3-month high – as service providers saw a slower drop in new orders. Employment figures showed businesses continuing to hire in October but at a slower pace than the previous month. Service providers bolstered employment figures. Conversely, manufacturing firms showed a slight drop in staffing. This is the first decline in manufacturing jobs seen since July 2020. The S&P Global report indicated a notable reduction in inflationary pressures as the increase in input costs and output charges slowed to their slowest rate in three years. Service providers led to the muted rise in costs. However, increases in oil prices drove the manufacturing sector to record the sharpest uptick in input prices since April.
New Home SalesThe U.S. Census Bureau reported new home sales increased 12.3% in September, which marks a 19-month high. New home sales for the previous month were upwardly revised to 676,000. Monthly sales increased across all regions, led by the Northeast (+22.5%), South (+14.6%), West (+7.5%), and Midwest (+4.7%). September’s seasonally adjusted rate was 759,000 units, showing a (+33.9%) increase year-over-year. The regional year-over-year figures were all in positive territory, led by the Northeast (+63.3%), West (+53.3%), South (+29.9%), and Midwest (+4.7%). The median new house price was (-12.33%) lower than last year at $418,800. The average sale price was (-11.39%) lower than the previous year at $503,900. Sixty-three percent of new homes sold were in the $150,000 to $499,999 price range. There were 435,000 new homes for sale at the end of September, down from 432,000 units in August. This represents a 6.9-month supply at the current sales rate. Year-over-year, new homes for sale were down (-5.43%). Houses under construction comprised roughly 46% of the September new home sales, with homes not started accounting for 15% and completed homes accounting for about 39%.
Gross Domestic Product
The Commerce Department’s first estimate on the third-quarter gross domestic product (GDP) growth reported the economy expanded at an annual rate of 4.9%. The first estimate is well over the 2.1% growth rate set in the second quarter and marks the biggest gain since Q4 2021. Much of the increase can be attributed to a jump in consumer spending, which accounts for over two-thirds of the U.S. economy. Increases in inventories, exports, residential investment, and government spending were all factors. Consumer spending, as measured by personal consumption expenditures, jumped (+4.0%) in Q3 and, followed by (+0.8%) reading in Q2. Consumer spending accounted for 2.69 percentage points (pp) of the total GDP increase. The increase in PCE was driven by spending on services (+3.6%), which added (1.62 pp) to the GDP, while spending on goods increased (+4.8%), adding (1.08 pp). Business investment added (1.47 pp) to GDP, with private inventories adding (1.32 pp). Exports increased (+6.2%), adding (0.68 pp) to GDP, while imports increased (+5.7%), subtracting (0.75 pp). Residential spending was up (+3.9%) and added (0.15 pp). Government spending jumped (+4.6%) in Q3, adding (0.79 pp) to GDP. Federal government spending added (0.39 pp), and state-local spending added (0.40 pp) to GDP.
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