Why Wall Street panicked over the CPI report
Well folks, the Consumer Price Index (CPI) came out on Thursday and it’s as bad as I expected. The CPI soared to an annual gain of 7.5% in January, beating economists’ estimates for a 7.3% increase. This is the fastest rise in inflation in 40 years.
As I expected, energy prices were the main culprit behind the surge in inflation, as they rose 27% year-on-year last month. Even excluding food and energy costs, core CPI rose at an annual rate of 6.0% in January.
The news sent shockwaves through Wall Street on Thursday. At market close, the S&P500, Dow and Nasdaq fell by 1.8%, 1.5% and 2.1% respectively.
So why is the CPI so important? Well, it measures the average change in the price that consumers pay for goods and services over time. It measures inflation.
Now inflation has been in the headlines for months. It’s all over the financial media and it’s a topic we’ve covered extensively in other Market 360 articles.
Today I’d like to take a step back and examine what inflation really is, what it means for the stock market, and why. fundamentally superior dividend growth stocks can be a way to protect your portfolio in an inflationary environment.
The Basics of Inflation
Let’s start with the basics: inflation is the steady decline in the purchasing power of a currency which, in turn, causes the prices of goods and services to rise.
For the United States, this means that the value of a dollar has gone down – a dollar can buy much less than it could before. In the United States, inflation was around 7% in December, the worst figure since the 1980s and a 400% increase since December 2020.
Unsurprisingly, people started to panic. The 10-year Treasury yield cracked 2% on Thursday.
But here’s the thing: there’s no need to panic. The reality is that the fourth quarter earnings season was better than many expected. In fact, that’s why Wall Street was able to brush off inflation fears earlier in the week and rally higher.
However, there’s no denying that inflation is here, it’s a problem and it probably won’t go anywhere for some time. So that begs the question: where do you turn in an inflationary environment? Actions, of course!
The fact is that equities remain an oasis in an inflationary environment. And more recently, dividend stocks.
You see, dividend stocks are a great way to fight inflation. Companies that pay a sustainable dividend indicate potential for growth and keeping up with inflation. This company has the opportunity to increase its dividends, which, in turn, allows it to increase prices and cash flow.
Stocks that have increased their dividends in an environment of high inflation tend to outperform the market as a whole. Especially over long periods, like the current inflationary period.
But before you get shares in any dividend stock, remember it’s all about choosing the good dividend stocks.
The thing is, we’re in the middle of a really good earnings season. FactSet recently reported that of the S&P 500 companies that have reported results so far, 76% have exceeded earnings estimates and 77% have exceeded sales forecasts. In turn, the S&P 500 is now expected to average fourth-quarter earnings growth of 29.2%, up from estimates of 21.3% at the end of December.
And the income works.
Example : Procter & Gamble Co. (NYSE:PG). The company announced its results for the second quarter of fiscal 2022 on January 19. It beat analysts’ revenue expectations with revenue of $20.95 billion. Earnings per share also beat estimates with earnings of $1.66 per share, up 13% year-over-year. This strong performance caused PG to raise its outlook for sales growth. Investors cheered the results, pushing the stock up more than 3% after the earnings.
PG is definitely a good stock. It ranks well in Dividend Grader. As you can see below, it gets a B rating for its total rating, which makes the stock a “buy” right now.
But there are even stronger dividend-paying stocks — like the ones I recommend in Growth investor.
Take for example, Regional management company (NYSE:RM). It is primarily a consumer finance company that offers safe and easy-to-understand installment loan products for customers with less than perfect credit and little access to credit from other lenders like banks and credit card companies. Customers can apply for loans of $600 to $25,000 and use these funds for a variety of things, including vehicle repairs, furniture and appliances, vacation expenses, travel expenses, medical expenses, debt consolidation and more.
Regional Management Corp. operates more than 350 branches in 13 states, including Alabama, Georgia, Illinois, Missouri, New Mexico, North Carolina, Oklahoma, South Carolina, Texas, Tennessee, Utah, Virginia and Wisconsin. The company plans to further expand its reach across the country by adding branches in five to seven new states in 2022.
On Wednesday, the company unveiled “superior” fourth quarter results and, in turn, the company also announced that it was increasing its quarterly dividend by 20%. During the fourth quarter, the regional management’s loan book grew by $112 million, which boosted the company’s impressive earnings and revenue. Fourth-quarter revenue rose 23% year-on-year to $119 million, and earnings jumped 59.4% year-on-year to $2.04 per share. Analysts had expected earnings of $1.84 per share on revenue of $116.41 million. The regional management therefore published a surprise of 10.9% on profits and a slight surprise on revenues.
Regional management will now pay a dividend of $0.30 per share in the first quarter, up from its dividend of $0.25 per share in the fourth quarter. I should also add that the new dividend represents a 50% increase from the $0.20 per share paid in the first quarter of 2021. The new dividend will be paid on March 16 to all shareholders of record on February 23.
RM also earns the coveted AAA rating, meaning it holds an A rating for its portfolio binder and Dividend Grader and quantitative score. So he delivers the double boost of income and growth. That’s one of the reasons it’s in my Top 3 Growth investor Elite Dividend Payer Actions for February.
As you know, I focus on Growth investor is fundamentally superior stocks – and therefore our buy list shows enormous relative strength following the recent inflationary shock. As of this writing, my Elite Dividend Payers buy list is up almost 2% this week, compared to the 0.3% rise in the Dow and the 0.4% fall in the S&P. 500.
A great catalyst for my Growth investor stocks are earnings season. Of the 32 Growth investor Of the companies on the buy list that have reported results so far, 25 have exceeded analysts’ earnings expectations, two have released results online and five have missed. The average earnings surprise is currently around 13%.
What’s even more exciting is how my Growth investor stocks reacted to their positive quarterly results. The vast majority of our stocks rebounded, while the few stocks that fell after earnings firmed within days. I am happy to report that I have seen winners earn between 8% and 22%.
Earnings season is not over for me Growth investor businesses yet; in fact, I have 11 more companies on tap for next week.
So if you missed my RM recommendation, that’s okay. I recently added two new fundamentally superior dividend growth stocks in the Growth investor February monthly issue. These shares also hold a AAA rating. To learn more, simply register here now.
PS There’s a big gap opening up in America – and investing in my Growth investor actions will help put you on the right side. On one side is a new aristocracy that is accumulating more wealth faster than any other group in American history. For people like me, the one percentlife has never been better, more prosperous.
On the other side, the reverse is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.
What happens will only gather in force over the next few decades. He will certainly not weaken.
Few Americans even know this is all happening. I never saw anyone on my side of the chasm stepping up to explain one or the other of these things.
That’s why I edited this video. In it, I’ll lay out exactly what’s going on, including several key steps every American should be taking right now.
It doesn’t matter if you have $500 in savings or $5 million. You can benefit from information in this video.
It’s free to watch, and in doing so, I know you’ll be ahead of everyone else who’s struggling to understand What’s really going on.
Publisher hereby declares that as of the date of this e-mail, Publisher owns, directly or indirectly, the following securities which are the subject of commentary, analysis, opinion, advice or recommendations in, or which are otherwise mentioned in, the dissertation below:
Regional management company (MR)