Ticker Reports for September 11^th

→ My harrowing warning about Nvidia
(From Porter & Company)

Goldilocks CPI Report Leads Market to Sell Off, Lower Lows Ahead

The reading of August CPI data led the market to sell off because it was as expected. As much hope as there was for aggressive interest rate cuts this year, the FOMC would unlikely follow through on them because underlying economic data remains solid, and deep in the market’s heart, it knows it to be true.

The labor data has weakened from very robust levels but is still healthy, with jobs growing, wages rising, consumers still spending, and inflation falling slowly toward the target rate. We are on track for rate cuts, but not aggressive ones, because lowering rates too quickly will accelerate inflation.

However, rate cuts are the operative factor because they mean a shift in economic policy that should ease economic headwinds. A soft landing is still in play, but there is little chance the FOMC will risk another acceleration in inflation by cutting rates aggressively without clear signals a recession is coming. The takeaway is that a soft economic landing is still in play, which means a sector rotation and increased volatility for the market today.

Goldilocks CPI Data Points to Soft Economic Landing

The CPI data is Goldilocks quality, not too hot or too cool, showing a slow, steady trend in inflation that is heading to the 2% target rate. The headline figure was a little cooler than the expected 2.6% but not enough to raise fear of a recession and offset by a steady, as-expected core figure.

The core CPI held steady at 3.2% for the second month, aligning with a plateau in the PCE index, but should start to recede soon, leaving the soft-economic landing in play.

Energy is an underpinning factor in consumer-level inflation, and oil prices are falling because recent demand forecast reductions from significant producers and analysts have undercut the market. Among the causes is the declining use of gasoline in China related to EVs, a trend that is unexpected to end, only to strengthen globally.

Even without new lows for oil, fuel costs are declining, as evidenced by the 0.8% monthly and 4.0% YOY decline in the CPI’s energy component. It suggests that energy-based deflation is already underway; the FOMC will become more aggressive if that gains momentum.

Soft Landing, Sector Rotation, and the Market Sell-Off

The CPI data aligns with a long, slow reduction in FOMC interest rate policy and a shift in economic fundamentals expected to reduce headwinds for businesses and consumers. The net result should be broadening economic strength as businesses find it easier and cheaper to get credit and consumers' strength improves. That means improving business for a wider range of companies and a broadening stock market rally, hence the need for a sector rotation today.

The heavily concentrated S&P 500 is unwinding the last two years of rallying driven by higher-for-longer economic policy, stimulus spending, and the rise of AI. It could continue to move lower for weeks before finding a bottom and rebounding significantly, possibly longer because it will be months before the FOMC policy changes begin to impact consumers.

The S&P 500 is Set to Fall as Fear Rises

The S&P 500 (NYSEARCA: SPY) fell more than 1.0% on the news as selling gained momentum. The move showed some signs of support at the prior week's lows, which have yet to be broken, but the stronger signal is to the downside. The move created a red candle, confirming resistance at a critical level that coincides with a cluster of moving averages. The cluster includes an ultra-short 9-day EMA and a short-term 30-day EMA, pointing to significant resistance at the 5,500 level, made stronger because this is the second signal in two weeks.

SPX stock chart

The VIX (CBOE: VIX) is equally bearish, showing elevated fear levels and a market ready to run for the exits following years of fearlessness. The rush to exits could happen as soon as the FOMC releases its policy statement in mid-September because the market continues to price in an aggressive pace of cuts. The CME FedWatch Tool still shows a high expectation for four twenty-five basis point cuts by December.

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GameStop: Earnings Won't Save It, Dilution Points to Trouble

GameStop (NYSE: GME) posted another smoke-and-mirrors quarter, resulting in a normal market response: a fall. The results reveal a company trying hard to turn itself around but failing miserably and eating itself to death at shareholder expense—insufficient news to spark another meme-quality rally. Because the company has filed to sell another 20 million shares, investors should fear the worst: a move below critical support in the $20 range and a move back to $10, where this stock belongs.

GameStop Posted Profits, But Don’t Be Fooled

GameStop posted surprise profits for Q2, but don’t be fooled. The profits are the result of interest income related to its growing cash pile and inventory drawdowns and mask a weakening core business with no profits. Revenue of $790 million is down nearly 10% sequentially and 32% compared to last year on weakness in all operating segments. The core Software segment is down 47% YoY, with Hardware down 24.5% and Collectibles down 18%. Investors should expect revenue to continue falling on a YoY basis because of retail trends and the company’s decisions to optimize its footprint, aka closing down stores.

The margin news is mixed. The gross margin widened due to inventory drawdowns but was offset by increased SG&A as a percentage of revenue. SG&A increased by 620 basis points to 33.9%, suggesting staffing cuts and other cost-reducing actions should also be expected. The company reported an adjusted profit of $0.01 or $0.10 above the consensus reported by MarketBeat but due entirely to interest income. Backing that out, the operating results are a loss and not expected to improve materially without a significant change in consumer traffic. GameStop did not offer guidance or a conference call.

GameStop Builds Cash, Dilutes Value, And Isn’t Stopping

GameStop’s balance sheet highlights include a significant build in cash, about 379% to $4.204 billion, and a resulting increase in shareholder equity, but that is where the good news ends. Other highlights include a 27% increase in the average YoY share count compounded by a 30% reduction in equity adjusted for the cash. The takeaway is that the company has more money on the balance sheet, but each share is worth less.

Leverage remains low, and the company is well-capitalized. However, with no profits in the core business and meager earnings from interest, the best we can expect is that dilution will steady, and we know that it won’t. The company’s filing for 20 million shares will dilute by nearly 5% and may not be the last offered. The roughly $4.7 billion the company will have after the sale is small potatoes and unlikely to be sufficient to alter the company’s trajectory.

GameStop Heads Lower, Analysts Lower Their Price Targets

GameStop analysts haven’t had much good to say, and the trend isn’t changing. The single analyst tracked by MarketBeat with a rating is Wedbush, which lowered its target to $10 or about a 50% downside from recent action. The market may find support at $15 because that’s where the book value is today.

GameStop shares may be testing the $15 level soon. The market struggles to sustain support at the $20 level, which is the critical target. A move below that level will undercut market confidence and likely lead to massive short-selling. In that scenario, the stock could plummet into the low single-digit range, $4 billion in cash or not.

GameStop GME stock chart

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Dividend Aristocrats or Dividend Kings: Which Is Best for You?

However, there are a few key differences between aristocrats and kings that go beyond their stability. Read on to learn more about dividend kings and dividend aristocrats, what makes them great choices for dividend investing, and how to choose which is right for you.

What Is a Dividend Aristocrat?

The term “dividend aristocrat” describes a group of large-cap stocks that pay an annual dividend and have raised that dividend each year for at least 25 years. To qualify as a dividend aristocrat, stocks must meet all of the following criteria:

Be included in the S&P 500 Index
Have consecutively paid and increased its dividend for the last 25+ years
Maintain a total market capitalization of at least $3 billion
Maintain a total of at least $5 million in average daily trading volume for three months prior to being added

Meeting this criterion ensures that only major stocks paying consistent dividends make it onto the list. Some examples of major companies on the current dividend aristocrat list include:

Sherwin-Williams: Paint and coating manufacturer Sherwin-Williams (NYSE: SHW) has increased its dividend for 47 consecutive years. In the last three years, it realized a dividend growth of 10.64%.
McDonald’s: Fast food powerhouse McDonald’s (NYSE: MCD) has a total dividend yield of 2.32% and has realized a dividend increase of more than 7% in the last three years alone.
IB: One of the world’s largest computer and machine manufacturers, International Business Machines (IBM) (NYSE: IBM), has raised its dividend for the past 29 consecutive years.

Why Invest in a Dividend Aristocrat?

While they have shorter histories of dividend payments compared to dividend kings, there are many benefits that come with investing in dividend aristocrats, including:

Reliable and Growing Income: Since they have increased dividends for 25+ consecutive years, dividend aristocrats provide a consistent and growing income stream.
Financial Stability: Companies that qualify as dividend aristocrats have strong financial fundamentals and are typically large, established firms with the ability to navigate various market cycles.
Diversification: Dividend aristocrats come from a wide range of sectors, allowing investors to build a diversified portfolio of high-quality, dividend-paying stocks.
Lower Volatility: Dividend aristocrats tend to have more stable stock prices due to their solid business models and strong balance sheets, making them less volatile than other stocks.
Inflation Protection: Regular dividend increases help protect investors’ purchasing power, as the rising income stream can offset the effects of inflation over time.

What Is a Dividend King?

To qualify as a dividend king, a company must have increased its dividend annually for at least 50 consecutive years. There are currently 29 stocks that qualify as dividend kings, including names like:

Cincinnati Financial: Property and casualty insurance company Cincinnati Financial (NASDAQ: CINF) has increased its dividend for 63 consecutive years.
3M: Multinational conglomerate 3M (NYSE: MMM) is known for its wide range of products, including adhesives and consumer goods. The company has a dividend increase streak of 65 consecutive years.
California Water Service Group: California Water Service Group (NYSE: CWT) is a water utility company that has raised its dividend for 55 consecutive years.

While dividend aristocrats must be included in the S&P 500, kings do not — but because it takes a massive market leader to pay and increase dividends for half a century, most kings also qualify as aristocrats. Examples include:

Genuine Parts: Genuine Parts (NYSE: GPC), an automotive and industrial parts distributor, has raised its dividend for 67 consecutive years.
Colgate-Palmolive: Consumer products company Colgate-Palmolive (NYSE: CL) specializes in oral care, personal care, and home care products and has a 60-year streak of increasing dividends.
Target: Target (NYSE: TGT) offers consumers a wide range of consumer goods and investors a history of raising dividends for 52 consecutive years.
Coca-Cola: Global beverage leader Coca-Cola (NYSE: KO)has increased its dividend for 61 consecutive years.
Procter & Gamble: Procter & Gamble (PG) is a multinational consumer goods company with a dividend increase streak of 66 consecutive years.
American States Water: American States Water (NYSE: AWR) boasts the longest-running history of dividend increases. This residential water and electric services company has raised its dividend for the last 71 consecutive years.

But not all kings are aristocrats. For example, water utility company California Water Service Group (NYSE: CWT) is a dividend king that is not part of the S&P 500, so it is not a dividend aristocrat.

Why Invest in a Dividend King?

When it comes to creating a portfolio to support long-lasting dividend income, dividend kings are simply unbeatable. With a proven track record of financial management, these companies are more likely to continue paying dividends in the future as well. Some benefits of investing in dividend king stocks include:

Exceptional Dividend Growth: Dividend kings have increased their dividends for 50+ consecutive years, making them some of the most reliable sources of long-term income growth.
Proven Resilience: These companies have demonstrated the ability to thrive through multiple economic cycles, including recessions, market downturns, and periods of inflation.
Long-Term Capital Appreciation: Although dividend kings may not offer rapid stock price growth, their consistent performance and dividend reinvestment provide solid, steady capital appreciation and wealth preservation.
Low-Risk Profile: Companies that have sustained dividend growth for 50+ years tend to be financially strong, making them lower-risk investments compared to other stocks.
Defensive Characteristics: Many dividend kings operate in defensive industries such as consumer goods, utilities, and healthcare, which are less sensitive to economic fluctuations and provide added stability during market volatility.

Dividend Kings and Dividend Aristocrats: Key Differences

In addition to their differing criteria for inclusion, the differences between dividend aristocrats and dividend kings include:

Size and Market Capitalization: Because dividend aristocrats must meet specific S&P 500 market capitalization and liquidity thresholds, they must be large-cap companies. Dividend kings, on the other hand, are not subject to those same rules and can, therefore, include smaller or mid-cap companies.
Number of Companies: Due to the stricter 50-year requirement, there are fewer dividend kings, with around 40 companies. In contrast, there are typically 60 to 65 companies that qualify as dividend aristocrats, reflecting the broader 25-year requirement.
Types of Companies: The dividend aristocrats list includes a wide array of industries, including cyclical companies with demand that varies throughout the year. Dividend kings tend to focus on more consistently in-demand industries, providing less opportunity for growth but more stability.
Risk and Stability: Given their longer dividend growth streaks, dividend kings are often seen as more conservative, lower-risk investments, as they’ve maintained dividend increases through numerous market conditions. While also considered stable and reliable, dividend aristocrats may offer a wider range of risk profiles, given the shorter streak and inclusion of a broader set of industries.
Liquidity: The S&P 500 includes some of the most frequently traded stocks on American stock exchanges. This higher daily trading volume may help provide additional liquidity to aristocrats over kings.

How to Choose Between Dividend Aristocrats and Kings?

When selecting between dividend kings and aristocrats, consider your timeline and ideal risk tolerance. If your primary goal for investing is long-term income generation, dividend kings will usually be a better option. These companies’ 50-year payment histories demonstrate a commitment to reliable payouts, even during periods of economic stress. This makes them ideal for preserving capital and ensuring a consistent income stream.

If you’re looking to balance income generation with the potential for capital appreciation, consider dividend aristocrats. These companies may not have as established dividend histories, but they are all included in the S&P 500, indicating dominance in their markets. Dividend aristocrats may see more growth in share price over time when compared to kings, operating in industries that ebb and flow with economic conditions.

Introducing a blend of dividend aristocrats and kings into your portfolio can help provide a balance of growth potential and stable payments. MarketBeat’s dividend calculator can help you determine the ideal investments for your portfolio depending on your desired monthly distributions and current capital.

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🌟 Dividend Aristocrats or Dividend Kings: Which Is Best for You?

Ticker Reports for September 11^th

Goldilocks CPI Report Leads Market to Sell Off, Lower Lows Ahead

Goldilocks CPI Data Points to Soft Economic Landing