Here’s some great news as we head into the summer market slump: We’ve got… amazing Set up to buy, with stocks rallying, economic data strong – and the S&P 500 (and many… High-yield closed-end funds) is still cheap.
These deals exist because of the media’s constant bleating about the recession. But this, of course, was so Totally wrong– I expect it to continue.
The key takeaway is that our buying opportunity in CEFs is as strong as it has been since this rally began in January – which is why five of the six CEF positions in our equity division Inside CEF The portfolio, which boasts an average return of 8.8% as I write this, is a buy.
Let’s talk about economic data because, of course, it has a direct impact on our buying chances in the summer, especially for CEFs, such as the 6.5%-payout. Adams Diversified Equity Fund (ADX), which we will detail below.
Latest data proves recession narrative wrong (again)
In May, durable goods orders rose 1.7% and new home sales rose 12.2%. Consumer confidence rose to 109.7 in June, the highest point in more than a year. Those are just three data points Bloomberg pointed out in a recent article titled: “Surprise, Doom Supporters! You’re Not in a Recession.” But they are far from the best or most important facts.
Year-on-year GDP growth accelerated in the most recent quarter. This is an important metric because we compare to 2022, and for the first time, it’s clear that the brief weakness in growth in the middle of last year was a hangover from COVID-19 — the world was adjusting to the post-pandemic reality.
There’s more data to cheer investors: Home prices and sales beat expectations, showing Americans can afford higher interest rates and still buy homes. Durable goods, which tend to be more expensive, discreet purchases grew in May, while economists expected them to decline. This shows again that Americans can spend more than they need to, and they are happy to do so.
Hey ho! Finance, similar to Bloomberg, reported this with the headline: “Strong Economic Data Turns Recession Fears into Recession Suspicions” (not to be confused with the “American Economy Much Stronger Than Wall Street Thought” article published shortly after this article I am pleased To see them join the bandwagon—I had insisted for more than a year that the so-called stagnation hysteria was just that: hysteria, and the data said no such thing was in the cards.
But maybe it’s too late? Sure, a recession will eventually happen, but there is no indication that it will happen anytime soon. The fourth-quarter growth rate was revised sharply to 2% last week, prompting economists to raise their forecasts for US GDP in 2023 — so much so that they have now given up expecting any economic downturn at all.
The S&P 500 index fell last year
This leads us to a big question, though: We’re speculative dividend investors, should we stop buying — or even cut back on our holdings — as the recession story fades? The short answer is no. And again, the data tells us why.
Here you can see that the price-earnings ratio for the S&P 500, at 22.2, is now back to where it was during the 2000s, after the surge caused by the pandemic. This is a sign that stocks are not in a bubble, and they have a lot of upside from here.
CEFs are smart buys – including 6.5% payer
This is a great environment for financial investment centers such as Adams Diversified Equity Fund (ADX), that stick to the tried and true, including premium chips like Apple (AAPL), UnitedHealth Group (UN), Visa (V) And JPMorgan Chase & Co. (JPM).
This, combined with the fund’s 6.5% 12-month return, is why we prefer it to index investing for blue-chip exposure. Plus, the ADX has outperformed the S&P 500 in the past decade!
Keep in mind that this graph shows total returns, including earnings. And we’d be glad to get more of our cash gains, as opposed to the “paper gains” investors get, given the S&P 500’s 1.6% yield decline. Also note that ADX pays out most of its earnings as year-end compensation that fluctuates with the net asset value (NAV), so it’s essentially converting paper winnings into payments to us.
The fund discount of 15% on NAV continues. Investors don’t like ADX’s floating dividends, but that’s fine by us. The performance is there, and we can look forward to further NAV – and through market rate extension – gains.
Michael Foster is Principal Research Analyst Contradictory look. For more great income ideas, click here for our latest report.Indestructible Income: 5 fund deals with a fixed dividend of 10.4%.“