Despite the Federal Reserve's recurring hawkish stance, the market's hope for a "soft landing" of the U.S. economy remains unabated. The winter of U.S. stocks seemed to have ended last year, and the once cherished dividend stocks during economic recession have now become passé.
In the bear market of 2022, dividend stocks were among the most popular sectors in the U.S. However, in 2023, with the continued decline in oil prices and the outbreak of crises in the European and American banking industries, dividend stocks were brutally sold off. The subsequent AI boom pushed the U.S. stock market into a bull run, with many investors abandoning dividend stocks to chase AI. Data from Ned Davis Research showed that in the first half of this year, compared to non-dividend-paying stocks, U.S. dividend stocks experienced the worst half-year since 2009.
The sentiment changed as low oil prices and the crises in the European and American banking sectors put pressure on dividend stocks. Dividend-paying stocks, which usually belong to traditional sectors such as banking and energy, were the most hurt in the U.S. stock market in the first half of this year.
Since the beginning of the year, Brent crude oil prices have fluctuated and fallen, now around $75.
The energy sector, which thrived last year, softened in tandem with the declining oil prices. Including dividends and capital appreciation, Western Oil has fallen 6.1% this year, Exxon Mobil has fallen 1.2%, and Valero Energy has fallen 6%.
The crises in the European and American banking industries in March and April brought a devastating blow to regional bank stocks. So far this year, regional bank stocks such as Citizens Financial Group and Comerica Bank have all plunged over 30%.
Now, with the Fed's monetary policy path gradually clearing and the NASDAQ and S&P indexes entering a technical bull market, most investors have given up on holding a large portion of dividend stocks. They have moved from defensive positions that yield steady cash returns to pursue the extra returns brought by tech stocks.
The advent of ChatGPT has shown the world the power of AI. The companies that led the AI revolution the fastest and earliest also received praise from the capital market.
By the end of the first half, the NASDAQ Composite Index had risen 32% and the S&P 500 index had risen 16%.
The seven largest constituents-Apple, Microsoft, Alphabet (Google's parent company), Amazon, Nvidia, Tesla, and Meta-rose between 40% and 200%.
Nvidia, in particular, made a stunning advance with its AI "pickaxe seller" status, rising 195% this year and joining the trillion-dollar market value club.
Tech stocks usually don't pay dividends. Investors buying these stocks are betting on the prosperous prospects brought by AI, which will generate greater profits.
According to Ned Davis Research data, non-dividend-paying stocks in the S&P 500 Index have risen about 18% in the first half of this year, far exceeding the roughly 4% increase in dividend stocks, marking the most significant half-year divergence since 2009.
However, despite these enormous returns, the market outlook for the second half of the year is still unclear. The Federal Reserve has been hawkish, indicating that it will continue to raise interest rates. Furthermore, the market's rise is driven mainly by a few stocks. The rise in large tech stocks masks the fact that most companies in the index are falling.
Recently released data show that the U.S. economy is still resilient, and inflation has slowed down. But considering that rate hikes still have a high probability of leading to a U.S. economic recession, dividend stocks that distribute high dividends may regain favor.
