The Prudent Speculator Weekly Commentary is expertly curated every week as a valuable resource for stock market news, investing tips, business insights, and economic trends as it relates to value stock investing. In this week’s market commentary, we discuss the Economic Outlook, Corporate Profits, Stock News and more. We also include a short preview of our specific stock picks for the week, the entire list is available only to our community of loyal subscribers.
Executive Summary
Fantastic Fortnight – More Bears than Bulls and a 5.5% Two-Week Rally for Value
Historical Evidence – Volatility, but Long-Term Trend is Up
Calendar – First 5 Days, Seasonality, Years Ending in 5 Historical Numbers all Favorable
Valuations – Value Stocks Remain Reasonably Priced
Corporate Profits – Healthy EPS Growth Still the Forecast
Econ Outlook – Solid Real U.S. GDP Growth Projected for 2025
Headlines – Plenty of Disconcerting Events, but Stocks Have Overcome All in the Fullness of Time
Patience – The Longer the Hold, the Greater the Likelihood of Making Money on Stocks
Stock News – Updates on eleven stocks across ten different sectors
Historical Evidence – Volatility, but Long-Term Trend is Up
It doesn’t always work out so splendidly, of course, but just when the number of Bears eclipsed the number of Bulls in the American Association of Individual Investors (AAII) Sentiment Survey the week ended January 8 and when the pessimism became even more extreme the week ended January 15,
the equity markets turned in a sensational two-week run that was led by inexpensively priced stocks,
with the Russell 3000 Value index jumping more than 5.5% over the latest fortnight,
providing more evidence that trying to time market gyrations can be hazardous to one’s wealth,
even as we respect that uncertainty is high with a new administration inaugurated in Washington last week.
While the contrarian in us feels better about stocks when there is a preponderance of negativity, the inverse is not supported by the historical evidence. Indeed, the bounce back in Bullishness in the AAII numbers for the latest week ended January 22 is hardly cause for alarm, with near-term returns nicely positive, on average, no matter the decile for the Bull-Bear Spread.
That is not to suggest that there won’t be downside volatility ahead. Indeed, it was just two weeks ago that the Russell 3000 Value index ended the 52nd skid of more than 7.5% since the benchmark was launched in 1995, but the data since the founding of The Prudent Speculator in March 1977, shows that equities have produced terrific long-term returns, led by the less-expensive brand of stocks that we have long championed.
Calendar – First 5 Days, Seasonality, Years Ending in 5 Historical Numbers all Favorable
To be sure, past performance is no guarantee of future performance, but we don’t mind that indicators such as the First Five Days of the Year,
the November – April time span,
and Years Ending in 5 all have shown better-than-average returns for equities.
Valuations – Value Stocks Remain Reasonably Priced
We also can’t help but like that despite solid returns for Value stocks, especially relative to international stocks, commodities and bonds, across the last two decades,
they have a long way to go to catch up with their Growth siblings,
while they remain reasonably priced relative to interest rates from an earnings- and dividend-yield perspective.
Corporate Profits – Healthy EPS Growth Still the Forecast
And speaking of earnings, Q4 reporting season continues to be off to a good start with more than 79% of the companies in the S&P 500 that have reported thus far having exceeded expectations, with forward guidance generally not as subdued as in quarter’s past.
For example, Citigroup (C – $81.48) CFO Mark Mason recently said, “People are looking at the U.S. with what is likely to be a pro-growth agenda. We obviously have to see how that plays out. There’s a bit of cautious optimism if you will.”
Econ Outlook – Solid Real U.S. GDP Growth Projected for 2025
And the International Monetary Fund last week boosted its outlook for real (inflation-adjusted) U.S. GDP growth to 2.7% this year,
with the often-sober Conference Board also concluding last week, “We expect growth momentum to remain strong to start the year and U.S. real GDP to expand by 2.3% in 2025,” even as its Leading Economic Indicators declined 0.1% last month.
The economic stats out last week were mixed with first-time filings for unemployment benefits of 223,000 continuing to reside near multi-generational lows,
sales of existing homes inching up to a better-than-forecast 4.24 million annual rate in December,
and the final read on consumer sentiment for January from the Univ. of Michigan dipping to 71.1, well below projections.
Headlines – Plenty of Disconcerting Events, but Stocks Have Overcome All in the Fullness of Time
We are braced for downside activity, and we note that the equity futures on Sunday evening were sharply lower, but we see no reason to alter our enthusiasm for the long-term prospects of our broadly diversified portfolios what we believe are undervalued stocks,
even as we understand that disconcerting headlines could send equities skidding. Happily, bad news on the global and domestic stages always has been overcome in the fullness of time,
Patience – The Longer the Hold, the Greater the Likelihood of Making Money on Stocks
and the odds of making money in equities very much favor the long-term investor, provided they remember that the secret to success in stocks is not to get scared out of them.
Stock News – Updates on eleven stocks across ten different sectors
