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. This week, we discuss the stock market rebound, interest rates, DALBAR’S QAIB 2022 Study, Earnings and Valuations, Q1 Winners & Losers, Market Sentiment and more economic news. 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
Market Timing: DALBAR Data Shows Time in the Market the Way to Go
Week in Review: Sensational Rebound Despite Higher Rates, Slower Potential Growth & Greater Odds of Recession
Market History: Evidence Shows Higher Rates and Even Economic Contractions No Reason for Long-Term-Oriented Folks to Flee Stocks
Econ News: Decent Numbers; PCE Inflation Not as Bad as Feared
Patience: The Longer the Hold the Greater the Chance of Success
Earnings: Solid Growth This Year and Next Still the Forecast
Valuations: Still Liking the Metrics for our Portfolios
Sentiment: AAII Contrarian Buy Signal
Market of Stocks: Q1 TPS Winners & Losers
Stock Market News: Update on two stocks across two different sectors
Market Timing: DALBAR Data Shows Time in the Market the Way to Go
Three decades of analytics from market data firm DALBAR confirms that market timing is hazardous to one’s long-term wealth. After all, holders of stock funds, on average, have seen a 2.8% per annum drag on returns over the last 30 years and holders of bond-funds have been abysmal market timers, losing money in every time period studied!
Week in Review: Sensational Rebound Despite Higher Rates, Slower Potential Growth & Greater Odds of Recession
Obviously, one week’s equity market performance does not prove anything, but the big rally in which the Russell 3000 Value index rebounded more than 4% over the past five trading sessions illustrates why we like to say that the only problem with market timing is getting the timing right.
Market History: Evidence Shows Higher Rates and Even Economic Contractions No Reason for Long-Term-Oriented Folks to Flee Stocks
After all, interest rates rose last week, with the yield on the 10-Year U.S. Treasury climbing from 3.38% to 3.47%,
and market expectations for additional hikes in the Fed Funds rate moved up to a peak of 4.96% next month and a 4.35% year-end level, compared to 4.86% for the former and 3.91% for the latter at the end of the preceding week.
In addition, the latest estimate for inflation-adjusted Q1 U.S. GDP growth pulled back to 2.5%,
…and the chance of recession rose to 65%, up from 60% a week ago.
In theory, each of the above might have proved a headwind for stock prices.
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Of course, history shows that higher interest rates,
and even economic contractions are not reasons for long-term-oriented investors to bail out of stocks.
We think this is especially true today, given that real (inflation-adjusted) GDP growth was a solid 2.6% in Q4 2022, with nominal GDP jumping 7.3% to a record high.
Econ News: Decent Numbers; PCE Inflation Not as Bad as Feared
No doubt, it will be tougher sledding for the economy this year, as growth in consumer spending pulled back to 0.2% in February,
and consumer confidence/sentiment readings, though better than they were for much of last year, are not exactly grand.
Still, the labor market continues to be very strong, with first-time filings for unemployment benefits remaining below 200,000 in the latest week, a level not seen for more than five decades.
And, the latest read on inflation, the core personal consumption expenditure index, which is the Federal Reserve’s preferred measure, rose just 4.6% in February, better than expectations for a 4.7% increase.
Patience: The Longer the Hold the Greater the Chance of Success
As always, we are braced for more big market moves, but we are comfortable that our long-term time horizon is a great risk mitigation tool. Stocks are a volatile asset class, but history shows the merits of patience, as the longer they are held the less the chance of loss.
Earnings: Solid Growth This Year and Next Still the Forecast
While analysts are often overly optimistic in their outlooks, we note that solid growth in corporate profits is still the forecast for this year and next,
Valuations: Still Liking the Metrics for our Portfolios
which adds to the comfort afforded by the valuation metrics of our broadly diversified portfolios of what we believe to be undervalued stocks.
With concerns about the health of the regional banking system dissipating somewhat last week, as the Federal Reserve disclosed on Friday that customer deposits totaled $5.39 trillion at small banks in the week ended March 22, virtually unchanged from the $5.38 trillion level the week prior, we can’t help but remain upbeat about the prospects for stocks.
Sentiment: AAII Contrarian Buy Signal
This is especially true in that many are excessively pessimistic in their views, with the weight of the returns evidence confirming that more often than not it has paid to be greedy when others are fearful.
Market of Stocks: Q1 TPS Winners & Losers
For those looking to do some buying, we offer the reminder that it continues to be a market of stocks and not a stock market. Indeed, the performance dispersion for individual stocks was about as wide as we have ever seen in Q1, with stocks on the right side of the ledger in the table below perhaps of most interest to those looking to add incremental equity exposure to their portfolios.
Stock Market News: Updates on two stocks across two different sectors
