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 Inflation, Historical Evidence, and Economic Update 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.
Week in Review – Value Resurgence Continues
The Case for Value – Return Gap vs. Growth, Historical Propensity for Outperformance & Valuations
Econ Update – Mixed Numbers; But Q2 GDP Tops Estimates
Inflation – PCE Well Received
Sentiment – Bearishness Rises
Historical Evidence – Ups and Downs; But Equities Have Proved Rewarding Over Time
Stock News – Updates on TFC, VZ, GM, CMCSA, LMT, GOOG, STX, GD, IBM, WM, HAS, NSC, MMM & BMY
Week in Review – Value Resurgence Continues
We realize that the pullback in the four Magnificent Seven names that we own Alphabet (GOOG – $168.68), Apple (AAPL – $217.96), Meta Platforms (META – $465.70) and Microsoft (MSFT – $425.27) held back our broadly diversified portfolios of undervalued stocks
The Case for Value – Return Gap vs. Growth, Historical Propensity for Outperformance & Valuations
but it was another terrific week for Value relative to Growth, with the Russell 3000 Value index outperforming the Russell 3000 Growth index by more than 300 basis points. Of course, as we have repeatedly reminded, there is a tremendously long way to go (which is a very good thing for future appreciation prospects), before Value would even return to equilibrium,
much less reassert its historical propensity for superior performance.
Mark Twain said, “History doesn’t repeat, but if often rhymes,” so we offer the additional reminder that while three weeks does not a trend make, it is possible for Value stocks to advance even if the major market averages struggle.
This is especially true these days as Value stocks are reasonably priced relative to earnings,
which showed more improvement last week,
and relative to interest rates,
which declined last week, arguably adding to the attractiveness of equities.
Econ Update – Mixed Numbers; But Q2 GDP Tops Estimates
On the economic front, a not-too-hot, not-too-cold climate still seems to be present, as weaker-than-expected June tallies on existing home sales,
and new home sales,
as well as a dip in the U.S. factory sector outlook for July,
were offset by an uptick in U.S. durable goods orders excluding the volatile transportation sector in June,
an improved outlook in July for the U.S. services sector,
and a much-better-than-projected Q2 print for real (inflation-adjusted) GDP growth of 2.8%.
True, some are concerned that the labor market is cooling, even as first-time filings for unemployment benefits remain near multi-generational lows,
but the initial estimate for real GDP growth in Q3 from the Atlanta Fed stood at a solid 2.8%,
and the odds of recession, as calculated by Bloomberg, continue to reside at 30%.
To be sure, all eyes last week were on the inflation numbers, with the year-over-year change in the personal consumption expenditure price index (PCE) edging down to 2.5% in June from 2.6% in May. That drop prompted futures traders to press their bets for cuts in the Federal Funds rate last week, moving the expected year-end rate down to 4.65% from 4.71% the week prior,
Inflation – PCE Well Received
even as the Federal Reserve’s preferred inflation measure, the core PCE, which excludes volatile food and energy prices, held steady in June with a 2.6% increase.
Sentiment – Bearishness Rises
No doubt, we like what we have been seeing in the equity markets in July, with the soldiers outperforming the proverbial generals by a wide margin, especially as the action has caused an increase in Bearishness, at least according to the latest Bull-Bear Sentiment Survey from the American Association of Individual Investors (AAII).
History suggests that the folks on Main Street are lousy market timers, so we prefer that they are less optimistic, though the evidence vehemently argues for staying the course in stocks, no matter the AAII mood.
Historical Evidence – Ups and Downs; But Equities Have Proved Rewarding Over Time
After all, despite having to endure plenty of disconcerting headlines and downside volatility along the way, stocks have proved rewarding for those with the courage to stick with them through thick and thin,
with the asset class providing terrific inflation-adjusted returns through the years.
Stock News – Updates on fourteen stocks across nine different sectors
