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 Market Rebound, AAII Sentiment, Inflation and the Federal Reserve. 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.
Market Rebound – Big Bounce off the Siegel Low
Sentiment – Press is Nervous but Main Street Remains Upbeat
Econ Update – Better-than-Expected Numbers
Inflation – PPI & CPI Up Less than Expected
Econ Outlook – GDP & EPS Growth Still the Forecast
Fed – Rate Cuts Expected…Starting in September
Valuations – Value Remains Attractive
Stock News – Updates on ENS, KEY, CAH, LITE, CSCO, TPR, DE & WMT
Market Rebound – Big Bounce off the Siegel Low
We concede that several trading days does not a trend make and we understand that equities could have continued going south, but it is fascinating that stocks just turned in their best week of the year, with the Dow rebounding more than 1100 points, bringing the nine-day bounce to nearly 2000 points,
right after respected market expert Jeremy Siegel, the author of Stocks for the Long Run, was seemingly losing his head with a call for a 75-basis-point emergency cut in the Fed Funds rate,
Sentiment – Press is Nervous but Main Street Remains Upbeat
and the financial press was busy warning that volatility was spooking investors, even when our favorite Main Street sentiment gauge was arguing otherwise.
Now, we respect that neither Mr. Buffett in 2009 nor Professor Siegel this time around were suggesting that anyone dump their stocks…if one bothered to listen to all of what they had to say…but the sensationalistic headlines around their interviews likely caused more than a few folks to head for the exits, adding credence to the number crunching that has been done through the years by DALBAR that shows the only problem with market timing is getting the timing right!
Econ Update – Better-than-Expected Numbers
No doubt, the health of the economy is front and center these days as market participants focus on whether there will be a so-called soft landing and how quickly the Federal Reserve may be to reduce interest rates. Judging by the reaction of short-term-oriented traders to economic numbers out last week, there generally was positive news on both fronts.
The NFIB Small Business Optimism index rose to 93.7 in July, up from 91.5 in June, and above expectations of 91.5,
the measure of manufacturing activity in the New York region in July improved to -4.7, compared to -6.6 posted in June and the consensus estimate of -6.0,
retail sales last month increased 1.0%, much better than the revised 0.2% drop in June and the 0.4% advance that was projected,
first-time filings for unemployment benefits declined to 227,000 in the week ended August 10, down from a revised 234,000 reported the week prior, and below forecasts of 235,000,
Inflation – PPI & CPI Up Less than Expected
and the University of Michigan’s Consumer Sentiment gauge for August edged up to a better-than-expected reading of 67.8.
It wasn’t all unicorns and rainbows as the Philly Fed index of east-coast factory activity dropped to -7.0 in August, down from 13.9 in July and well below estimates of 5.2,
housing starts for July continued to plunge,
Econ Outlook – GDP & EPS Growth Still the Forecast
and the latest projection of Q3 real (inflation-adjusted) GDP growth from the Atlanta Fed pulled back to 2.0% last week from 2.9% the week prior.
3Certainly, 2% real GDP growth would be consistent with a soft-landing and a decent economic backdrop is part of the reason why corporate profit estimates continue to show solid growth this year and next,
while it is in line with the latest projections put forth by Jerome H. Powell & Co.
Fed – Rate Cuts Expected…Starting in September
And speaking of the Fed, we learned last week that inflation continues to trend in the right direction, as the Producer Price Index for July rose a lower-than-expected 2.2%,
while increases in July for both the Consumer Price Index (CPI)while increases in July for both the Consumer Price Index (CPI)
and the core (excludes volatile food and energy prices) CPI were a tenth of a percent lower than in June, coming in at 2.9% and 3.2%, respectively.
The additional progress on inflation supports the view that the Fed Funds rate will be lower than the current range of 5.25% to 5.50% by year end and much lower by the end of ’25, with the current betting odds in the futures market calling for even more cuts than were in the Fed’s projections mentioned above that were out two months ago.
Valuations – Value Remains Attractive
Given that a Fed inclined to cut interest rates historically has been favorable for equities, with Value Stocks and Dividend Payers leading the charge,
while we continue to like the valuations on the Value-stock benchmark,
with the earnings and dividend metrics on our broadly diversified portfolios of what we believe are undervalued stocks even more attractive,
we retain our long-term enthusiasm, even as we always are braced for market volatility, given that 5% drops happen more than 3 times per year on average and 10% corrections occur every 11 months on average.
Stock News – Updates on thirteen stocks across ten different sectors
