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 AAII Sentiment, Interest Rates, Volatility, 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.
Newsletter Trades – 7 Purchases Across 4 Portfolios
Week in Review – Stocks Retreat
Volatility – Normal Part of the Equity Process
Sentiment – AAII Optimism Pulls Back a Touch
Interest Rates – 10-Year Yield Jumps
Econ News – Solid Numbers
Valuations – Value Stocks Still Attractively Priced
Fed Speak – Kashkari vs. Powell
Stock News – Updates on nine stocks across five different sectors
Week in Review – Stocks Retreat
With the major market averages all retreating over the first week of April, we were again reminded that equity prices move in both directions, even as the long-term trend has been markedly higher.
The Dow Jones Industrial Average failed in its effort to break the psychologically important 40,000 level, instead dropping below 39,000, but that popular benchmark still sits some 35% higher than the recent Bear Market low set on September 30, 2022. What’s more, the gauge has returned 536% on a total-return basis, or 7.83% per annum, since James K. Glassman published his supposedly wildly Bullish Dow 36,000 tome back in 1999.
Volatility – Normal Part of the Equity Process
No doubt, the ride has not been smooth and there have been plenty of events on the geopolitical stage with which to contend, but such seemingly is always the case,
yet equities have proved rewarding in the fullness of time for those who remember that the secret to success in stocks is not to get scared out of them.
Sentiment – AAII Optimism Pulls Back a Touch
Given that the latest sentiment reading from the American Association of Individual Investors shows a preponderance of Bulls,
it is difficult to assert that folks are nervous, and AAII optimism is not a reason for long-term-oriented investors to alter their commitment to stocks,
but it isn’t always easy to make sense of the short-term equity market gyrations, especially when last week’s downturn came with virtually no change in the outlook for 2.5% Q1 real (inflation-adjusted) U.S. GDP growth,
and the chance of recession in the next 12 months, as tabulated by Bloomberg, remained at 35%,
Interest Rates – 10-Year Yield Jumps
and the futures market targeted a year-end Fed Funds futures rate of 4.68%, similar to the 4.66% tally at the end of the prior week.
Of course, there was a big jump in market interest rates as the yield on the benchmark U.S. Treasury climbed to 4.40%, up from 4.20% a week ago, due in large part to the release of better-than-expected economic data.
Econ News – Solid Numbers
Indeed, the ISM Manufacturing index climbed to 50.3 in March, versus estimates of 48.3 and a 47.8 reading in February, with the latest measure of factory activity corresponding to a 2.2% increase in real GDP on an annual basis,
while factory orders for February rose 1.4%, ahead of the 1.0% consensus and a sharp rebound from a revised 3.8% dip in January.
More importantly, the monthly jobs numbers for March also saw more new payrolls created than forecast at 303,000,
while the unemployment held steady at a very low 3.8%,
and average hourly earnings rose 4.1%, in line with projections.
Valuations – Value Stocks Still Attractively Priced
A solid economy doesn’t sound like bad news to us, given that we are investing in businesses that generally grow their profits over time,
and the valuations for the type of stocks we have long championed are reasonable,
with our broadly diversified portfolios of what we believe are undervalued stocks sporting even more attractive metrics.
Fed Speak – Kashkari vs. Powell
To be sure, plenty of attention was paid to comments from Federal Reserve officials last week, with stocks making a major U-turn in the southernly direction on Thursday after Minneapolis Fed President Neel Kashkari, who sees two cuts in the Fed Funds rate this year, said that if there is no additional progress on inflation, “that would make me question whether we needed to those rate cuts at all.”
Those remarks took the steam and then some out of an early rally that day that arguably stemmed from a weaker-than-expected report on the health of the important services sector when the ISM Non-Manufacturing Index dropped to 51.4 in March, down from 52.6 in February and below estimates of 52.8.
Not sure we buy that bad news is good news…in the long run…but we think Fed Chair Jerome H. Powell’s statement earlier in the week is most germane, “The recent data do not…materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down to 2% on a sometimes bumpy path,” and that Fed economic projections from last month are hardly unreasonable.
So, we are braced, as is always the case, for additional downside volatility, but we still think Value stocks are the place to be for those who share our long-term investment time horizon.
Stock News – Updates on nine stocks across five different sectors
