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 AAII Sentiment, Valuations, Interest Rates 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.
Trading Week – Scary Season Rally Continues
Interest Rates – Yields have Jumped; Stocks Haven’t Minded Historically, on Average
Headlines – Stocks Always Have Overcome Disconcerting News in the Fullness of Time
Volatility – Ups and Downs but Long-Term Trend Has Been Up
Profits – Favorable EPS Outlook
Econ Outlook – Mixed Stats, but Solid GDP Growth the Forecast
Valuations – Liking our Metrics
Sentiment – AAII Bullishness Retreats; Bearishness Jumps
Stock News –
Interest Rates – Yields have Jumped; Stocks Haven’t Minded Historically, on Average
There are still nine trading days to go, but just as we said last week, the historically seasonally weaker September-October time span this time around has provided support for our long-held assertion that time in the market trumps market timing. Bucking the propensity for red ink, on average, since the launch of The Prudent Speculator in 1977,
the equity markets managed to again gain ground last week, adding to the handsome advance since the start of the often spooky two-month period.
All the gains of late have come since the Federal Reserve cut its target for the Fed Funds rate on September 18, which would seem to make sense, given the evidence since 1954 that shows that stocks perform better when the nation’s central bank is easing monetary policy.
However, longer-term interest rates actually have jumped since the Fed reduced short-term rates, with the yield on the 10-Year U.S. Treasury climbing from 3.65% on September 17 to 4.08% today.
Of course, history also shows that, on average, stocks perform fine whether the yield on the benchmark government bond is rising or falling,
Headlines – Stocks Always Have Overcome Disconcerting News in the Fullness of Time
as also has been the case when Arab-Israeli conflicts have occurred,
and following many other disconcerting events.
Volatility – Ups and Downs but Long-Term Trend Has Been Up
That is not to say that equities will rise no matter what, and there have been numerous worrisome downturns through the years, including a whopping 30 drops of 10% or more just since 1995, but over the long haul, stocks have proved rewarding for those who stick with them through thick and thin,
Profits – Favorable EPS Outlook
as corporations have become more valuable, given that their profits have grown over time, with earnings per share projected to expand nicely over the remainder of this year and in 2025.
No doubt, the strength of the economy is key to the growth of top and bottom lines for Corporate America, and statistics out last week continued to support the projections provided last month by Jerome H. Powell & Co. that call for inflation to move closer to the Fed’s long-run goal of 2.0% and real (inflation-adjusted) U.S. GDP growth to remain in the 2.0% range.
Econ Outlook – Mixed Stats, but Solid GDP Growth the Forecast
To be sure, some of the economic numbers were weaker-than-expected last week, as the Empire Manufacturing gauge of factory activity in the New York area dropped to -11.9 for October, well below estimates of 3.6,
and industrial production in September retreated by a worse-than-forecast 0.3%, down from a revised increase of 0.3% in August.
On the other hand, manufacturing activity in the Philadelphia area this month improved to a reading of 10.3, nicely higher than the 3.0 estimate and up from 1.7 in August,
retail sales for September rose a better-than-expected 0.4%,
and first-time filings for unemployment benefits dropped to 241,000 in the latest week, down from a revised 260,000 the week prior,
with the latest forecast from the Atlanta Fed for Q3 GDP growth rising last week to 3.4%, up from 3.2% the week prior.
Valuations – Liking our Metrics
So, while we are always braced for market pullbacks and we have a little extra cash in our managed accounts these days, we continue to think that Value stocks in general are reasonably priced,
and we especially like the valuation metrics associated with our broadly diversified portfolios of what we believe are undervalued stocks.
Sentiment – AAII Bullishness Retreats; Bearishness Jumps
And, we weren’t unhappy to see optimism retreat and pessimism rise on Main Street last week as tabulated in the weekly Bull-Bear Sentiment Survey from the American Association of Individual Investors,
though this supposedly contrarian measure argues for maintaining equity positions and not being fearful even when folks are greedy!
Stock News – Updates on nineteen stocks across seven different sectors
