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 Corporate Profits, Valuations, Interest Rates 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.
Executive Summary
Weekly Losing Streak Broken – Northern Lights & Santa Claus Rally Make Appearances
Econ Update – Weaker Numbers, But Solid Growth Outlook Intact
Corporate Profits – Healthy EPS Growth Still the Forecast
Valuations – Value Stocks Remain Reasonably Priced
Market Timing – Time in the Market Trumps Jumping In and Out
Rates – Another Jump in U.S. Treasury Yields; Stocks Have Performed Fine, on Average, No Matter the Direction of Rates
Historical Evidence – Despite Volatility, Stocks Have Always Proved Rewarding in the Fullness of Time
Sentiment – AAII Bullishness Retreats
Stock News – Updates on HMC, JWN & 26 Tax-Loss January Rebound Candidates
Weekly Losing Streak Broken – Northern Lights & Santa Claus Rally Make Appearances
Greetings from Iceland where your editor was able to check off his bucket list seeing the Northern Lights with the Aurora Borealis making an 11th hour (well, after midnight) appearance on the final night of the stay.
Not quite as dramatic a sighting but following 14 straight down days for the Russell 3000 Value index to begin the historically seasonally favorable (on average) month of December, the Santa Claus Rally managed to extend to four trading days last week before stocks headed south on Friday.
Econ Update – Weaker Numbers, But Solid Growth Outlook Intact
Happily, equities still managed to end the full trading week nicely higher, even as economic data wasn’t grand with U.S. durable goods orders excluding the volatile transportation sector for November dipping 0.1%,
new home sales for November of 664,000 trailing expectations,
and Consumer Confidence, per the Conference Board, for December pulling back to a reading of 104.7.
Of course, first-time filings for unemployment benefits in the latest week of 219,000 came in lower than expected and continue to reside near multi-generational lows,
the most recent estimate for Q4 real (inflation-adjusted) U.S. GDP growth from the Atlanta Fed stood at a robust 3.1%,
and the odds of recession, per tabulations from data provider Bloomberg, have dropped to 20%.
Corporate Profits – Healthy EPS Growth Still the Forecast
Not surprisingly, the outlook for corporate profit growth remains healthy, which we think continues to support the case for equities, given that prices over time have followed earnings higher,
Valuations – Value Stocks Remain Reasonably Priced
while we think Value stocks continue to remain reasonably priced,
even with the big jump in interest rates since the Federal Reserve began easing monetary policy more than three months ago.
Incredibly, even with additional Fed rate cuts expected,
Market Timing – Time in the Market Trumps Jumping In and Out
supposedly safe long-term U.S. Treasuries have had a negative return of more than 12% since September 17, providing more evidence in support of supposedly risky equities for those with a long-term time horizon
and the courage to stick with stocks through thick and thin, instead of trying to time moves on and off the sidelines.
True, equity investors must always put up with trips to the downside, but the long-term rewards for stocks have been terrific,
Historical Evidence – Despite Volatility, Stocks Have Always Proved Rewarding in the Fullness of Time
True, equity investors must always put up with trips to the downside, but the long-term rewards for stocks have been terrific,
with all scary events overcome in the fullness of time,
and history showing that near-term returns have been fine on average whether interest rates are rising or falling,
or whether the Federal Reserve is hiking or reducing its target for the Fed Funds rate.
So, while we are always braced for downside volatility, we remain very optimistic about the long-term prospects of our broadly diversified portfolios of what we believe are undervalued stocks,
Sentiment – AAII Bullishness Retreats
while those of us with a contrarian bias are happy to see the rough sledding of late put a big dent in Bullish enthusiasm.
Stock News – Updates on two stocks across two different sectors
