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 Dow 40000, Inflation, Economic Numbers, 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.
Newsletter Trades – 2 Sales for 4 Portfolios
Roaring Kitty – Meme Mania Returns…For a Couple of Days
Dow 40000 – Miracle of Compounding
Emotional Roller Coaster – Ups and Downs, but Sticking with Stocks the Way to Go
Economic Numbers – Mixed Picture
Inflation – Better-than-Expected Data
Interest Rates – Yields Tick Lower
Valuations – Inexpensive Metrics for Our Portfolios
Earnings – Solid Growth Estimated in ’24 & ’25
Stock News – Updates on ALIZY, CSCO, SIEGY, DE & WMT
Roaring Kitty – Meme Mania Returns…For a Couple of Days
Now that was an interesting five days of trading! The week began with day traders euphoric about the seeming reemergence of GameStop hero Keith Gill (aka Roaring Kitty) and the ensuing two-day rocket ride for shares of the video-game retailer and other so-called Meme stocks like AMC Entertainment. But the Meme enthusiasm rapidly waned as both GameStop and AMC quickly took advantage of the stampede into the stocks by announcing dilutive share issuance plans for the former and completing an offering for the latter, with Roaring Kitty arguably bidding goodbye again with his most-recent ET/Supertramp posting on X.
Dow 40000 – Miracle of Compounding
Of course, Mr. Gill became a side note when the Dow Jones Industrial Average pierced on Thursday and then closed on Friday above the psychologically important 40000 level, prompting front-page headlines and an excited posting from prominent trader Peter Tuchman, the self-proclaimed Einstein of Wall Street.
Emotional Roller Coaster – Ups and Downs, but Sticking with Stocks the Way to Go
Obviously, 40000 is just a number and simple math tells us that the historical 5.8% annualized price return since 1927 for the price-weighted index would result in Dow 50000 by 2028 and Dow 60000 by 2031. Heck Dow One-Hundred Thousand would arrive early in the 2040s and Dow One Million in the 2080s!
Indeed, the Miracle of Compounding is wonderful…but we know that far too many folks do not come close to achieving the long-term rewards that equities have to offer,
as they let their emotions get the best of them,
often reducing exposure AFTER stocks have skidded and piling in AFTER a big rally, forgetting that volatility is part of the game and that time in the market trumps market timing.
Sadly, keeping the faith is difficult even for those who have previously professed unwavering conviction,
even as history shows that equity prices over time historically have followed corporate profits higher,
with earnings bolstered by an economy that continues to show Gross Domestic Product (GDP) expansion on both a nominal and a real (inflation-adjusted) basis.
Economic Numbers – Mixed Picture
To be sure, there will always be plenty of debate about the near-term outlook for economic growth, with Bloomberg presently tabulating a 30% chance of recession in the next 12 months,
and the Conference Board stating, “While the LEI’s six-month and annual growth rates no longer signal a forthcoming recession, they still point to serious headwinds to growth ahead,”
but the latest estimate from the Atlanta Fed for real Q2 GDP growth stood at a healthy 3.6%
Last week’s batch of economic statistics did little to clear up the outlook as the May forecast for factory activity in the New York,
and Philadelphia regions both came in below expectations and below their respective historical averages.
Retail sales for April, which were flat on a month-over-month basis, also trailed estimates,
though the NFIB Small Business Optimism gauge topped projections, rising to 89.7 in April, up from 88.5 in March,
and first-time filings for jobless benefits continued to reside near multi-generational lows.
Inflation – Better-than-Expected Data
The Consumer Price Index (CPI) for April rose 3.4% on a year-over-year basis, which was in line with estimates, but the figure was down from a 3.5% increase in March,
while growth in the core CPI (excludes volatile food and energy prices) also pulled back to 3.6% last month from 3.8% the month prior.
Interest Rates – Yields Tick Lower
The relatively good news on the inflation front led to a modest rally in government bond prices (decline in yields),
and a small drop in the expected year-end Fed Funds rate to 4.90% from 4.92% a week ago.
Certainly, the Fed is a wildcard for investors, with Jerome H. Powell stating prior to the CPI release last week, “We’re just going to have to see where the inflation data fall out. We did not expect this to be a smooth road, but these were higher than I think anybody expected.”
However, the Chair was quick to add, “We’ll need to be patient and let restrictive policy do its work…I have said that I don’t think it’s likely based on the data that we have that the next move that we make would be a rate hike.”
Valuations – Inexpensive Metrics for Our Portfolios
With interest rates likely to move lower in the intermediate term, we continue to like the reasonable valuations for Value stocks in general,
and our broadly diversified portfolios of what we believe to be undervalued stocks in particular.
Earnings – Solid Growth Estimated in ’24 & ’25
especially as corporate profits are still projected to show handsome growth this year and in 2025.
True, we now are in the seasonally less favorable (though still positive, on average) six months of the year,
and we suspect that headlines on the global stage will remain disconcerting, but such has seemingly always been the case, yet those who have stuck with stocks through thick and thin have plenty to show for their loyalty.
Stock News – Updates on five stocks across five different sectors
