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 Earnings, Economics, Recession Odds, Inflation, Sentiments and more news. 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
Earnings – 78% Beating the Street
Economy – Strong Q4 GDP Growth
Recession Odds – Better-than-Expected Econ Data Reduces Chances of Contraction
Inflation – Core PCE Declines
Interest Rates – Modest Uptick
Valuations – Value Stocks Reasonably Priced
Sentiment – AAII Less Optimistic
TPS Portfolio Purchase – Picking Up More ADM
Stock News – Updates on sixteen stocks across seven different sectors
Earnings – 78% Beating the Street
It was a big week for corporate earnings announcements with Q4 reporting season off to a terrific start, even if market reactions to the results and even more-important forward guidance were not always positive. We discuss in our Stock Updates section the numbers released last week for The Prudent Speculator recommendations, but with roughly a quarter of the S&P 500 constituents having disclosed how they did in the fourth quarter, 78.2% have exceeded analyst EPS estimates with 53.3% beating sales projections.
Economy – Strong Q4 GDP Growth
No doubt, surprisingly strong growth of the U.S. economy helped the cause, with real (inflation-adjusted) and nominal (actual dollars) GDP in Q4 expanding by a better-than-expected 3.3% and 5.7%, respectively,
as consumers continued to spend at a better-than-forecast and above-average pace in December,
with relatively few folks out of work (first-time filings for unemployment benefits continue to reside near multi-generational lows),
and personal incomes remaining healthy.
Not surprisingly, we suppose, with orders for durable goods, excluding the volatile transportation sector,
sales of new homes,
nand pending home sales all coming in above the consensus estimates,
Recession Odds – Better-than-Expected Econ Data Reduces Chances of Contraction
the odds of recession in the next 12 months, as tabulated by Bloomberg, fell to 45% last week.
True, the forward-looking Leading Economic Indicators for December were still in negative territory, with the Conference Board arguing, “We expect GDP growth to turn negative in Q2 and Q3 of 2024 but begin to recover late in the year,”
but the initial forecast last week for Q1 2024 real GDP growth from the Atlanta Fed was a robust 3.0%.
Inflation – Core PCE Declines
On top of what we would argue were positive developments on the strength of the economy, we also learned last week that inflation continued to head in the right direction. The all-important Core Personal Consumption Expenditure reading (the Federal Reserve’s preferred measure) for December saw the rate of growth decline to 2.9% on a year-over-year basis, down from 3.2% in November and below the consensus estimate of 3.0%.
Interest Rates – Modest Uptick
The equity markets liked what they heard last week on the economic front, with stocks enjoying a very good week, even as there was little change in the betting for the timing of Federal Reserve interest rates cuts,
and the yield on the 10-Year U.S. Treasury ticked higher.
Of course, history shows that stocks perform fine, on average, whether the benchmark government bond yield is rising or falling,
while we continue to believe that Value stocks, like those we have long championed, are still inexpensive priced,
Valuations – Value Stocks Reasonably Priced
with our portfolios of what we believe to be undervalued stocks even more favorably valued.
So, while we realize that downside volatility is always part of the investment process, we see no reason to deviate from our long-held focus on the generous long-term rewards offered by Value stocks,
Sentiment – AAII Less Optimistic
while we like that folks are now feeling less enthused than in recent weeks about the prospects for stocks over the next six months,
even as the AAII Sentiment Survey is best utilized as a contra-indicator when Main Street is down in the dumps.
Stock News – Updates on sixteen stocks across seven different sectors
