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, Valuations, Interest Rates and more Stock 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.
Newsletter Trades – 1 Sale for 3 Portfolios
Volatility – 606-Point (1.52%+) Dow Drop Not Unusual
Emotional Roller Coaster – Ups and Downs, but Sticking with Stocks the Way to Go
Econ Numbers – Some Good, Some Not-So-Good Data
Interest Rates – Yields Tick Higher
Inflation – Consumer Expectations Decline a Tad
Valuations – Inexpensive Metrics for Our Portfolios
Earnings – Solid Growth Estimated in ’24 & ’25
Stock News – Updates on nine stocks across five different sectors
Volatility – 606-Point (1.52%+) Dow Drop Not Unusual
While the average stock performed much better (less-worse) than the price-weighted index, the 606-point plunge in the Dow Jones Industrial Average on Thursday offered another reminder that equity prices can move in both directions. Of course, despite the seemingly large magnitude of the Dow drop, the 1.52%+ skid in the popular market gauge was relatively modest by historical standards, with 1,353 previous trading sessions since 1928 enduring even bigger declines. Happily, there also has been a comparable number of rallies in the Dow over the past nine-plus decades,
and each of the numerous setbacks since we launched The Prudent Speculator in 1977 has been more than overcome in the fullness of time, with stocks (Value in particular) providing terrific long-term returns, on average.
Emotional Roller Coaster – Ups and Downs, but Sticking with Stocks the Way to Go
Some might argue that the release of our latest Special Report, Dow 40,000…50,000…One Million was cause for the Dow pullback, but simple math tells us that those targets are not unreasonable, given the Miracle of Compounding. Sadly, many fail to earn the rewards provided by the financial markets as they let their emotions get the best of them,
in not sticking with their long-term investment objectives through thick and thin, as the historical numbers from DALBAR on stock and bond fund investor returns attest.
Econ Numbers – Some Good, Some Not-So-Good Data
As we constantly remind, equity prices historically have followed corporate profits higher,
with those earnings rising over time as the economy grows,
so we were not unhappy with economic data out last week that showed continued strength in the labor market, with a better-than-expected reading on weekly initial filings for unemployment benefits,
and an uptick in durable goods orders in April,
not to mention estimate-topping May figures on the health of the factory sector,
and the services sector.
Interest Rates – Yields Tick Higher
We realize that traders worry that stronger economic data may keep the Federal Reserve on a higher-for-longer track for interest rates, with the betting odds for the year-end target for the Fed Funds rate rising to 4.99% this past Friday, up from 4.90% at the end of the week prior,
and the yield on the benchmark 10-Year U.S. Treasury inching up to 4.46%, versus 4.42% the previous week,
but both new home sales,
and sales of existing homes in April trailed forecasts.
Inflation – Consumer Expectations Decline a Tad
In reality, not a whole lot changed on the outlook for the economy as the odds of recession in the next 12 months, as tabulated by Bloomberg, continued to reside at 30%,…
and the latest projection for real (inflation-adjusted) Q2 GDP growth clocked in at a robust 3.5%, compared to 3.6% the week prior.
Perhaps most importantly, given ongoing worries about consumer prices, the University of Michigan survey saw a reduction in short-term inflation expectations to a 3.3% rate in May, down from 3.5% in April and below the consensus forecast of 3.4%. It was the same story with long-term inflation-expectation figures as the 3.0% rate for May was below the prior 3.1% number and the 3.1% estimate.
Valuations – Inexpensive Metrics for Our Portfolios
Certainly, we must be braced for additional equity-market volatility, with events on the geopolitical stage a wildcard, but disconcerting near-term headlines eventually always have given way to long-term equity market gains,
while we continue to sleep well at night with the attractive financial metrics of our broadly diversified portfolios of what we believe to be undervalued stocks,
Earnings – Solid Growth Estimated in ’24 & ’25
and we think Value stocks in general are reasonably priced relative to interest rates,
with the E (Earnings) part of the Earnings Yield likely to grow handsomely over the balance of this year and in 2025.
Stock News – Updates on nine stocks across five different sectors
