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 Economic Stats, Corporate Profits, Recessions 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 Buys – 8 Stocks for 4 Portfolios
Week in Review – Seasonally Weak Time of Year Off to Miserable Start
Emotional Roller Coaster – Media Not Exactly Helpful
Econ Stats – Mixed Numbers; but GDP Growth Still the Forecast
Interest Rates – Fed Cuts Coming; Stocks Have Performed Well Whether Rates Rise or Fall
Corporate Profits – Solid EPS Growth Remains the Projection
Recessions – Odds Still Low; Historical Equity Return Evidence
Valuations – Value Remains Attractive
Market History – Volatility & Disconcerting Headlines Through the Years but Long-Term Trend for Stocks is Up
Stock News – Updates on DKS, HPE, AVGO, ZBH & VZ
Week in Review – Seasonally Weak Time of Year Off to Miserable Start
Given that the average stock in the Russell 3000 tumbled 5.2% and the S&P 500 turned in its worst week since March 2023 with a drop of more than 4.2%, the seasonally weak September-October two month period is off to a miserable start.
Emotional Roller Coaster – Media Not Exactly Helpful
Of course, volatility is hardly unusual as there have been 203 weeks with even larger setbacks for the S&P dating back to 1928
with even larger 5% downturns taking place three times per year on average, 7.5% skids happening every seven months on average and 10% corrections taking place every 11 months on average.
Of course, given that returns on equities have been terrific over the long-term, led by Value Stocks and Dividend Payers, there obviously have been many periods in the green, illustrating that the secret to success in stocks is not to get scared out of them.
Keeping calm and remaining focused on long-term investment objectives is easier said than done, especially as the financial media is always shouting about short-term market movements. For example, at the beginning of last week, we were told that folks were very optimistic about stocks and upbeat on the economy,
but at the end of the week, they were selling stocks because they were worried about the health of the economy.
Econ Stats – Mixed Numbers; but GDP Growth Still the Forecast
We realize that traders sometimes see the proverbial glass as half full one day and half empty the next, but not much really changed last week on the economic front. Yes, there was a negative equity market reaction to Tuesday’s release of a weaker-than-expected ISM Manufacturing index (PMI), but the tally of 47.2 for August was up from 46.8 in July,
and history suggests that PMIs below 47.2, on average, have been buy signals for stocks,
while on Wednesday we learned that factory orders in July rose a greater-than-forecast 5.0%,
and on Thursday, the arguably more-important ISM Services index (NMI) for August came in at 51.5, slightly above projections and up from July’s figure, both of which were 51.4,
and first-time filings for unemployment benefits in the latest week dropped to 227,000, below expectations and down from a revised 232,000 in the week prior, with the number continuing to reside near multi-generational lows.
To be sure, the most important economic figure of the week was the monthly jobs report, in which “only” 142,000 new payrolls were created in August, while the counts in June and July were lowered by a combined 86,000 jobs.
That total was less than the consensus guestimate of 165,000, but it was not that far below the long-term average, while the unemployment rate edged down to 4.2% compared to 4.3% in July,
and average hourly wages rose by 3.8% on a year-over-year basis, versus estimates of a 3.7% increase.
Although it was also reported earlier in the week that job opening fell to 7.67 million in July, the lowest number since the start of 2021,
the most recent (as of 9.4.24) estimate from the Atlanta Fed for real (inflation-adjusted) U.S. GDP growth for Q3 stood at 2.1%,
Interest Rates – Fed Cuts Coming; Stocks Have Performed Well Whether Rates Rise or Fall
right in line with the median 2024 projection offered in June by Federal Reserve Board members and Federal Reserve Bank presidents.
And speaking of America’s central bank, more than a few cuts in the Fed Funds rate appear to be on the horizon. Fed Governor Christopher J. Waller offered his perspective on rates on Friday, “The labor market is continuing to soften but not deteriorate, and this judgment is important to our upcoming decision on monetary policy…As of today, I believe it is important to start the rate cutting process at our next meeting. If subsequent data show a significant deterioration in the labor market, the FOMC can act quickly and forcefully to adjust monetary policy.”
The futures market is now betting on a year-end benchmark lending rate of 4.18% and less than 3% by July 2025, well below the Fed projections from June,
while we note that history shows that equities have performed well when the Fed is easing monetary policy,
Corporate Profits – Solid EPS Growth Remains the Projection
as lower interest rates add to the appeal of stocks, from an earnings and dividend yield perspective, all else equal.
Certainly, we respect that many are concerned that economic data will deteriorate, despite Mr. Waller’s statement to the contrary, and that the Fed had waited too long to cut interest rates, but corporate profits are still expected to show handsome growth over the balance of this year and into 2025,
Recessions – Odds Still Low; Historical Equity Return Evidence
while the odds of recessions, per calculations from Bloomberg, remain at a relatively low level of 30%,
and we offer the reminder that time in the market has trumped market timing, even when recessions have occurred in the past.
Valuations – Value Remains Attractive
Not surprisingly, given that equity prices are lower, we are even more optimistic today than a week ago about the long-term prospects for our broadly diversified portfolios of what we believe to be undervalued stocks,
Market History – Volatility & Disconcerting Headlines Through the Years but Long-Term Trend for Stocks is Up
even as we continue to be braced for additional downside volatility and disconcerting events on the geopolitical stage.
Stock News – Updates on six stocks across five different sectors
