Market Commentary

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 economic updates, valuations, volatility and sentiment. 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

Newsletter Trades – 10 Buys for 4 Portfolios

Headlines – 2025 Off to a Miserable Start but Stocks Always Have Overcome Disconcerting Events in the Fullness of Time

Calendar – First 5 Days, Seasonality, Years Ending in 5 Historical Numbers

Econ Update – Better-than-Expected Numbers, Solid Growth Outlook Intact

Corporate Profits – Healthy EPS Growth Still the Forecast

Interest Rates – Stocks Have Performed Fine, on Average, No Matter the Direction of Rates

Valuations – Value Stocks Remain Reasonably Priced

Volatility – The Longer the Measuring Stick the Lower the Chance of Loss

Sentiment – AAII Bullishness Retreats

Stock News – Updates on ALL, GBX, XOM & JNJ


Headlines – 2025 Off to a Miserable Start but Stocks Always Have Overcome Disconcerting Events in the Fullness of Time

We want to thank the folks who have reached out to check on us. The Los Angeles wildfires are some 60 miles to the north of our offices, so we are a fair distance from the cataclysmic scenes. Still, the air quality isn’t great and those who have been followers of the newsletter for several decades likely will remember that we had three different Al Frank offices in Santa Monica, with our founder owning a home on Montana Avenue, with all those locations just south of Pacific Palisades.

Obviously, equity market gyrations are insignificant relative to the tragedy still unfolding to the north of us, and 2025 isn’t exactly off to a good start on the humanity front,

2025 Headlines

but we always endeavor to keep emotions out of the investment equation as we live by the Vannevar Bush admonition, “Fear can not be banished, but it can be calm and without panic; it can be mitigated by reason and evaluation.” After all, we know that stocks throughout history have always overcome every disconcerting event in the fullness of time,

Stock Market Returns

with the inevitable trips to the downside followed by even greater moves to the upside, so much so that long-term performance since the launch of The Prudent Speculator in March 1977 have been terrific, including returns on Value stocks of some 14% per annum through the end of November 2024.

Russell 3000 Value Index


Calendar – First 5 Days, Seasonality, Years Ending in 5 Historical Numbers

Of course, until Friday, equities generally had shaken off the awful 2025 headlines, with the first five days of trading in the new year showing gains on the major market averages, an indicator that some argue bodes well for returns this year,

Russell 3000

while we continue to reside in the seasonally more favorable six months of the year,

Seasonality

and years ending in 5 historically have been very good, on average.

Stock Market Returns


Econ Update – Better-than-Expected Numbers, Solid Growth Outlook Intact

More importantly, the U.S. economy remains in solid shape, with Bloomberg’s current tabulation of recession probability residing at a very low 20%,

Economic Update

and the latest estimate from the Atlanta Fed for Q4 real (inflation-adjusted) GDP growth moving up last week to 2.7%.

Economic Update

That GDP projection included a greater-than expected 8.1 million job openings in November,

Economic Update

another drop in weekly first-time filings for jobless benefits,

Economic Update

and a better-than-forecast increase in the ISM Non-Manufacturing Index for December to a reading of 54.1, up from 52.1 in November.

Economic Update

However, the Atlanta Fed projection did not include Friday’s significantly higher-than-forecast rise of 256,000 in nonfarm payrolls for December, well above estimates of a 165,000 increase and the revised tally for November of 212,000,

Economic Update

which led to a lower-than-estimated jobless rate of 4.1%.

Economic Update

It also did not include a slightly weaker-than-expected increase of 3.9% in year-over-year wage growth,

Economic Update

or a modest pullback to 73.2 in the University of Michigan’s initial reading of consumer sentiment for January versus 74.0 for December.

Economic Update

Still, we think, as evidently do investors in the Fed Fund futures market, which saw a reduction in the outlook for further interest rates cuts from the Federal Reserve,

Interest Rates


Corporate Profits – Healthy EPS Growth Still the Forecast

that the sum of the numbers last week supports continued strength in the economy, which should bode well for corporate profit growth, the long-time driver of stock prices.

Earnings


Interest Rates – Stocks Have Performed Fine, on Average, No Matter the Direction of Rates

To be sure, there has been plenty of chatter that rising interest rates are becoming a headwind for stocks,

Interest Rates

but nearly a century of market history illustrates that equities have performed fine whether government bond yields are climbing or falling,

Interest Rates

which has also been the case since 1954 whether the Fed is tightening or easing monetary policy.

Interest Rates


Valuations – Value Stocks Remain Reasonably Priced

Yes, a higher so-called risk-free rate should make equities less attractive, but we are not at such a level today for Value stocks,

Interest Rates

while the only thing that can be said with certainty is that rising bond yields are bad…for bond prices. Indeed, take a look at the miserable near- and long-term annualized returns for the Bloomberg Barclays U.S. Aggregate and Global Aggregate Bond indexes in the table below, which also shows the performance of the various Value stock indexes.

Valuations

 


Volatility – The Longer the Measuring Stick the Lower the Chance of Loss

Yes, stock prices are much more volatile than bonds, but those with a long-term time horizon certainly have the odds in their favor should they invest in equities,

Volatility

and we continue to sleep well at night given the inexpensive valuation metrics on our broadly diversified portfolios of what we believe are undervalued stocks.

Valuations


Sentiment – AAII Bullishness Retreats

That does not mean that Friday’s big swoon won’t give way to additional downside, but we see no reason to alter our long-term enthusiasm for equites, especially as short-term worries about too much investor optimism have continued to be mitigated.

Sentiment

Happily, the latest sentiment survey from the American Association of Individual Investors (AAII) now shows more Bears than Bulls, which historically has led to better-than-average near-term equity returns.

Sentiment


Stock News – Updates on five stocks across four different sectors

Keeping in mind that all stocks are rated as a “Buy” until such time as they are a “Sell,” a listing of all current recommendations is available for download via the following link: https://theprudentspeculator.com/dashboard/. We also offer the reminder that any sales we make for our newsletter strategies are announced via our Sales Alerts. Jason Clark, Chris Quigley and Zack Tart take a look at earnings reports and other market-moving news of note out last week for more than a few of our recommendations.
Kovitz Investment Group Partners, LLC (“Kovitz”) is an investment adviser registered with the Securities and Exchange Commission. This report should only be considered as a tool in any investment decision and should not be used by itself to make investment decisions. Opinions expressed are only our current opinions or our opinions on the posting date. Any graphs, data, or information in this publication are considered reliably sourced, but no representation is made that it is accurate or complete and should not be relied upon as such. This information is subject to change without notice at any time, based on market and other conditions. Past performance is not indicative of future results, which may vary.