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 Election 2024, Economic Outlook, the Federal Reserve and Interest Rates. 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.
Election 2024 – Polls Wrong Again; Republican Sweep?
1,500-Point Pop – Post-Election Rally
History Books – Stocks Have Preferred Democrats in Washington
Trump 47 – Three-Day Winners & Losers
Econ Outlook – Favorable Stats, GDP Growth the Forecast
Fed – FOMC Reduces the Fed Funds Rate 25 Basis Points
Rates – Stocks Have Performed Fine Whether Fed is Easing/Tightening or 10-Year Yield is Rising/Falling
Valuations – Value Stocks Reasonably Priced
Profits – Favorable EPS Outlook
Seasonality – Most Wonderful Time of the Year
Stock News – Updates on CE, GT, TKR, CMI, CVS, ADM, GILD, ALB, ENS, QCOM, LITE, HMC, TPR & EOG
Election 2024 – Polls Wrong Again; Republican Sweep?
The public opinion polls (which had called it a dead heat) getting it wrong once again, former President Trump recaptured the White House, winning not only the Electoral College but also the popular vote, while control of Congress also appears set to swing the Republican’s way.
1,500-Point Pop – Post-Election Rally
Though we might argue that some of the excitement was simply a huge sigh of relief that there was an obvious winner, rather than a disputed result that could have led to recounts, lawsuits and even civil unrest, the equity markets enjoyed a terrific post-Election-Day rally, with the Dow Jones Industrial Average soaring on Wednesday by more than 1,500 points…the 169th best day in the history of that popular index,
History Books – Stocks Have Preferred Democrats in Washington
and the S&P 500 turning in its best post-election trading session ever, beating the prior record ironically set after Joe Biden’s victory in 2020.
Obviously, there are many reasons that equity prices ebb and flow, but we are pleased that the advice we had been offering in our Election-related Special Reports and Webinar to stay the course appears to have been solid. Of course, it isn’t as if we were going out on a limb as stocks have done well, on average, no matter the party of the presidential victor,
but we realize that Trump 47 arguably brings less regulation, pro-growth initiatives and lower, or at least not increased, taxes, all of which seemingly are good for business, even as most economists are very concerned about the potential inflation, disruption of supply chains and trade wars that could arise should threatened tariffs on foreign imports be implemented versus serving more as a negotiating tactic.
Still, it has been interesting that stocks, on average, have preferred Democrats in Washington versus Republicans,
though much of the GOP return problems stem from Herbert Hoover in the Great Depression.
No doubt, traders have been busy placing bets on the perceived winners and losers, and we have tweaked many of our Target Prices upward, especially in the financial sector, but, as usual, our Investment Team debates have centered on possibly taking some money off the table on some of last week’s big gainers and potentially adding to some of the big losers,
Trump 47 – Three-Day Winners & Losers
as we point out that performance under Trump 45 didn’t go exactly as planned, especially in the oil patch.
Econ Outlook – Favorable Stats, GDP Growth the Forecast
It would seem that there was a release of “animal spirits” in the aftermath of the election, but we also note that economic data out last week was generally favorable, with U.S. durable goods orders excluding the volatile transportation sector for September rising 0.5%, better than the 0.4% estimated increase,
first-time filings for unemployment benefits for the latest week of 221,000 remaining near multi-generational lows,
the preliminary read on consumer sentiment for November, per the Univ. of Michigan, jumping to 73.0, up from 70.5 for October and above expectations of 71.0,
and the important Institute for Supply Management (ISM) gauge of activity (PMI) in the services sector climbing to 56.0 in October, up from 54.9 in September and nicely above the consensus forecast of 53.8.
ISM states, “A Services PMI® above 49 percent, over time, generally indicates an expansion of the overall economy. Therefore, the October Services PMI® indicates the overall economy is expanding for the fourth straight month. Miller says, “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for October (56 percent) corresponds to a 2.3-percentage point increase in real gross domestic product (GDP) on an annualized basis.”
That ISM correlation to real (inflation-adjusted) GDP growth is echoed by the latest forecast for Q4 growth of 2.5% from the Atlanta Fed,
and is even better than the September GDP projections offered by Federal Reserve board members and Federal Reserve Bank presidents,
Fed – FOMC Reduces the Fed Funds Rate 25 Basis Points
while Fed Chair Jerome H. Powell sounded generally upbeat on his assessment of the economy in his opening remarks at the Press Conference on Thursday,
that followed the central bank’s decision to lower its target for the Fed Funds rate by another 25 basis points (0.25%) to a range of 4.5% to 4.75%,
with the FOMC Statement doing nothing to dispel,
Rates – Stocks Have Performed Fine Whether Fed is Easing/Tightening or 10-Year Yield is Rising/Falling
the wagering that further easing of monetary policy is in the cards over the next 13 months.
While a “friendly” Federal Reserve historically has been better for equities, stocks have performed fine either way,
with the same also the case for decreases and increases in long-term government bond yields,
as handsome gains (the Russell 3000 Value index has had a total return of 4.81%) have been turned in, even with a big rise in the yield on the benchmark 10-Year U.S. Treasury, since Powell & Co. began their rate cutting cycle.
Valuations – Value Stocks Reasonably Priced
So, while we continue to be braced for downside volatility, which is always part of the investment process, even as long-term returns for stocks have been terrific,
and there will always be disconcerting headlines with which we must contend,
we continue to think valuations on Value are reasonable,
with metrics on our broadly diversified portfolios of what we believe are undervalued stocks even more attractive,
Profits – Favorable EPS Outlook
especially with corporate profits likely to show solid growth in Q4 and in 2025.
Seasonality – Most Wonderful Time of the Year
We also don’t mind that we are now in the seasonally favorable six-month period,
with November, December and January, on average, historically the most wonderful time of the year!
Stock News – Updates on sixteen stocks across eleven different sectors
