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 Federal Reserve, Jobs, Value Stocks 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.
Trades – 9 Purchases Across 4 Newsletter Portfolios
Fed – Odds for Rate Cut Improve
Econ Data – Weaker-than-Expected Numbers
Jobs – Stronger-than-Projected Payrolls
EPS Outlook – Solid GDP Supports Corporate Profit Growth
Market of Stocks – Average Member of the Russell 3000 Down Last Week and in 2024
Value – Inexpensive Relative to Growth
Volatility – Scary Headlines & Plenty of Gyrations Along the Way but Long-Term Trend is Up
Stock News – Updates on WRK & DE
Winners & Losers – Top and Bottom YTD TPS Performers
Fed – Odds for Rate Cut Improve
With Jerome H. Powell saying in Portugal last week at the European Central Bank’s annual conference that the Fed has “made quite a bit of progress in cooling price increases back toward its goal,” and that inflation “now shows signs of disinflation,”
the betting in the futures market saw the expected year-end level of the Fed Funds rate drop to 4.82% last week, down from 4.89% the week prior,
with the benchmark 10-Year U.S. Treasury bond rallying in price and dipping in yield to 4.28%, compared to 4.40% at the end of the previous week.
Econ Data – Weaker-than-Expected Numbers
No doubt, several weaker-than-expected economic numbers supported the case for Federal Reserve rate cuts happening at a faster pace. The Institute for Supply Management’s (ISM) gauge of U.S. Manufacturing activity in June edged lower to 48.5, compared to 48.7 in May and estimates for an increase to 49.1
factory orders fell 0.5% in May versus forecasts for a 0.2% advance,
and the important ISM Service Sector NMI reading for June skidded to 48.8, well below projections of 52.7 and off considerably from the 53.8 tally in May.
Of course, the monthly employment report showed that the labor market remains solid as nonfarm payrolls for June climbed by 206,000 (est. 190,000),
and wages grew 3.9%, in line with estimates.
Jobs – Stronger-than-Projected Payrolls
True, the unemployment rate ticked up to 4.1%, compared to 4.0% on May,
but the count of job openings in May came in higher than expected at 8.14 million,
and first-time filings for jobless benefits continued to reside near multi-generational lows.
EPS Outlook – Solid GDP Supports Corporate Profit Growth
To be sure, the jury remains out on whether the economy will pull off a soft landing and the Atlanta Fed’s latest estimate for Q2 real (inflation-adjusted) U.S. GDP growth pulled back to 1.5% last week,
though the odds of recession in the next 12 months, as tabulated by Bloomberg, remained unchanged at 30%,
and the latest projections provided by Standard & Poor’s for U.S corporate profit growth this year and next remain robust.
Market of Stocks – Average Member of the Russell 3000 Down Last Week and in 2024
As for the equity markets, it was more of the same last week, with the average stock treading water or losing ground, and the major market averages moving higher, driven again by a handful of mega-cap stocks.
Value – Inexpensive Relative to Growth
Certainly, we understand that there has been greener grass on the Growth side of the fence, but we are not unhappy with the positive performance last week and Value-index beating returns this year on our broadly diversified portfolios, especially given the inexpensive valuations on our baskets of stocks,
and the reasonable price tags for Value stocks in general.
Volatility – Scary Headlines & Plenty of Gyrations Along the Way but Long-Term Trend is Up
No guarantee that the past is prologue, but we continue to note that the Russell 3000 Value index is even more attractively priced relative to its Growth counterpart than when the Tech Bubble burst in 2000,
which saw the Value benchmarks win the subsequent performance derbies by a wide margin.
Yes, we realize that there is always the risk that the markets will move south,
but we are comforted by the historical evidence that shows downturns always have given way to upturns of even greater magnitude AND that Value stocks have captured the long-term spoils,
while P/E ratios for Value, unlike Growth, are in line with their long-term means.
Stock News – Updates on WRK and DE
