FOMC Meeting, Taxes, Stocks, and More

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 FOMC Meeting, Taxes, 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.

Executive Summary

Newsletter Portfolio Trades – 7 Purchases Across 3 Portfolios

Volatility – Big Daily Moves, but Minimal Weekly Gyration

FOMC Meeting – Rates Held Steady, Uncertainty Abounds

Econ News – Growth Still the Forecast

Recessions – Risk Has Jumped, But History Shows Staying the Course the Right Move Even if a Contraction Were to Occur

Fed – Stocks Have Performed Fine, on Average, Whether the Federal Reserve is Easing or Tightening

Historical Perspective – Plenty of Scary Events, but Long-Term Trend is Up

Taxes & Stocks – Year with and Years Before a Hike in the Maximum Personal Rate Have Been Favorable, on Average

Stock News – Comments on fourteen stocks across ten different sectors

Volatility – Big Daily Moves, but Minimal Weekly Gyration

Even as progress on global trade front was apparently made and President Trump proclaimed, “You better go out and buy stock now…The economy will be like a rocket ship that goes straight up,” it was one of the least volatile weeks, when measured from the starting level to the ending level, in a long time. Indeed, while there were more than 550 points between the low for the week and the high, the widely followed Dow Jones Industrial Average dipped a modest 68 points, or 0.16%, for the full five days of trading.

FOMC Meeting – Rates Held Steady, Uncertainty Abounds

While utterances from the Commander in Chief and members of his Administration continued to drive short-term trading, and hostilities between Pakistan and India added to the drama on the global stage, the big news for the week was the FOMC Meeting, in which Jerome H. Powell & Co. left their target for the Fed Funds rate unchanged at 4.25% to 4.5%,

while issuing a Statement that included, “Uncertainty about the economic outlook has increased further,”

with the Fed Chair at his Press Conference, saying the words “don’t know” on 8 occasions to confirm the lack of clarity on Fed policy moving forward. Of course, Mr. Powell was relatively upbeat in his comments on the economy, in his opening remarks

and again in the Q&A with members of the media:

Look where we are today, we have an economy that if you look through, you know, the sort of distortions in Q1 GDP, you’ve still got an economy that looks like it’s growing at a solid pace. The labor market appears to be solid. Inflation is running just a bit above two percent. So, it’s an economy that’s been resilient and is in good shape, and our policy is sort of modestly or moderately restrictive. It’s 100 basis points less restrictive than it was last fall. And so, we think that leaves us in a good place to wait and see. We don’t think we need to be in a hurry. We think we can be patient. We’re going to be watching the data. The data may move quickly or slowly, but we do think we’re in a good position where we are to let things evolve and become clearer in terms of what should be the monetary policy response.

Econ News – Growth Still the Forecast

To be sure, there are plenty of unknowns about economic activity going forward, but weekly filings for unemployment benefits in the latest period dipped to 228,000, down from 241,000 the week prior and near multi-generational lows,

the latest forecast for Q2 U.S. real (inflation-adjusted) GDP growth from the Atlanta Fed stood at 2.3%,

and the ISM Services Index for April came in better than expected at a reading of 51.6, up from 50.8 in March, with the keeper of the gauge stating, “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for April (51.6 percent) corresponds to a 1-percentage point increase in real gross domestic product (GDP) on an annualized basis.

Recessions – Risk Has Jumped, But History Shows Staying the Course the Right Move Even if a Contraction Were to Occur

Obviously, anything can happen in the months ahead and tariffs remain a major wildcard that has pushed up the odds of recession, as tabulated by Bloomberg,

so we continue to take comfort in what the historical evidence shows for how stocks have performed, on average, prior to and during economic contractions,

especially as we already endured a Bear Market (on an intraday basis) this year,

while the years following recessions have been sensational, on average.

Fed – Stocks Have Performed Fine, on Average, Whether the Federal Reserve is Easing or Tightening

We realize that the health of the economy is just one of many concerns facing market participants, many of whom evidently share President Trump’s view that the Federal Reserve should cut interest rates sooner rather than later, even as the historical evidence shows that stocks have performed fine, on average, whether the nation’s central bank has been easing or tightening monetary policy.

That is not to say that lower interest rates would not be welcome, as all else equal, they make stocks more attractive on both an earnings yield and a dividend yield basis,

and the current betting odds still suggest that at least two 25-basis-point cuts in the Fed Funds rate are in the cards before the end of the year.

Historical Perspective – Plenty of Scary Events, but Long-Term Trend is Up

Certainly, headline risk is omnipresent, but such is usually the case,

while stocks have overcome every prior disconcerting event,

to post terrific long-term returns despite plenty of volatility along the way.

As such, while we are always braced for downside moves and there have been 27 Bear Markets over the last century,

we see no reason to alter our enthusiasm for the long-term prospects of our broadly diversified portfolios of what we believe are undervalued stocks,

Taxes & Stocks – Year with and Years Before a Hike in the Maximum Personal Rate Have Been Favorable, on Average

while we note that the latest bogeyman to disturb investors, news that the White House may be seeking to raise the top tax rate on high earners to 39.6%, heretofore has proved to be a tailwind and not a headwind for stocks, on average, both in the year the tax increase happens,

and in the year before it occurs.

Stock News – Comments on fourteen stocks across ten 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.