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 Geopolitics, Interest Rates, Federal Reserve and more Stock News. 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
2025 Outlook – TPS Webinar & Q&A: John & Jason; Tuesday, December 10, 11:00 AM Pacific; 2:00 PM Pacific
Newsletter Trades – 9 Buys Across 3 Portfolios
Geopolitics – Stocks Have Always Overcome Disconcerting Headlines
Value Perspective – Very Good Recent Returns; Reasonable Valuations; History Lesson
Econ Data – Solid GDP Growth Still the Forecast
Fed – Odds of Fed Rate Cuts Rise; Stocks have Performed Well, on Average, whether Fed is Tightening/Easing
Rates – Stocks Have Performed Fine, on Average, whether 10-Year Yield is Rising/Falling
Seasonality – Most Wonderful Time of the Year
Stock News – Updates on INTC, LRCX, KLIC, COHU, STX, BLK, HPE, FL & KR
Geopolitics – Stocks Have Always Overcome Disconcerting Headlines
With drama in South Korea, France and Syria last week, we were again reminded that geopolitical headlines are something with which investors must contend, even as all prior disconcerting events on the global stage have been overcome in the fullness of time,
as downside volatility has eventually given way to even greater upside, so much so that long-term returns have been terrific, led by a 13.9% annualized return for Value stocks since the launch of The Prudent Speculator in 1977.
Value Perspective – Very Good Recent Returns; Reasonable Valuations; History Lesson
The Value indexes…and the average stock for that matter which lost 0.9%…experienced some of that downside volatility over the first trading week of December, giving back some of the sizable gains enjoyed over the last 12 months. Of course, inexpensively priced stocks have still turned in sensational absolute and relative performance numbers over the past year, even as returns for Value over the last two decades, while better than nearly all markets around the world, as well as commodities and bonds, have not been as grand as they were from 1977 through 2004.
Even better, in a market environment where many are worried about too much investor euphoria,
Econ Data – Solid GDP Growth Still the Forecast
not to mention a forward P/E ratio of nearly 26 on the S&P 500, Value remains reasonably priced relative to the benchmark 10-Year U.S. Treasury on an earnings yield (the inverse of the P/E ratio) basis,
with our broadly diversified portfolios of what we believe to be undervalued stocks even more attractively priced on most valuation metrics than nearly all the major market averages.
No doubt, this allows us to sleep much better at night, especially considering that today appears to be about as good a time as it was in the year 2000 for a renaissance of Value relative to Growth,
and the forward 3-, 5-, 7-, 10- and 20-year return comparisons back then were dramatic in favor of Value.
Fed – Odds of Fed Rate Cuts Rise; Stocks have Performed Well, on Average, whether Fed is Tightening/Easing
There can never be any assurance that Value will outperform or that stocks in general will continue their recent advance, but corporate profits, which equity prices historically have followed, are likely to continue to grow in 2025,
and the latest batch of economic data supports the current projection from the Atlanta Fed for real (inflation-adjusted) GDP expansion in Q4 2024 of a very solid 3.3%.
Indeed, the Institute for Supply Management’s (ISM) measure of manufacturing activity for November rose to 48.4, nicely higher than expectations and up from 46.5 in October,
while the important monthly jobs report saw a better-than-forecast 227,000 net new nonfarm payrolls created last month,
with wage growth ticking up modestly to 4.0% on a year-over-year basis.
True, the ISM Services Index pulled back in November to 52.1, down from 56.0 in October and well below projections, as potential tariffs were a concern of those surveyed,
and the unemployment rate last month inched up to 4.2%,
but the latest report on job openings saw a much-better-than-estimated tally of 7.744 million,
while first-time filings for unemployment benefits in the latest week of 224,000 continued to reside near multi-generational lows,
and the first read for December on consumer sentiment from the Univ. of Michigan rose to 74.0, topping expectations and climbing from 71.8 in November.
Rates – Stocks Have Performed Fine, on Average, whether 10-Year Yield is Rising/Falling
Certainly, market participants have eyes on the upcoming December 17-18 FOMC Meeting, with bettors in the futures arena wagering more heavily last week that Jerome H. Powell & Co. will continue to cut their target for the Fed Funds rate as the latest odds are banking on a 4.37% implied rate at the end of this year and 3.69% at the end of 2025.
A friendly Fed (i.e. one that is easing monetary policy) typically has been more favorable for near-term equity prices, but stocks have performed fine, on average, either way,
and the same can be said for whether yields on the 10-Year U.S. Treasury are rising or falling,
with the 5% advance in the Russell 3000 Value index since September 17, the date the Federal Reserve initiated its current rate-reduction cycle, despite a spike up, yes up, in the yield for the benchmark government bond illustrating the point.
Seasonality – Most Wonderful Time of the Year
So, in summary, while we realize that downturns, pullbacks, corrections and even Bear Markets are always part of the process, we retain our enthusiasm for equities going forward, as the long-term trend in stock prices is higher and the longer we hold the greater the chance of enjoying favorable returns,
while corporate profits are healthy, the economy is in decent shape, the Federal Reserve is likely to remain accommodative for the foreseeable future and we continue to reside in the seasonally-stronger six-month period,
with December and January (along with November) the most wonderful time of the year.
Stock News – Updates on ten stocks across seven edifferent sectors
