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 Government Shutdowns, Value Stocks, FOMC Projections 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 Trades – 1 Sale for 2 Portfolios
Losing Streak – 14 Straight Down Days for R3KV; 10 Dailly Drops in a Row for the Dow; Historical Perspective
Government Shutdowns – Wall Street Has Not Minded Uncle Sam Closing Up Shop
Market Timing – Time in the Market Trumps Jumping In and Out
Rates – Fed Cuts Another 25 Basis Points; Big Jump in U.S. Treasury Yields; Stocks Have Performed Fine, on Average, No Matter the Direction of Rates
FOMC Projections – Fed Estimates Shift to More Closely Mirror Market Expectations on Future Rate Cuts
Valuations – Value Stocks Even More Reasonably Priced
Econ Update – Solid GDP and EPS Growth Still the Forecast
Inflation – PCE Figures Better (Lower) than Estimated; Long-Term Expectations Remain Contained
Seasonality – Most Wonderful Time of the Year
Stock News – Updates on JBL, MU, AVGO, FDX, PFE, ENS, HMC & JWN
Losing Streak – 14 Straight Down Days for R3KV; 10 Dailly Drops in a Row.
‘Twas a week before Christmas and all through the financial world, nary a bull was stirring, nor much optimism unfurled.
There was a decent bounce on Friday, but the losing streak for the Dow Jones Industrial Average hit 10 days on Wednesday, when the popular index plummeted more than 1,100 points, the 438th worst day since 1928,
with the Russell 3000 Value index (R3KV) extending its run of losses to 14 days on Thursday, the worst multi-day stretch in the history of the benchmark that was launched in July 1995.
While we know that downside volatility is not unusual, with setbacks of similar magnitude to the more-than-7.5% skid in the R3KV from 11.29.24 to 12.19.24 happening twice a year on average,
as students of market history, the natural question we would want to ask is what has happened previously when the Dow and R3KV have had runs in the red of similar duration. Happily, the performance numbers were very good, on average, for the ensuing six and 12 months.
Government Shutdowns – Wall Street Has Not Minded Uncle Sam Closing Up Shop
To be sure, trips in the southerly direction can be disconcerting as traders last week were worried in part about renewed drama in Washington over funding the government (a shutdown was averted at the last-minute late Friday evening), even as the history books suggest such an event, on average, has seen better-than-usual returns for equities over the next year,
while all previous frightening events on the domestic and global stage have been overcome in the fullness of time.
Market Timing – Time in the Market Trumps Jumping In and Out
We respect that it is always different this time as Heraclitus said, “No man ever steps in the same river twice, for it’s not the same river and he is not the same man.” Still, we find studying the past to be highly valuable as we live by the Vannevar Bush mantra, “Fear cannot be banished, but it can be calm and without panic; it can be mitigated by reason and evaluation.”
After all, investors are likely to be their own worst enemy as studies show that emotions get the best of many folks and the only problem with market timing is getting the timing right.
Rates – Fed Cuts Another 25 Basis Points; Big Jump in U.S. Treasury Yields; Stocks Have Performed Fine, on Average, No Matter the Direction of Rates
No doubt, the big news last week was the FOMC Meeting in which the Fed, as expected, lowered its target for the Fed Funds rate by another 25 basis points to a range of 4.25% to 4.50%,
FOMC Projections – Fed Estimates Shift to More Closely Mirror Market Expectations on Future Rate Cuts
with the accompanying statement indicating, “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance,” and concluding, “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
There really wasn’t anything new in the continued admonition that Jerome H. Powell & Co. will be data dependent in considering additional rate cuts, but the updated economic projections of Federal Reserve board members and Federal Reserve bank presidents had a sizable jump in the year-end 2025 and 2026 expectations for the benchmark lending rate. Indeed, the Fed now estimates a Fed Funds rate at the end of next year of 3.9%, up from 3.4% in the September forecast, and 3.4% in 2026, up from the prior 2.9%.
Those projections aren’t dramatically different than what the futures market was pricing in at the end of the preceding week as the current betting odds call for a 3.94% fed funds rate in December 2025, compared to 3.85% seven days ago,
but the yield on the benchmark 10-Year U.S. Treasury bond touched its highest level since the Fed initiated its current rate-cutting cycle three months ago.
However, the historical evidence shows that stocks have performed well in the ensuing 3-, 6- and 12-months, on average, whether the Fed is easing or tightening monetary policy,
or whether the government bond yield is rising or falling.
Valuations – Value Stocks Even More Reasonably Priced
True, lower rates should be better for equities, but the 10-Year yield is still well below its average since the launch of The Prudent Speculator in March 1977, while Value stocks are very much reasonably priced,
with our broadly diversified portfolios of what we believe are undervalued stocks even more attractive on price metrics and dividend yields.
Econ Update – Solid GDP and EPS Growth Still the Forecast
Our next-12-month P/E ratios are well below the trailing-12-month figures, which shouldn’t be a big surprise, given that corporate profits are projected to show solid growth in 2025,
with Chair Powell sounding relatively upbeat in his Press Conference remarks last week about economic prospects going forward,
Inflation – PCE Figures Better (Lower) than Estimated; Long-Term Expectations Remain Contained
as retail sales rose a better-than-forecast 0.7% in November,
real (inflation adjusted) GDP growth for Q3 2024 was revised up to 3.1% from a preliminary reading of 2.8%,
and the latest estimate for real GDP growth in Q4 from the Atlanta Fed stood at a healthy 3.1%.
Equally important, as far as the Fed is concerned, the Personal Consumption Expenditure (PCE) price index rose 2.4% in November, up from 2.3% in October but below estimates of a 2.5% increase,
with the Fed’s preferred measure of inflation, the Core PCE, also coming in below expectations with a 2.8% increase last month versus the prediction of 2.9%,
while the Univ. of Michigan’s long-term inflation expectation tally for December saw a decline to 3.0%, below the 3.1% forecast.
Seasonality – Most Wonderful Time of the Year
Not surprisingly, then, while we are braced for additional profit-taking, we see no reason to alter our optimism for the long-term prospects of equities in general and our undervalued stocks in particular. And for those with a more short-term bias, we note that the calendar suggests the holiday season is a very favorable time of year, on average, to be buying equities versus selling.
Stock News – Updates on nine stocks across seven different sectors
