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 growth, stock news, interest rates, valuations 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
Week In Review – Plenty of Volatility; Modest Gains for Value
Miracle of Compounding – Small Gains Add Up Over Time
Econ Stats – More Good News than Bad
Interest Rates – 10-Year Yield and Odds of a Hike in the Fed Funds Rate Rise
Inflation – Longer-Term Expectations Retreat; CPI & PPI Modestly Above Projections
Valuations – Liking the Metrics Associated with our Portfolios
Growth – Stock Prices, GDP and Corporate Profits Have Increased Over Time
Stock News – Updates on fifteen stocks across
Week In Review – Plenty of Volatility; Modest Gains for Value
As all eyes are on this week’s FOMC Meeting September 19-20, the major market averages ended the most-recent five trading days on a down note, continuing a less-than-grand stretch for stocks during the seasonally less favorable time of year.
Miracle of Compounding – Small Gains Add Up Over Time
Happily, the Value indexes managed gains last week. Of course, the 0.37% uptick in the Russell 2000 Value index and the 0.46% advance for the Russell 3000 Value index don’t sound that great, but those returns annualize to 21.17% and 26.95%, respectively. To be sure, average yearly equity returns historically have not come close to those figures, but substantial wealth can accrue over time even with relatively modest gains. Time and patience can lead to the Miracle of Compounding.
Econ Stats – More Good News than Bad
We would argue that the renewed interest in Value was due to the release of relatively upbeat economic data last week as retail sales rose 0.6% in August, well above expectations for a 0.1% increase. True, much of the gain was due to higher prices at the pump, but sales excluding autos and gas climbed 0.2%, topping forecasts of a -0.1% dip.
The consumer remains in relatively good shape, with the labor market also continuing to see healthy numbers, as first-time filings for unemployment benefits om the latest week came in at 220,000, below projections of 225,000. The near-record-low jobless figures are even more impressive when considering that the workforce has expanded over the years.
Interestingly, the mood on Main Street is less than rosy, as both the NFIB Small Business Optimism gauge for August,
and the Univ. of Michigan’s preliminary measure of Consumer Sentiment for September trailed expectations, with each currently residing well below average,
even as the latest estimate for Q3 real (inflation-adjusted) U.S. GDP growth from the Atlanta Fed stood at an impressive 4.9%.
With the August reading on Industrial Production and the September Empire Manufacturing PMI both topping estimates,
Interest Rates – 10-Year Yield and Odds of a Hike in the Fed Funds Rate Rise
interest rates ticked up last week as the yield on the benchmark 10-year U.S. Treasury rose from 4.26% to 4.33%,
and the chances of a less accommodative Federal Reserve decreased, per the Fed Funds futures market.
Of course, the chart above shows that Fed rate cuts are expected in 2024, as the risk of recession remains elevated,
Inflation – Longer-Term Expectations Retreat; CPI & PPI Modestly Above Projections
and inflation expectations both intermediate-term and long-term remain well contained.
And speaking of inflation, the current data continue to remain a bit too hot for the Fed’s liking, with the Consumer Price Index (CPI) for August rising a slightly higher than forecast 3.7%,
even as the Core-CPI rate (excludes volatile food and energy prices) rose an as-expected 4.3%,
and pricing pressures at the wholesale level (Producer Price Index) continued to trend below the historical norm.
Valuations – Liking the Metrics Associated with our Portfolios
Obviously, Jerome H. Powell & Co. will be front and center this week as the decision on monetary policy will be announced on Wednesday, but we offer the reminder that whether the Fed is raising or lowering interest rates, stocks have performed fine, on average. This goes for performance both concurrent with and subsequent to changes in the Fed Funds rate.
So, we continue to stay the course with our broadly diversified portfolios of what we believe are undervalued stocks, though we are always braced for downside volatility.
Market history is filled with plenty of disconcerting events, yet those who remember that the secret to success in stocks is not to get scared out of them have been handsomely rewarded in the fullness of time,
Growth – Stock Prices, GDP and Corporate Profits Have Increased Over Time
as prices have appreciated as GDP has expanded,
and corporate profits have grown.
Stock News – Updates on eight stocks across ten different sectors
