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 Inflation, Market of Stocks, Economic Outlook 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.
Webinar Overflow – Additional Buckingham Q&A
Week in Review – Plenty of Volatility, but Little Change in the Dow
Inflation – PCE In Line with Expectations
Interest Rates – Jump in 10-Year Yield Last Week; Yields Still Low by Historical Standards
Value – Inexpensive Relative to Growth
Market of Stocks – Average member of the Rusell 3000 Down on the Year
Long-Term Catalysts – EPS & GDP Have Grown Over Time
Econ Outlook – OK GDP Growth Expected
Volatility – Scary Headlines & Plenty of Gyrations Along the Way but Long-Term Trend is Up
Sentiment – Only Problem with Market Timing is Getting the Timing Right
Stock News – Updates on VWAPY, WHR, IP, AYI, FDX, MU & Banks
Webinar Overflow – Additional Buckingham Q&A
We hope readers found our Ask Me Anything (AMA) webinar with The Prudent Speculator Editor John Buckingham valuable. We fielded more than two dozen subscriber and client questions and discussed a wide array of topics including Value investing, bonds and our interest in foreign stocks. The slide deck and the replay are available in the Special Reports section of the Member Portal: https://theprudentspeculator.com/member-portal/#tab-317267.
We welcome your feedback (info@theprudentspeculator.com) on the value of the AMA webinars and how they might be improved.
Alas, we did not have time to get to all questions on the webinar, so we offer written responses to those remaining queries.
Question – Why haven’t there been any new “picks” in the last several months in The Prudent Speculator?
As we suspect that few readers own every stock on our recommended list, we would argue that there are new “picks” in each issue, even as they may not be first-time selections. Of course, while we update our quantitative data daily, revise Target Prices frequently and keep close watch over the universe of stocks, they are always designed to be held for their long-term, multi-year appreciation potential, so it should not be unexpected that they may repeat as Portfolio Builder selections.
To be sure, every stock is fighting for a position in our broadly diversified portfolios, so we are always in search of new ideas that might offer greater appreciation potential relative to the risk inherent in the investment, but patience is a key component of our investment success. We note that stocks like Apple (AAPL – $210.62) and JPMorgan Chase (JPM- $202.26) have been on our recommended list for more than two decades, so we suspect readers have no complaints about seeing the duo month after month and year after year, even as we realize that other long-time holdovers like Intel (INTC – $30.97) and Archer-Daniels Midland (ADM – $60.45) have been far less successful.
We also find that underappreciated Value stocks often don’t have their time in the sun right away, making them candidates for bring-ups rather than trims or sales. Happily, our winners historically have won more than our losers have lost, so we are willing to stick with our stocks far longer than most.
Question – Do you ever pick overvalued stocks to short?
Certainly, there are stocks we prefer not to own, but we do not short stocks. The problem, as some prominent hedge-fund managers have learned (think the movie Dumb Money), is the upside on a short sale is limited to 100% while the downside is infinite. Further, there is often a fee charged by a custodian to borrow shares to short, and we know that markets can stay irrational longer than some can stay solvent.
Question – Are there any sectors or industries that are especially attractive today?
We do not necessarily favor a specific stock or industry, as we always advocate broad diversification, but we are usually partial to areas of the market that have temporarily, we believe, headed south. Currently, those would include stocks in the Consumer Discretionary, Real Estate, Materials and Health Care sectors.
Note, too, that there are broad themes that underpin many of our investments. We offered those most recently in our 2024 Outlook and will have a mid-year update posted in the next couple of weeks.
Question – I have cash on the sidelines earning more than 5%, why would I want to move any of it into more stocks after the market run-up? I just keep reading that markets are overvalued.
Your time horizon should be a primary determinant of your allocation. If you need the money soon, then keep the cash (or utilize a shorter-term bond ladder). If the money is for several years down the road or more, then the near-term worries shouldn’t be a driving factor. After all, the best time to invest is today. We offered several charts and tables about investing at market highs in our Dow 40,000 Special Report, which is available in the Special Reports section of the Member Portal.
Question – You obviously like stocks – what percentage of an investment allocation do you think should be in equities?
The optimal percentage of your liquid worth allocated towards equities will be unique to you. In our financial planning work (which we think is the foundation to successful wealth generation), we partner with our clients to configure their asset allocation and select investments that are expected to best suit their goals, risk tolerance and individual circumstances.
Week in Review – Plenty of Volatility, but Little Change in the Dow
As is always the case, the final week of the second quarter saw stocks gyrate up and down, with the Dow Jones Industrial Average traversing a more than 650-point trading range, but when all was said and done, the major market averages, including the Dow, showed little in the way of change.
Inflation – PCE In Line with Expectations
We might argue that a relatively quiet finish to the first half of the year made sense, given that the big economic number of the week, the Core Personal Consumption Expenditure (PCE) for May, came in as expected with a 2.6% increase, down from a rise of 2.8% in April.
The PCE is the Federal Reserve’s preferred measure of inflation, and the May tally actually was below the 2024 projection of 2.8% provided by Jerome H. Powell & Co. just a few weeks ago,
but the news did little to alter the betting on the timing of Fed interest rate cuts,
Interest Rates – Jump in 10-Year Yield Last Week; Yields Still Low by Historical Standards
while government bond investors reacted by dumping Treasuries and pushing the yield on the benchmark 10-Year to 4.40%, up from 4.26% a week ago and 3.88% at the start of 2024.
Of course, interest rates actually remain low by historical standards
which we think supports the case for equities, especially those of the Value persuasion,
Value – Inexpensive Relative to Growth
as we note that inexpensive stocks are much more reasonably priced today than their growth counterparts relative to where they historically have traded,
while the divergence in returns for the Russell 3000 Value and Growth indexes is even wider today than it was when the Tech Bubble burst in the year 2000,
with that dynamic reversing to a spectacular degree over the ensuing 7 years.
Market of Stocks – Average member of the Rusell 3000 Down on the Year
While the price- and capitalization-weighted equity indexes ended the first half of 2024 with solid gains, “little change” was the phrase to use for the average stock in the broad-based Russell indexes, which hovered around breakeven over the first six months of the year. Believe it or not, the proverbial monkey throwing darts at the Russell 3000 membership would have been just as likely to pick a winner as a loser,
Long-Term Catalysts – EPS & GDP Have Grown Over Time
even as corporate profits have increased,
Econ Outlook – OK GDP Growth Expected
as the U.S. economy has grown on a nominal and a real (inflation-adjusted) basis.
To be sure, the health of the economy going forward is always a question mark, but the Atlanta Fed’s latest estimate for Q2 real GDP growth resided at a decent 2.2%,
as personal income in May topped expectations with a 0.5% rate of growth
and consumer spending rose 0.2%,
with the job market continuing to hold up remarkably well.
Volatility – Scary Headlines & Plenty of Gyrations Along the Way but Long-Term Trend is Up
So, we remain optimistic about the long-term prospects for equities in general and our broadly diversified portfolios of what we believe to be undervalued stocks in particular,
while we continue to stay unemotional about the disconcerting headlines with which we will inevitably contend,
as history shows that there have been handsome rewards for those who can stomach bouts of sometimes frightening volatility.
Sentiment – Only Problem with Market Timing is Getting the Timing Right
We respect that many will endeavor to time their movements into and out of stocks, but the problem is that far too many are Bullish before a big decline and Bearish ahead of a big rally. Indeed, data from the American Association of Individual Investors (AAII) vividly illustrates that folks on Main Street are not very good market timers, based on how they respond in the Bull-Bear Sentiment Survey each week
but the latest more-optimistic AAII read doesn’t provide much concern,
especially as data compiled over the last three decades from DALBAR on mutual fund returns confirms that time in the market trumps market timing, whether it is stocks or bonds!
Stock News – Updates on six different sectors and banks
