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 interest rates, corporate profits, valuations 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.
Newsletter Trades – Numerous Transactions Across 4 Portfolios
Interest Rates – Yields Fall; Fed on Track to Cut Rates in the Not-Too Distant Future
Econ News – Mixed Numbers but Modest GDP Growth in ’24 Still Likely
Corporate Profits – Solid Growth this Year and Next the Forecast
Valuations – Value Stocks Attractively Priced
Sentiment – Lots of Optimism
Market of Stocks – Median Stock Still Down on the Year
Stock News – Updates on nine stocks across six different sectors
Interest Rates – Yields Fall; Fed on Track to Cut Rates in the Not-Too Distant Future
With the yield on the benchmark 10-Year U.S. Treasury dipping to 4.07%, down from 4.18% the week prior,
it would seem that bond traders took a glass-half-full view of Jerome H. Powell’s trip to Capitol Hill last week, as the betting on the year-end Fed Funds rate targeted 4.38%, down from 4.42% at the end of the preceding week.
On the subject of potential interest rate cuts, the Fed Chair told the House Financial Services Committee, “We want to see a little bit more data so that we can become confident. We’re not looking for better inflation readings than we’ve had. We’re just looking for more of them.” Of course, most are of the mind that rates will be coming down. The question is the timing and frequency of the reductions as the last Fed projections (now nearly three months old) suggested a 4.6% year-end Fed Funds rate.
Econ News – Mixed Numbers but Modest GDP Growth in ’24 Still Likely
Those Fed forecasts also called for a 4.1% unemployment rate and last week’s big labor numbers for February saw a higher-than-expected jobless figure of 3.9%,
…even as the tally of new payrolls exceeded expectations of 200,000 with an increase of 275,000.
Wage growth on a year-over-year basis of 4.3% was in line with expectations and was down from 4.5% in January, supporting the argument that inflation data continues to head in the right direction.
On the GDP side of the economic equation, the estimates from the Fed for 1.4% real (inflation-adjusted) growth this year remains reasonable. After all, the important Institute for Supply Management reading on the health of the services sector for February came in at 52.6, down from 53.4 in January and below estimates of 53.0. The keeper of the non-manufacturing gauge explained, “A Services PMI® above 49 percent, over time, generally indicates an expansion of the overall economy. Therefore, the February Services PMI® indicates the overall economy is growing for the 14th consecutive month after one month of contraction in December 2022. The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for February (52.6 percent) corresponds to a 1.2-percent increase in real gross domestic product (GDP) on an annualized basis.”
No doubt, given that the latest projection for Q1 real GDP growth from the Atlanta Fed stood at 2.5%,
…the thinking is that the economy will expand moderately as we move through the year, and the consensus is that a recession will not take place as evidenced by Bloomberg’s current tabulation of the odds of contraction this year standing at 40%.
Corporate Profits – Solid Growth this Year and Next the Forecast
Certainly, there is no recession on the horizon on the corporate profit front, at least according to current EPS projections from Standard & Poor’s for 2024 and 2025
Valuations – Value Stocks Attractively Priced
which we think bolsters the earnings/dividend yields valuation argument for reasonably priced stocks like those that we have long championed,
as well as the relative P/E ratio argument.
Sentiment – Lots of Optimism
True, some have become concerned that there is too much optimism for stocks, be it this weekend’s bullish Barron’s cover story, the CNN Fear & Greed index,
or the latest weekly AAII Investor Sentiment survey,
but 37 years of market history supports sticking with stocks no matter the mood of Main Street.
This is especially true today, in our view, as despite a solid five days of outperformance for Value stocks last week, the Russell 3000 Value index remains near its lowest relative value ever versus the Russell 3000 Growth index,
Market of Stocks – Median Stock Still Down on the Year
while the median stock this year is still in the red.
We always are braced for downside volatility as ups and downs are what investors must accept in order to achieve terrific long-term returns from equities,
but we sleep well at night with our risk mitigation efforts that include buying and patiently harvesting inexpensively priced stocks,
and maintaining a long-term time horizon.
Stock News – Updates on nine stocks across six different sectors
