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, Earnings, A.I technology, Valuations 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.
TPS Income Stock Webinar – Tuesday, February 27, 11:00 AM Pacific
Trades – 5 Sales Across 4 Accounts
Interest Rates – FOMC Minutes Suggest Cuts Coming Later Rather than Sooner
Economy – No Recession Now the Prediction
Earnings – Solid Profit Growth Likely in 2024
A.I. – 9 Intelligent Ways to Play
Valuations – Average Stock Down in ’24; Value Stocks Attractively Priced
Sentiment – AAII Still Optimistic
Stock News – Updates on COF, MDT, WMT, CE, DINO, MOS, NTR, AXAHY, MRNA, EOG, WKC & ALIZY
Interest Rates – FOMC Minutes Suggest Cuts Coming Later Rather than Sooner
With only a few economic numbers out during the holiday-shortened trading week, plenty of attention was paid to the release on Wednesday of the Minutes of the January FOMC Meeting. The Minutes included, “Most participants noted the risks of moving too quickly to ease the stance of policy,” even as, “They viewed that there had been significant progress recently on inflation returning to the committee’s longer-run goal.”
The knee-jerk response in the markets that day sent stock prices skidding and bond yields jumping,
reflecting renewed concerns that Jerome H. Powell & Co. might not be inclined to reduce interest rates as quickly as thought, even as history suggests no correlation between near-term stock-price moves and changes in the Fed Funds rate,
or the yield on the 10-Year U.S. Treasury.
Indeed, about the only thing that can be said with certainty in regard to equities and fixed income is that rising bond yields (and falling bond prices) are not good for bond investors.
When all was said and done for the trading week, the year-end target for the benchmark central-bank lending rate in the Fed Funds futures market ended at 4.51%, up from 4.43% the week prior and 4.20% the week before that,
with the betting odds now more in line with the 4.6% projection made two months ago by Federal Reserve Board members and Federal Reserve Bank presidents.
Economy – No Recession Now the Prediction
Interestingly, traders seem also to be coming around to the Fed’s forecast for modest GDP growth in 2024, as the odds of recession in the next 12 months tabulated by Bloomberg dropped to 40% last week,
and the keeper of the Leading Economic Index changed its tune from a recession call this year last month to no recession this month.
Obviously, there is a long way to go and anything can happen over the next 10 months, but the economy continues to hold up remarkably well, with first-time filings for unemployment benefits in the latest week continuing to reside near multi-generational lows,
existing home sales coming in better than expected,
and the Atlanta Fed’s prediction for real (inflation-adjusted) Q1 U.S. GDP growth standing at 2.9%.
Earnings – Solid Profit Growth Likely in 2024
Not surprisingly, the outlook for corporate profits remains healthy, with higher earnings a major driver of higher stock prices throughout history.
A.I. – 9 Intelligent Ways to Play
And speaking of earnings, we respect that last week’s equity market turnaround that propelled the major market averages to new all-time highs was due in large part to a sensational report card turned in and forward guidance offered by Nvidia. While the A.I. darling remains much too richly priced for our taste at 61 times trailing earnings and 32 times sales, we are not unhappy to see some of our stocks riding Nvidia’s coattails.
As we wrote back in December in our 2024 Stock Market Outlook Special Report:
In many ways, we’ve found ourselves at the right place at the right time with some A.I. picks, thanks in large part to another theme for the last decade or so, cloud computing. We have long liked companies like Microsoft (MSFT), Apple (AAPL), Alphabet (GOOG) and Meta Platforms (META), who are scaling up their A.I. offerings with plans to generate additional revenue. We believe smaller-company names like power management concern Eaton (ETN) and data center REIT Digital Realty (DLR) also stand to benefit from widespread A.I. adoption.
Chipmaking giant Intel (INTC) has been somewhat left behind in the A.I. discussion, but shares soared more than 70% from January through November, after quarterly check-ins showed that CEO Pat Gelsinger & Co may have finally reversed fortunes for the former market leader. Happily and in addition to turnaround work, Intel’s roadmap includes new chips specifically designed for A.I. and Nvidia has publicly stated that Intel is in the running to produce future generations of Nvidia graphics chips (GPU), which would diversify the company’s manufacturing exposure and improve GPU supplies. And speaking of manufacturing, we also like semiconductor capital equipment makers Lam Research (LRCX) and Kulicke & Soffa (KLIC).
Valuations – Average Stock Down in ’24; Value Stocks Attractively Priced
Of course, the rising A.I. tide has not lifted all boats. In fact, the median member of all three Russell indexes actually is in the red on a total-return basis so far in 2024,
which certainly doesn’t hurt the valuation argument for inexpensively priced stocks in general,
and many members of our broadly diversified portfolios of what we believe to be undervalued stocks in particular,
while we like what history has to say for Value vs. Growth on an equal-weighted (non-capitalization-weighted) basis.
True, we must always be braced for downside volatility,
Sentiment – AAII Still Optimistic
and Main Street is still optimistic about the prospects for stocks over the next six months,
but just about every way historical precedents may be sliced and diced supports sticking with equities through thick and thin.
Stock News – Updates on twelve stocks across
