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, economic news, valuations, volatility 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.
Newsletter Trades – One Transaction for 1 Portfolio
Week in Review – Dow Unchanged; Average Stock Sinks
Interest Rates – Yields Jump on Renewed Inflation Worries; Higher Rates Haven’t Injured Stocks Historically
Econ News – Mixed Numbers but Solid EPS Growth in ’24 and ’25 Still the Forecast
Valuations – Value Stocks Attractively Priced
Sentiment – Lots of Optimism
Volatility – The Longer the Hold the Lower the Risk of Loss
Stock News – Updates on six stocks across six different sectors
Week in Review – Dow Unchanged; Average Stock Sinks
It was a dismal five days for the average stock in the Russell 3000 index, pushing the median return for constituents of all three Russell indexes into negative territory for the year.
Though history shows that rising interest rates have not led to negative returns for equities, on average,
Interest Rates – Yields Jump on Renewed Inflation Worries; Higher Rates Haven’t Injured Stocks Historically
and the big rise in the yield of the benchmark government bond over the last 3.5 years has been bad only for bonds,
we realize that the 10-Year U.S. Treasury skidded in price last week, sending the yield sharply higher.
Econ News – Mixed Numbers but Solid EPS Growth in ’24 and ’25 Still the Forecast
The catalyst for the rise in bond yields was hotter-than-expected inflation numbers as the Consumer Price Index (CPI) rose 3.2% in February (est. 3.1%), up from 3.1% in January,
with the core CPI (excludes food and energy) climbing 3.8% (est. 3.7%), down from 3.9% the month prior.
The Producer Price Index also came in well above expectations, with inflation at the wholesale level rising to 1.6% in February (est. 1.2%), significantly above January’s unusually low level of 0.9%.
The inflation news led to a sizable shift in the odds for the timing and pace of expected cuts in the Fed Funds rate, with the futures market now projecting a 4.61% year-end rate, a sizable increase from the 4.38% betting one week ago.
Of course, longer-term inflation expectations remained unchanged this month at a 2.9% rate in the latest Univ. of Michigan survey,
while other economic data out last week was relatively subdued, whether it was the preliminary Univ. of Michigan Sentiment gauge for March dipping to 76.5 (est. 77.1) from 76.9 in February,
the NFIB Small Business Optimism measure for February dropping to 89.4 (est. 90.5) from 89.9 the month prior,
retail sales rising 0.6% last month, up from a drop of 0.8% in January, but below projections of a 0.8% advance,
or the Empire State Manufacturing Survey tumbling to a reading of minus 20.9, down from minus 2.4 in January and below forecasts of minus 7.0.
On the other hand, first-time filings for unemployment benefits in the latest week fell to a lower-than-expected and near-multi-generational-low level of 209,000,
the Atlanta Fed’s estimate of Q1 U.S. real (inflation-adjusted) GDP growth stood at 2.3%,
the chance of recession in the next 12 months, per tabulations from Bloomberg, held steady at 40%,
and earnings estimates continuing to call for solid growth this year and in 2025.
Valuations – Value Stocks Attractively Priced
Not surprisingly, nothing we saw last week alters our favorable view for the long-term prospects of our broadly diversified portfolios of what we believe are undervalued stocks, especially as our valuation metrics, on average, are even more attractive than those of the Value indexes,
with a benchmark like the Russell 3000 Value still very much reasonably priced on an earnings-yield basis,
as are Value stocks in general on a Price-to-Earnings basis.
Sentiment – Lots of Optimism
We realize that there remains a lot of enthusiasm for the near-term prospects for equities (arguably a contrarian negative), given the high level of Bullishness in the latest weekly AAII Investor Sentiment Survey,
but 37 years of market history supports sticking with stocks no matter the mood of Main Street,
as time in the market trumps market timing,
Volatility – The Longer the Hold the Lower the Risk of Loss
and short-term setbacks always have been overcome in the fullness of time, so much so that long-term returns for Value and Dividend Payers have been terrific.
Stock News – Updates on nine stocks across six different sectors
