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, an economic update, reasons for optimism 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
Historical Perspective – Stocks Have Persevered Through Plenty of Disconcerting Events
Interest Rates – Treasury Yield Not High by Historical Standards; Rising Rates Historically Not Bad for Equities, On Average
Econ Update – LEI and PMIs Negative; Retails Sales and Employment Positive; Strong Q3 GDP Growth Expected
Reasons for Optimism – Corporate Profits & Calendar
Stock News – Updates on sixteen stocks across five different sectors
Historical Perspective – Stocks Have Persevered Through Plenty of Disconcerting Events
What began as a very promising market week ended with a thud as stocks suffered three miserable days in a row. Value did hold up better than Growth, but the average stock was down well more than 2% for the five days, pushing the majority of stocks into the red on the year. In fact, the average constituent of the Russell 3000 index is now off 5.02% on a total-return basis in 2023.
No doubt, the terrible events in Gaza and Israel are weighing on the equity markets,
while we can’t forget the ongoing war in Ukraine,
even as we continue to keep our emotions in check while focusing on the long-term rewards associated with stocks.
Interest Rates – Treasury Yield Not High by Historical Standards; Rising Rates Historically Not Bad for Equities, On Average
To be sure, the jump in the yield on the 10-Year U.S. Treasury weighed last week, with the flirtation with the 5% level on Thursday a stiff headwind for traders,
even as the current benchmark government bond rate of 4.91% is still well below the historical norm of 5.84% since the launch of The Prudent Speculator in 1977.
Further, there are years of evidence that show that stocks have performed fine, on average, whether interest rates are rising or falling. What’s more, Value actually prefers higher rates to lower rates, again on average,
while valuations for the kind of stocks we have long favored remain attractive relative to interest rates and their historical norms,
and our broadly diversified portfolios of what we believe to be undervalued stocks are even more appealingly priced.
Econ Update – LEI and PMIs Negative; Retails Sales and Employment Positive; Strong Q3 GDP Growth Expected
We respect that many are worried about the health of the U.S. economy, as the latest forward-looking Leading Economic Index (LEI) reading from the Conference Board came in below expectations,
and October readings on the health of the factory sector on the East Coast were in the red,
but retail sales grew a much-better-than-expected 0.7% last month,
and the number of first-time filings for unemployment benefits dropped to 198,000 in the latest week, the fewest since January and near multi-generational lows.
And, though the odds of recession in the next 12 months, as tabulated by Bloomberg, continued to reside at a very elevated 55%,
the latest estimate for Q3 GDP growth from the Atlanta Fed stood at an extremely robust 5.4%.
True, many are worried that the Federal Reserve will hike interest rates further, but the Fed Funds futures market actually saw a slight reduction in the bets last week for the year-end 2023 and 2024 benchmark level versus the week prior.
We might add that Q3 corporate profit reports have been good thus far, with 74.4% of the S&P 500 members to have announced results topping bottom-line expectations, and most thinking EPS will continue to grow handsomely into 2024.
Reasons for Optimism – Corporate Profits & Calendar
As we constantly state, we are braced for additional equity market downside, but we see no reason to alter our long-term enthusiasm for stocks, especially as we are now just one week away from the start of the seasonally favorable six months of the year.
Stock News – Updates on sixteen stocks across five different sectors
