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, Valuations, Economic News 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 – 10 Buys for 4 Portfolios
Measuring Stick – Wild Intraday and Daily Gyrations but Little Change for the Week
Wizard of Wharton – Siegel Makes Headlines, but Data Do Not Support Argument for Emergency Fed Rate Cut
Econ Update – Inflation Down, Unemployment Up, Solid GDP Growth Still the Forecast
Fed – Rate Cuts Expected…Starting in September
Volatility – Downturns and Corrections not Unusual but Long-Term Trend is Up
EPS – Corporate Profit Growth Outlook Now Even More Favorable
Valuations – Plenty of Undervalued Stocks
Stock News – Updates on GOOG, TSN, CAT, TAP, AMGN, DVN, MOS, HMC, ZBH, CVS, DIS, SIEGY & NTR
Measuring Stick – Wild Intraday and Daily Gyrations but Little Change for the Week
Depending on the measuring stick, the week just ended was one of those most or one of the least volatile for U.S. stocks in history. Those watching tick by tick would have seen their hearts race with wild gyrations in the S&P 500, sending that popular index skidding and soaring and sinking and rising. However, those looking at the S&P on a weekly basis would have wondered what all the fuss was about, given a very small change for the full five days of just minus 0.04%.
We realize that Japanese stocks suffered their worst one-day percentage decline since the Crash of ’87 on Monday, and then soared more than 12% off the lows by the end of the week, so we respect that emotions are hard to keep under control when stock prices are enduring wide swings. We know that anything can happen as we go forward, but we always like real-time examples that support our oft-stated argument that time is a great risk mitigation tool. After all, the long-term evidence clearly shows that the longer stocks are held the less the chance of loss.
Wizard of Wharton – Siegel Makes Headlines, but Data Do Not Support Argument for Emergency Fed Rate Cut
Of course, we understand that it isn’t always easy to keep the long-term faith, especially when even Jeremy Siegel, one of your Editor’s investment heroes, was caught up in the sensationalistic media environment. Incredibly, the Wizard of Wharton argued for an emergency 75-basis-point cut in the Fed Funds rate when equity futures were deep in the red early Monday morning,
which certainly looked like an extreme miscalculation at week’s end with the benefit of 20-20 hindsight, as both the Institute for Supply Management’s gauge of activity in the Services sector (a much bigger part of the U.S. economy than the Manufacturing sector) for July rose to a better-than-expected reading of 51.4, up from 48.8 in June,
Econ Update – Inflation Down, Unemployment Up, Solid GDP Growth Still the Forecast
and first-time filings for unemployment benefits in the latest week declined to a lower-than-expected 233,000, down from a revised 250,000 the week prior, continuing to reside near multi-generations lows, despite the growth of the work force over the last half century.
To be fair to Mr. Siegel and others who think Jerome H. Powell & Co. should have cut interest rates already, there has been tremendous progress made on inflation over the last two years,
while the rise in the unemployment rate for July to 4.3%,
was above the Fed’s projections for each of 2024, 2025, 2026 and the long run,
Fed – Rate Cuts Expected…Starting in September
so lower rates definitely are in the cards, with at least a 25-basis-point reduction in the Fed Funds rate at the September FOMC meeting very likely, at least according to the futures market betting odds, and a substantially lower range than the current 5.25% to 5.50% expected next year.
Time will tell whether a so-called soft economic landing will be pulled off, but that is still very much a possibility, with the latest estimate out on Thursday for real (inflation-adjusted) Q3 U.S. GDP growth (yes, growth) residing at 2.9%,
and the odds of recession in the next 12 months, per calculations from Bloomberg continuing to stand at a relatively low 30%.
Volatility – Downturns and Corrections not Unusual but Long-Term Trend is Up
Understanding that equity market volatility is hardly unusual, with 10% corrections in the S&P 500 happening more often than many might think,
and the latest 7.5% drop in that benchmark having occurred 162 times since 1928, we offer the reminder that stocks have proved very rewarding in the fullness of time,
for those who remember that the only problem with market timing is getting the timing right!
True, media headlines today are not so grand, but this often is par for the course, with stocks having overcome numerous disconcerting events over the turbulent last 15 years to post terrific long-term returns.
EPS – Corporate Profit Growth Outlook Now Even More Favorable
No guarantees that past is prologue, of course, and we expect equity prices to remain on a roller-coaster ride for the foreseeable future, but we note that despite the worry about the strength of the economy last week, the outlook for corporate-profit growth actually improved from the week prior,
while history suggests it is a favorable environment for Value and Dividends when the Fed is easing monetary policy.
And for those worried that equities are expensive, we note that the average stock this year has not gained much ground,
while the Value indexes are still attractively priced on an earnings basis,
Valuations – Plenty of Undervalued Stocks
with the valuations on the holdings in our diversified portfolios of what we believe are undervalued stocks even more appealing.
Stock News – Updates on thirteen stocks across ten different sectors
