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, Corporate Profits 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.
TPS Webinar – Buckingham & Clark, October 30: 11:00 AM Pacific/2:00 PM Eastern
Newsletter Portfolio Trades – Trimmed AAPL
Trading Week – Stocks Retreat
Sentiment – Bullishness Slumps & Bearishness Rises
Volatility – Ups and Downs but Long-Term Trend Has Been Up
Profits – Favorable EPS Outlook
Econ Outlook – Mixed Stats, but Solid GDP Growth the Forecast
Valuations – Value Stocks Reasonably Priced
Interest Rates – Yields have Jumped; Stocks Haven’t Minded Historically, on Average
Headlines – Stocks Always Have Overcome Disconcerting News in the Fullness of Time
Stock News – Updates on GM, MMM, VZ, LMT, NSC, STX, WHR, NEM, IBM, GBX, UPS, DLR, WKC & NYCB
Trading Week – Stocks Retreat
While logic would suggest that stock prices becoming less expensive should make folks more enthusiastic about future returns, history shows that investors on Main Street often see the Wall Street glass quickly tip from half full to half empty when equities have headed south. Such was the case last week as the major market averages moved lower, with stocks led to the downside by the Dow Jones Industrial Average, which shed more than 1,150 points, or 2.7%.
Sentiment – Bullishness Slumps & Bearishness Rises
Though the popular benchmark remains more than 2000 points above the recent September 11 low, the weekly Bull-Bear readings from the American Association of Individual Investors (AAII) saw a retreat in optimism and an advance in pessimism,
which should put more of a bounce in the step of those who have studied this contrarian sentiment gauge and subsequent equity returns.
Volatility – Ups and Downs but Long-Term Trend Has Been Up
Stocks arguably were due for a breather after the seasonally less favorable September-October period had seen the major market averages buck the long-term numbers dating back to the launch of The Prudent Speculator in 1977,
and we never forget that volatility is always a part of the investment process, with superb long-term returns of 14.0% per annum over the past 47 years achieved despite 104 setbacks of 5% or more without an intervening rally of the same magnitude along the way.
Despite numerous downward moves along the way, stock prices have risen over time as shareholder rewards have grown, be they returns of capital via increased dividend payouts,
Profits – Favorable EPS Outlook
or simply improved bottom lines, which we have been seeing over the last couple of weeks, on average, during the current earnings reporting season, with Standard & Poor’s now estimating that profits for the S&P 500 will rise to $58.98 in Q3 2024, up from $52.25 in Q3 2023.
Econ Outlook – Mixed Stats, but Solid GDP Growth the Forecast
Of course, markets are always forward looking, so we like that projections for the balance of 2024 and 2025 call for solid EPS growth, which shouldn’t be a surprise given Federal Reserve estimates out last month calling for 2.0% real (inflation-adjusted) U.S. GDP growth both this year and next,
and expectations out last week from the International Monetary Fund for global GDP growth of better than 3% in both years.
Last week’s batch of economic stats did nothing to alter the OK-economic-growth outlook as the Atlanta Fed is presently forecasting 3.3% real U.S. GDP growth for Q3,
first-time filings for unemployment benefits in the latest week dipped to 227,000 from a revised 242,000 the week prior,
new home sales for September of 738,000 beat estimates and rose from a revised 709,000 in August,
and the final read on consumer sentiment for October, per the Univ. of Michigan, ticked up to a figure of 70.5, above the consensus prediction of 69.0.
To be sure, all the news on the economic front was not positive, as sales of existing homes in September fell to 3.84 million, down from a revised 3.88 million in August,
and the important Leading Economic Index from the Conference Board dropped a worse-than-expected 0.5% last month, but the keeper of that gauge still expects “moderate growth at the close of 2024 and into early 2025,”
while the odds of recession, as tabulated by Bloomberg, fell to 25% last week, down from 30% the last several months and well below much higher estimates in 2023 and early-2024.
Valuations – Value Stocks Reasonably Priced
Not surprisingly, we remain optimistic about the long-term prospects for equities in general, especially Value stocks, which still trade for reasonable valuations,
while we continue to like how the metrics on our broadly diversified portfolios of what we believe to be undervalued stocks compare to the market averages.
Interest Rates – Yields have Jumped; Stocks Haven’t Minded Historically, on Average
True, anything can happen as we move forward, and we note that long-term government bond yields have marched steadily higher (their price has fallen) since Jerome H. Powell & Co. cut the Fed Funds (short-term) rate by 50 basis points (0.50%) five-plus weeks ago,
but stocks have performed fine, on average, whether interest rates are rising or falling,
or whether the Federal Reserve is easing or tightening monetary policy.
Headlines – Stocks Always Have Overcome Disconcerting News in the Fullness of Time
No doubt, there is plenty about which to be concerned on the global stage, as tensions in the Middle East have ratcheted higher, but history shows that long-term-oriented investors should stay the course during Arab-Israeli conflicts,
while stocks have overcome all previous scary events in the fullness of time.
Stock News – Updates on sixteen stocks across nine different sectors
