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 the The Case for Value, EPS Outlook, Interest Rates 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.
Buckingham European Train Journey – Value Crushed Growth Last Week
The Case for Value – Reasonable Valuations, Return Gap vs. Growth & Historical Propensity for Outperformance
EPS Outlook – Solid GDP Supports Corporate Profit Growth
Fed – Powell Dovish on Capitol Hill
Inflation – Lower-than-Expected CPI Numbers
Interest Rates – Fed Rate Cuts More Likely; 10-Year Yield Drops
Volatility – Scary Headlines & Plenty of Gyrations Along the Way but Long-Term Trend is Up
Stock News – Updates on AAPL, GLW, GBX, C, BK & JPM
Buckingham European Train Journey – Value Crushed Growth Last Week
Indeed, while we have been asserting that Value stocks like those that we have long favored are very much reasonably priced relative to interest rates,
The Case for Value – Reasonable Valuations, Return Gap vs. Growth & Historical Propensity for Outperformance
and certainly relative to their Growth counterparts on historical earnings multiples,
it was very nice to see the Russell 3000 Value index outperform the Russell 3000 Growth index by some 300 basis points last week, especially as there is plenty of room for the trend to continue just to get back to equilibrium,
much less see Value reassert its long-term propensity for superior returns.
No doubt, a Value renaissance has occurred before, though unlike the often-profitless Dot.com companies that fueled the Tech Bubble, the current A.I.-infused euphoria has been led by mega-cap tech stocks that seem to be minting money.
Time will tell whether Growth stocks will live up to the expectations built into their lofty valuations, but we sleep very well at night with the attractive price tags and income generation potential of the baskets of stocks we own in our broadly diversified portfolios,
EPS Outlook – Solid GDP Supports Corporate Profit Growth
especially given that corporate profits are likely to remain healthy,
with decent GDP growth,
and a solid labor market, with near-multi-generational lows in first-time filings for unemployment benefits.
Fed – Powell Dovish on Capitol Hill
Of course, it also didn’t hurt last week that Jerome H. Powell said on Capitol Hill, “In light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”
He added “The U.S. economy continues to expand at a solid pace,” despite a deceleration in GDP growth. “Private domestic demand remains robust, however, with slower but still-solid increases in consumer spending.”
Those comments from the Federal Reserve Chair preceded positive news on inflation when the consumer price index (CPI) for June unexpectedly dipped to a 3.0% annualized rate of growth, down from 3.3% in May and below forecasts for a 3.1% advance,
Inflation – Lower-than-Expected CPI Numbers
while the core CPI (excludes volatile food and energy prices) came in at a 3.3% increase, compared to estimates of 3.4% and May’s reading of 3.4%.
Mr. Powell’s optimism on the progress that has been made on inflation was echoed by longer-term inflation expectations dropping to 2.9% in the latest University of Michigan survey,
Interest Rates – Fed Rate Cuts More Likely; 10-Year Yield Drops
which improved the odds of Fed rate cuts, as measured by the futures market betting that the year-end Fed Funds rate will decline to 4.70%, down from 4.82% the week prior,
and helped send the yield on the benchmark 10-year U.S. Treasury down to 4.18% from 4.28% last week.
Volatility – Scary Headlines & Plenty of Gyrations Along the Way but Long-Term Trend is Up
Certainly, we realize that one week does not a trend make, and we understand that there are plenty of possible headlines that could send stocks lower in the short run, while downside volatility is always part of the investment equation, but we continue to be enthusiastic about the prospects for Value in the long run.
Stock News – Updates on six stocks across four different sectors
