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 Value Stocks, Historical Events, Volatility and Interest Rates. 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
Headlines – Not All the News is Bad
Value – 48th Best Week for R3KV Since 1995
Historical Evidence – Volatility & Disconcerting Events, but Long-Term Trend is Up
Market Timing – Only Problem is Getting the Timing Right
Calendar – First 5 Days, Seasonality, Years Ending in 5 Historical Numbers all Favorable
Corporate Profits – Healthy EPS Growth Still the Forecast
Inflation – Lower-than-Expected PPI & CPI
Interest Rates – Stocks Have Performed Fine, on Average, No Matter the Direction of Rates
Valuations – Value Stocks Remain Reasonably Priced
Stock News – Updates on BLK, BK, JPM, GS, C, PNC, BAC, MS, OZK, TFC & CFG
Headlines – Not All the News is Bad
It wasn’t quite like the weather in Hawaii where a fleeting rainstorm often gives way quickly to more sunshine, but what a difference a week makes! Indeed, after a tough first couple of weeks to the year, with several very disconcerting events,
the news turned positive on several fronts (geopolitics, corporate profits and inflation),
Value – 48th Best Week for R3KV Since 1995
and equities enjoyed a handsome rebound, led by Value stocks, with the Russell 3000 Value index jumping more than 4%,
the 48th best weekly return since that benchmark was launched in 1995.
Historical Evidence – Volatility & Disconcerting Events, but Long-Term Trend is Up
Certainly, stocks could head south as volatility is always part of the investment equation, but the long-term trend in equities historically always has been higher,
with frightening headlines always overcome in the fullness of time,
Market Timing – Only Problem is Getting the Timing Right
and those who think they can outguess market gyrations often shooting themselves in the foot,
as evidenced yet again by the preponderance of pessimism (more Bears than Bulls in the American Association of Individual Investors weekly Investor Sentiment Survey) on Main Street heading into last week’s big rally.
Calendar – First 5 Days, Seasonality, Years Ending in 5 Historical Numbers all Favorable
To be sure, we had no crystal ball that told us stocks would soar last week, but the odds tell us that the longer we hold Value Stocks and Dividend Payers, the greater the likelihood that we will make money,
while the first five days of January being positive (as they were this time around) historically bodes well for the rest of the year.
January is part of the seasonally more favorable six months of the year.
and years ending in 5 heretofore have enjoyed sensational returns, on average.
Corporate Profits – Healthy EPS Growth Still the Forecast
True, many would question the statistical significance of the last three charts. More importantly, we know that stock prices over time have tracked corporate profits, with sustained downturns coinciding with an earnings contraction. Happily, EPS have shown significant growth over the long term, and a sizable increase in earnings is the current forecast for 2025,
…given a very low probability of an economic recession,
with the latest estimate for Q4 2024 GDP growth from the Atlanta Fed moving up last week to 3.0% from 2.7% the week prior,
and the Federal Reserve Board members and Federal Reserve Bank presidents projecting 2.1% real (inflation-adjusted) GDP growth for 2025.
Inflation – Lower-than-Expected PPI & CPI
And speaking of inflation, what really ignited the equity advance last week was a lower-than-expected year-over-year increase in prices at the wholesale level of 3.3% last month vs. the forecasted rise in the producer price index of 3.5%,
…and the even-more-important consumer price index (CPI) for December climbing 2.9%, in line with estimates,
but the so-called core CPI, which excludes volatile food and energy prices, advancing “only” 3.2%, less than the 3.3% consensus projection.
Though years of evidence show that stocks don’t mind if the Federal Reserve is easing or tightening monetary policy,
or if government bond yields are rising or falling,
Interest Rates – Stocks Have Performed Fine, on Average, No Matter the Direction of Rates
traders were buoyed last week by a drop in the expected 2025 year-end Fed Funds rate betting to a rate of 3.95% from 4.04% the week prior,
…and a dip in the yield on the 10-Year U.S. Treasury to 4.63%, down from 4.76% at the end of the preceding week.
Valuations – Value Stocks Remain Reasonably Priced
No doubt, we liked what we saw last week with Value stocks leading the equity charge, especially as there is a very long way to go for inexpensively priced companies to catch up with their Growth peers, much less reassert their long-term propensity to outperform,
while we still think the Russell 3000 Value index is attractively priced,
even as it and its fellow Value gauges have turned in strong returns relative to international stocks, commodities and bonds for much of the past two decades.
We are always braced for moves to the downside, but we continue to sleep very well at night given the valuation metrics on our broadly diversified portfolios of what we believe are undervalued stocks.
Stock News – Updates on eleven stocks in the financial sector
