Market Commentary

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,

Headlines

the news turned positive on several fronts (geopolitics, corporate profits and inflation),

Headlines


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%,

Russell 3000 Value

the 48th best weekly return since that benchmark was launched in 1995.

Russell 3000 Value Index


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,

Historical Evidence

with frightening headlines always overcome in the fullness of time,

Historical Evidence


Market Timing – Only Problem is Getting the Timing Right

and those who think they can outguess market gyrations often shooting themselves in the foot,

Market Timing

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.

AAII Sentiment

 


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,

Value Stocks

while the first five days of January being positive (as they were this time around) historically bodes well for the rest of the year.

First Five Trading Days

January is part of the seasonally more favorable six months of the year.

Seasonality

and years ending in 5 heretofore have enjoyed sensational returns, on average.

Dividend Payers


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,

Corporate Profits

…given a very low probability of an economic recession,

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,

Federal Reserve

and the Federal Reserve Board members and Federal Reserve Bank presidents projecting 2.1% real (inflation-adjusted) GDP growth for 2025.

Federal Reserve


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%,

Producer Price Index

…and the even-more-important consumer price index (CPI) for December climbing 2.9%, in line with estimates,

Consumer Price Index

but the so-called core CPI, which excludes volatile food and energy prices, advancing “only” 3.2%, less than the 3.3% consensus projection.

Core Consumer Index

Though years of evidence show that stocks don’t mind if the Federal Reserve is easing or tightening monetary policy,

Federal Reserve

or if government bond yields are rising or falling,

Treasury Rate


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,

Interest Rates

…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.

10-Year U.S. Treasury


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,

Russell 3000 Value

while we still think the Russell 3000 Value index is attractively priced,

Russell 3000 Value Yields

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.

Annualized Returns

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.

Portfolio and Index Valuations

 


Stock News – Updates on eleven stocks in the financial sector

Keeping in mind that all stocks are rated as a “Buy” until such time as they are a “Sell,” a listing of all current recommendations is available for download via the following link: https://theprudentspeculator.com/dashboard/. We also offer the reminder that any sales we make for our newsletter strategies are announced via our Sales Alerts. Jason Clark, Chris Quigley and Zack Tart take a look at earnings reports and other market-moving news of note out last week for more than a few of our recommendations.
Kovitz Investment Group Partners, LLC (“Kovitz”) is an investment adviser registered with the Securities and Exchange Commission. This report should only be considered as a tool in any investment decision and should not be used by itself to make investment decisions. Opinions expressed are only our current opinions or our opinions on the posting date. Any graphs, data, or information in this publication are considered reliably sourced, but no representation is made that it is accurate or complete and should not be relied upon as such. This information is subject to change without notice at any time, based on market and other conditions. Past performance is not indicative of future results, which may vary.