AAII Sentiment, Volatility, Valuations and the Federal Reserve

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 AAII Sentiment, Volatility, Valuations and the Federal Reserve. 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

September/October – Seasonally Weak Period Continues to be Favorable

Sentiment – Lots of Folks Have Missed the Rally

Wall of Worry – Stocks Have Overcome Every Prior Disconcerting Event

Volatility – Stocks Go Up and Down, but Long-Term Trend Is Up

Valuations – Reasonable Metrics for our Portfolios; Value Returns Not Excessive

Unloved Dividend-Payers – 25 Stocks Down on the Year with 2%+ Yields

EPS – Healthy Growth Projected for 2025 & 2026

Econ News – Mixed Stats; Solid GDP Growth the Forecast

Fed – Several Rate Cuts Still in the Cards

Stock News – Updates on Big Pharma & CIVI

September/October – Seasonally Weak Period Continues to be Favorable

The proverbial soldiers continued to advance over the past five trading sessions as the S&P 500 Equal Weight index turned in its fifth straight weekly advance, with the major market averages hitting record highs and the broad-based S&P 500 pushing its gain from the early-April (unofficial) Bear Market lows,

to more than 34%, which interestingly is still below average for the 40 rallies of 10% or more without an intervening drop of 10% or greater since the launch of The Prudent Speculator in March 1977.

Sentiment – Lots of Folks Have Missed the Rally

No doubt, given that pessimism on Main Street, as illustrated by the higher-than-normal level of Bears in the American Association of Individual Investors (AAII) weekly Sentiment Surveys,

and the mountain of cash parked in Money Market funds, many folks have been sitting on the sidelines,

providing more ammunition to our argument that the only problem with market timing is getting the timing right.

To be sure, there is no shortage of issues about which folks may be concerned, as the September-October two-month period, on average, has been the weakest of the year since 1927,

Wall of Worry – Stocks Have Overcome Every Prior Disconcerting Event

we are heading into the sixth day of the government shutdown,

existing tariffs and potential new levies continue to provide a ton of uncertainty,

and there are always headlines that cause consternation,

Volatility – Stocks Go Up and Down, but Long-Term Trend Is Up

but we will always believe that time in the market trumps market timing as the long-term trend in stock price has been up and to the right,

with the inevitable downturns, some deeper than others, eventually giving way to advances of greater magnitude, so much so that average annualized returns have exceeded 11% over the last 48 years, and Value Stocks and Dividend Payers performing even better.

Valuations – Reasonable Metrics for our Portfolios; Value Returns Not Excessive

Certainly, we understand that the positive momentum many stocks have been enjoying can quickly reverse, and we have taken profits on quite a few names, including 3 more on Friday, as we are always cognizant of elevated portfolio weightings and rich valuations. Still, we continue to believe that it is a market of stocks and not simply a stock market, so we continue to sleep well at night with the reasonable metrics and generous dividend yields on our broadly diversified portfolios of what we believe are undervalued stocks.

We also note that Value stocks, despite very respectable returns over the last two decades, actually have seen lower-than-average performance over many periods, so there is room in our view for continued upside,

while more than a few names are still in the red on the year.

We are always braced for trips south as history tells us that stocks have lost ground on a monthly basis more than a third of the time, though that same evidence shows that the longer the hold the less the likelihood of red ink,

EPS – Healthy Growth Projected for 2025 & 2026

but we continue to be optimistic about the long-term prospects for equities, as the outlook for corporate profit growth remains solid,

which should continue to support growth in dividend payouts.

Econ News – Mixed Stats; Solid GDP Growth the Forecast

The government shutdown postponed the release of some key statistics and we know there are question marks about the health of the economy, as consumer confidence, per the Conference Board, came in weaker-than-expected,

as did the important Institute for Supply Management (ISM) survey on the services sector,

but the ISM Manufacturing survey was modestly better than forecast,

as was the number of job openings in August,

Fed – Several Rate Cuts Still in the Cards

and the latest estimate from the Atlanta Fed for Q3 real (inflation-adjusted) GDP growth stood at a robust 3.8%.

And we can’t forget that the Federal Reserve is likely to continue to lower interest rates in the months ahead,

with a declining Fed Funds rate a positive for equity market returns, on average.

Stock News – Updates on five stocks across five different sectors

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.