Credit Concerns, Valuations, AAII Sentiment, Federal Reserve and more

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 Credit Concerns, Valuations, AAII Sentiment, Federal Reserve 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.

Executive Summary

Solid Rebound – Hard to Complain About a 1.7% Gain in the R3KV

Credit Concerns – Terrific Results from the Banking Sector, but Plenty of Worry

Wall of Worry – Tariffs & Government Shutdown

Economy – Mixed Numbers but Solid GDP Still the Forecast

Valuations – Reasonable Metrics for our Portfolios

Sentiment – Main Street Turns Bearish Again

Fed – Several Rate Cuts Still in the Cards

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

Stock News – Updates on SNA, HPE, BLK, ABT & CRM

Solid Rebound – Hard to Complain About a 1.7% Gain in the R3KV

It is tough to find anything wrong with a week in which the Russell 3000 Value index gained more than 1.7%, but we again saw that traders can shift quickly from viewing the proverbial glass as half empty instead of half full, especially in the banking sector.

Otherwise very strong third quarter results from America’s major banks were overshadowed by headlines last week related to bouts of idiosyncratic stress. Indeed, the KBW Bank Index rose nearly 3% last Tuesday as money center banks kicked off Q3 reporting season,

but the gauge had given all of that back by the close of trading Friday. The tone from management teams at the banks in our portfolios was confident but careful, reflecting a market where credit discipline and balance sheet flexibility matter as much as growth.

Credit Concerns – Terrific Results from the Banking Sector, but Plenty of Worry

With his usual candor Jamie Dimon at JPMorgan Chase (JPM – $297.56) reminded investors that even good times require vigilance. After isolated fraud in a secured lending facility, the CEO said, “When you see one cockroach, there are probably more.” Still, consumer credit held up better than expected for the nation’s largest bank, and JPM CFO Jeremy Barnum pointed to stable delinquencies and roughly $95 billion of projected 2026 net interest income. Across the industry, similar caution without alarm was the prevailing tone.

Bank of America (BAC – $51.28) saw declining charge-off rates for both consumer and commercial portfolios, with steady card spending and normalized deposit flows. Capital cushions are robust, with JPMorgan’s CET1 ratio near 15%, Bank of America’s above 11% and Goldman Sachs (GS – $750.77) reporting 14.4%. Citigroup (C – $97.07) maintained a target of 12.8% as it advances the Banamex separation and returns excess capital to shareholders. These levels provide comfort that any uptick in losses can be absorbed without constraint on lending.

The outlook for net interest margin expansion has moderated given lower rates despite expectations of future rate cuts, but fee engines picked up the slack, particularly dealmaking. Goldman generated record advisory and financing revenues, crossing $1 trillion in announced M&A for the year. GS CEO David Solomon said, “Many CEOs have shifted their focus back to long-term and strategic decision-making, particularly amid a more supportive regulatory environment.” Results at Morgan Stanley (MS – $158.67) were supported by record client assets of $6.9 trillion and a rebound in investment banking. Citigroup’s CEO Jane Fraser pointed to record inflows in Wealth and strong results in Treasury & Trade Solutions and said, “Over two-thirds of [Citi’s] transformation programs are at or are close to our target state, and we’re making very good progress in the remaining areas.”

Technology investment is another common thread. Goldman’s OneGS 3.0 aims to use artificial intelligence to streamline client onboarding and lending. JPMorgan is embedding A.I. throughout operations while maintaining what CFO Barnum called “old fashioned expense discipline.” Citigroup and Morgan Stanley are also leaning on automation to cut complexity and lower long-term costs.

Turning to regional banks, despite volatility across the sector, we thought our lenders turned in a quarter that underscored resilience. Net interest margins held steadier than expected as funding costs began to plateau and loans continued to reprice to reflect higher yields versus a few years ago. PNC Financial (PNC – $179.40) reported sequential improvement in both revenue and earnings as deposit pricing pressures eased and expense discipline held firm. Fifth Third Bancorp (FITB – $40.89) also benefited from loan repricing and deposit stability, with CEO Tim Spence noting that the merger with Comerica (CMA – $74.94) is currently expected around the end of the first quarter of 2026.

Fee income provided another area of strength across the group. KeyCorp (KEY – $16.96) posted continued growth in payments, wealth management and commercial services, while PNC enjoyed strong treasury management results. Both firms emphasized the importance of diversified revenue sources to cushion the impact of moderating spreads. Fifth Third continued to expand noninterest income through card activity and deposit-related fees, while Bank OZK (OZK – $45.96) maintained robust loan origination and service income within its niche real estate finance franchise.

Credit quality, while showing minor normalization, remained well within historical norms. Nonperforming assets across the regional group stayed below 0.6% of total loans. KeyCorp and PNC both reported stable delinquency trends and reserves above pre-pandemic levels. Even for higher-risk Bank OZK, management characterized asset quality in the quarter as “a mixed bag,” with some losses against the sale of its largest foreclosed asset at book value and pending sales of two others expected to generate neutral to positive results. Management acknowledged some credit migrations during the quarter, including three loans that moved into substandard or non-accrual status, resulting in charge-offs and higher reserves, though all were previously identified as problems.

Taken together, the quarter reflected an industry that appears otherwise stable more than two years removed from the collapse of Silicon Valley Bank. Deposit stability, expense discipline and fee diversification have replaced rapid loan growth as the primary engines of profitability. Credit costs are normalizing higher, but they remain manageable and liquidity is ample.

Obviously, we can’t control how the stocks will move in the short run, especially when our old friend Western Alliance (WAL) saw a double-digit percentage decline on Thursday on worries that it may have more than a few of Mr. Dimon’s cockroaches, even as the Arizona-based lender had the following to say…

In response to investor inquiries about a recent peer bank 8-K filing, Western Alliance Bancorporation (“Company”) is providing additional information about one of Western Alliance Bank’s (“Bank”) credit relationships.

The Bank has a note finance revolving credit facility to Cantor Group V, LLC secured by pledged commercial real estate loans and their cash proceeds. In August, the Bank initiated a lawsuit alleging fraud by the borrower in failing to provide collateral loans in first position, among other claims. We have evaluated the existing collateral and believe it covers the obligation, based on “as-is” appraisals. Additionally, the Bank has a limited guaranty and full guaranty from two ultra-high net worth individuals under certain circumstances, such as fraud.

As projected, the Company’s total criticized assets are lower than they were on June 30, 2025.

At this time, the Company affirms its guidance and 2025 outlook included in the Company’s Second Quarter 2025 Financial Results press release dated July 17, 2025.

Readers may remember that WAL, a stock we hold in our Small Mid Dividend Value strategy, watched unscrupulous short sellers drive its price down during the Silicon Valley crisis, only to see the shares soar a short time later, illustrating the opportunities available when keeping a long-term focus.

It isn’t always easy to maintain the faith against scary headlines, but we always try to separate fact from fiction. Yes, we won’t be surprised to see a rise in bad loans in the banking sector, but we note that credit ratings agency Moody’s had this to say last week, “When we dig deeper here and look to see if there’s a turn in the credit cycle, which is effectively what the market seems to be focusing on, we can find no evidence.”

Wall of Worry – Tariffs & Government Shutdown

While downside volatility happens every year,

we understand that a crack in credit is not the only issue dogging investors, as the markets seem to hang on every development on the trade front, even as tariffs have always been part of the Trump playbook,

and we are still contending with the closure of the U.S. government.

Economy – Mixed Numbers but Solid GDP Still the Forecast

Of course, the lights turned out in Washington means that there is dearth of economic statistics, but the handful of non-government-issued numbers out last week painted a mixed picture, as a weaker-than-expected manufacturing outlook for the Philadelphia region,

was offset by a stronger-than-forecast New-York-area factory measure,

with a similar situation happening with the worse-than predicted Small Business Optimism Index

and the better-than-projected Homebuilder sentiment gauge.

Interestingly, there was a tick up in the Atlanta Fed’s projection for Q3 real (inflation-adjusted) GDP growth last week to 3.9%,

and the International Monetary Fund’s latest World Economic Outlook improved,

though the commentary from the latter was not exactly enthusiastic…

The global economy is adjusting to a landscape reshaped by new policy measures. Some extremes of higher tariffs were tempered, thanks to subsequent deals and resets. But the overall environment remains volatile, and temporary factors that supported activity in the first half of 2025—such as front-loading—are fading.

As a result, global growth projections in the latest World Economic Outlook (WEO) are revised upward relative to the April 2025 WEO but continue to mark a downward revision relative to the pre-policy-shift forecasts. Global growth is projected to slow from 3.3 percent in 2024 to 3.2 percent in 2025 and 3.1 percent in 2026, with advanced economies growing around 1.5 percent and emerging market and developing economies just above 4 percent. Inflation is projected to continue to decline globally, though with variation across countries: above target in the United States—with risks tilted to the upside—and subdued elsewhere.

Risks are tilted to the downside. Prolonged uncertainty, more protectionism, and labor supply shocks could reduce growth. Fiscal vulnerabilities, potential financial market corrections, and erosion of institutions could threaten stability.

Valuations – Reasonable Metrics for our Portfolios

Not surprisingly, nothing we saw last week caused us to alter our enthusiasm for our broadly diversified portfolios of what we believe are undervalued stocks

Sentiment – Main Street Turns Bearish Again

especially as folks on Main Street grew very pessimistic last week,

which history suggests is a positive contrarian signal.

Fed – Several Rate Cuts Still in the Cards

Further, interest rates headed lower, as the markets are betting on a greater likelihood of a more accommodative Federal Reserve policy,

with a falling Fed Funds rate another favorable indicator for equity prices,

while there remains more than $7.3 trillion parked in money market funds.

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

True, we are constantly braced for equities to suffer short-term declines, as downturns, selloffs, corrections and even Bear Markets always have been part of the long-term uptrend that stocks have travelled,

but we note that all prior disconcerting headlines have been overcome in the fullness of time,

with patience a great risk-mitigation tool,

and the returns on the Value indexes over the last two decades hardly excessive.

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.