AAII Sentiment, Volatility, Inflation and the Value of Dividends

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, Inflation and the Value of Dividends. 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

Newsletter Trades – 3 Sells and 9 Buys Across 4 Portfolios

Sentiment – AAII Turns Pessimistic…and Stocks Rally

The Only Problem with Market Timing – Joe Granville vs. Al Frank

Volatility – Ups & Downs are Normal but Long-Term Trend has been Higher Despite Disconcerting Events

Econ News – Weak Numbers, But GDP Growth and EPS Growth Still the Forecast

Inflation & Fed – Stocks Have Performed Fine, on Average, Whether CPI or Fed Funds is Falling/Rising

Value of Dividends – Higher Returns; Lower Volatility; Increasing Income Stream

MoneyShow Virtual Expo – Two-Dozen Undervalued 3%+ Yielders

Stock News – Updates on eighteen stocks across twelve different sectors

Sentiment – AAII Turns Pessimistic…and Stocks Rally

With the weekly American Association of Individual Investors (AAII) Bull-Bear Sentiment gauge seeing a big jump in pessimism last week,

just in time for a terrific equity market rebound in which the average stock in the Russell 3000 index gained 2.38%, we again see why the measure is widely viewed as a contrarian indicator. Of course, while AAII confirms that investors should be greedy when others are fearful, the data also show that folks should simply be less greedy when others are optimistic.

No doubt, nothing will ever stop some from thinking they can outguess the ups and downs of the equity markets, and history shows there are always plenty of trips south along the way to handsome long-term returns,

The Only Problem with Market Timing – Joe Granville vs. Al Frank

but one of my favorite financial scribes, Spencer Jakab, penned another excellent piece in The Wall Street Journal on Friday. Mr. Jakab offered the reminder that it is impossible to predict market crashes and cited the example of Joe Granville, a would-be Nostradamus whose theatrics attracted quite a following in the 1980s, but whose advice proved that the only problem with market timing is getting the timing right.

Newsletter industry watchdog Mark Hulbert wrote about Mr. Granville upon his passing in 2013, with the following excerpt especially eye-opening:

Lesson 4: It doesn’t matter what they say, so long as they spell your name right

Granville laughed all the way to the bank when Wall Street ridiculed his clown-like behavior. At least they were paying attention.

I remember a time in the late 1980s when I appeared on an episode of the “Wall Street Week” TV show hosted by Louis Rukeyser, along with both Granville and Al Frank, then editor of The Prudent Speculator. My designated role was to talk about investment newsletter performance, with Frank an example of someone whose performance was outstanding and Granville an illustration of someone whose performance was awful.

Granville, videogenic as ever, was beaming, while Frank came across more as a fumbling professor. I wouldn’t be surprised if Granville secured more new subscribers from the show than did Frank.

Not surprisingly, Mr. Hulbert was right, as there was no stampede of new subscribers through our doors. We tried to locate that appearance online of Joe, Mark and Al but had no luck, though the sleuthing did manage to find your Editor in a Wall Street Week spot made back in 2003.

I come on around the 5:35 mark. Wall Street Week With Fortune – American Archive of Public Broadcasting

Volatility – Ups & Downs are Normal but Long-Term Trend has been Higher Despite Disconcerting Events

We realize that it isn’t easy to resist the temptation to try to avoid market downturns, but there always seems to be something about which to worry, yet stocks in the fullness of time have overcome all previous scary headlines,

including disconcerting events in the Middle East

all entries thus far on the Russian-U.S. timeline,

and even the Trump 45 Trade War.

Econ News – Weak Numbers, But GDP Growth and EPS Growth Still the Forecast

This does not mean that the sailing will be smooth in the weeks and months ahead, and we note that there was weaker-than-expected economic data out last week on first-time filings for unemployment benefits,

and activity in the service sector per the Institute for Supply Management (ISM),

Inflation & Fed – Stocks Have Performed Fine, on Average, Whether CPI or Fed Funds is Falling/Rising

but the latest forecast for real (inflation-adjusted) Q3 U.S. GDP growth from the Atlanta Fed stood at a healthy 2.5%,

and corporate profits, the ultimate driver of stock prices over the long-term, continued to come in better-than-expected, with solid growth projected over the balance of 2025 and in 2026.

We also respect that there is still plenty of consternation about inflation, but history suggests that equities have been a very good hedge, on average, against rising prices,

including during the so-called Great Inflation of the 1970s and 1980s.

There is also a great deal of confusion about Federal Reserve interest rate policy, but whether the nation’s central bank is easing or tightening since 1954, stocks, on average, have performed well,

though the betting odds certainly suggest that Jerome H. Powell & Co. are likely to lower their target for the Fed Funds rate two times before year end and more than four times over the next 12 months.

Value of Dividends – Higher Returns; Lower Volatility; Increasing Income Stream

All else equal, lower interest rates should add to the appeal of equities, especially those of the dividend-paying variety, and income-producing stocks were the subject of a MoneyShow Virtual Expo presentation last week. In a Sleeping Better at Night: The Value of Dividends webinar, we offered the reminder that Dividend Payers have produced higher returns over the long-term,

with lower volatility (which many view as risk),

and a historical propensity for a significantly greater payout stream over time.

Keeping in mind that we always believe in broad diversification, and that the financial metrics on our portfolios are more attractive than even most of the Value indexes,

MoneyShow Virtual Expo – Two-Dozen Undervalued 3%+ Yielders

we prepared for the MoneyShow audience the following list of stocks, all of which are undervalued by our way of thinking and trade for less than 15 times forward EPS estimates and offer a dividend yield of 3.0% or greater.

Stock News – Updates on eighteen stocks across twelve 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.