AAII Sentiment, Volatility, Interest Rates and Corporate Profits

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 the AAII Sentiment, Volatility, Interest Rates and Corporate Profits. 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.

Newsletter Portfolio Trades – Trimmed ORCL

Week in Review – Big Rebound

Emotional Roller Coaster – Media Still Not Exactly Helpful

Sentiment – AAII Bearishness Rises

Volatility – Ups and Downs but Long-Term Trend is Up

Econ Stats – Mixed Numbers; but GDP Growth Still the Forecast

Inflation – CPI & PPI Come in As Expected

Interest Rates – Fed Cuts Coming; Stocks Have Performed Well Whether Rates Rise or Fall

Valuations – Value Remains Attractive

Corporate Profits – Solid EPS Growth Remains the Projection

Stock News – Updates on ORCL, AAPL, MRNA, JPM, GS, PNC, SYF & KR

Week in Review – Big Rebound

After plunging during the first week of trading, just as the financial press was telling us that investors were ultra bullish on stocks and feeling better about the economy,…

stocks enjoyed a strong rebound one week later, with the Dow Jones Industrial Average jumping more than 1000 points,

Emotional Roller Coaster – Media Still Not Exactly Helpful

right after the media seemingly made a 180% shift in its market views, arguing that stocks were in for more rough sledding.

Sentiment – AAII Bearishness Rises

‘Twas every thus, as our founder Al Frank was fond of saying. After all, there is some truth to Warren Buffett’s admonition, “Be greedy when others are fearful, and fearful when others are greedy,” even as the data suggests the quote would be more accurate if it read, “Be very greedy when others are fearful, and have lower, yet still positive, return expectations when others are greedy!”

Believe it or not, no matter the decile of the 37-year-old AAII Bull-Bear Sentiment gauge, subsequent returns for stocks, on average, have been positive, though they have been better when Main Street investors are pessimistic than when they are optimistic. Happily, for those with a contrarian bent, the AAII folks became decidedly less bullish and decidedly more bearish last week!

Volatility – Ups and Downs but Long-Term Trend is Up

Certainly, the markets hardly have issued an all-clear signal, as there was tremendous intraday volatility last week with the Dow deep in the red as late as Wednesday morning,

while September historically has been the worst month of the year,

but come what may and despite all the ups and downs along the way, equities have proved very rewarding since the launch of The Prudent Speculator in March 1977,

though many do not enjoy those terrific long-term returns as they zig when they should have zagged and forget that the secret to success in stocks is not to get scared out of them.

Econ Stats – Mixed Numbers; but GDP Growth Still the Forecast

We understand that there were plenty of developments last week on the domestic and global stages, which is always the case, but as we said seven days ago following the ugly start to September for equities, not much really changed in the latest week on the economic front.

The NFIB Small Business Optimism index declined to a weaker-than-expected 91.2 in August from 93.7 in July,

but the Univ. of Michigan’s preliminary estimate of Consumer Sentiment in September climbed to 69.0, ahead of estimates and up from a reading of 67.9 in August,

while first-time filings for unemployment benefits in the latest week tallied 230,000, still near multi-generational low levels,

and the latest projection for real (inflation-adjusted) U.S. GDP growth for Q3 from the Atlanta Fed came in at a solid 2.5%,

which would be above the forecast for 2024 growth offered by the Federal Reserve back in June.

Inflation – CPI & PPI Come in As Expected

Jerome H. Powell & Co. also received the latest numbers on inflation with prices at the consumer level (CPI) rising 2.5% in August, in line with forecasts, but down sharply from the 2.9% increase registered the month prior,

and prices at the wholesale level advancing an as-expected 1.7% last month, compared to a 2.2% gain in July.

True, the core CPI for August rose 3.2%, in line with expectations,

Interest Rates – Fed Cuts Coming; Stocks Have Performed Well Whether Rates Rise or Fall

and the figure is above the Fed’s year-end guestimate of 2.8% in the table of projections shown earlier, but the futures market saw the betting on the target for the Fed Funds rate move modestly lower,

while the yield on the 10-Year U.S. Treasury ended Friday at 3.65%, down from 3.71% a week ago.

Of course, stocks have performed well, on average, whether interest rates are rising or falling,

but a lower 10-Year yield adds to the appeal of equities in general,

Valuations – Value Remains Attractive

and our broadly diversified portfolios of what we believe to be undervalued stocks in particular,

Corporate Profits – Solid EPS Growth Remains the Projection

especially when corporate profit growth is likely to remain healthy.

So, while we continue to be braced for additional downside volatility and disconcerting events in the geopolitical arena, we see no reason to alter our long-term optimism for the prospects of the U.S. equity markets.

Stock News – Updates on eight stocks across six 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.