Bull Market, AAII Sentiment, Federal Reserve and the Miracle of Compounding

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 Bull Market, AAII Sentiment, Federal Reserve and Compounding. 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

Bull Market – Speedy V-Shaped Recovery from Post-Liberation-Day Lows

Wall of Worry – Always Something to Fret About, but Long-Term Trend has been Higher

Volatility – The Longer the Hold, the Less the Chance of Loss

Sentiment – AAII Still Flashing a Contrarian Buy Signal

History Lesson – Stocks Heretofore Have Always Overcome Middle East Hostilities, Trump Tariffs & Fed Interest Rate Moves

EPS – Corporate Profit Growth in 2025 and 2026 Remains the Expectation

Econ News – Mixed Numbers but Growth Still the Forecast

Fed – Inflation Still Elevated, But Rate Cuts Expected This Year and Next

Valuations – Attractive Metrics for Value Stocks

Miracle of Compounding – 11.5% Annualized Return on the $10 Billion Sale Price for the Lakers

Stock News – Comments on six stocks across five different sectors

Bull Market – Speedy V-Shaped Recovery from Post-Liberation-Day Lows

Was it really less than three months ago that the doom-and-gloom crowd was warning that the post-Liberation-Day selloff might be followed by further devastation on par with the 22%+ plunge on Black Monday 1987,

and CNBC TV was proclaiming that stocks had entered a new Bear Market?

Wall of Worry – Always Something to Fret About, but Long-Term Trend has been Higher

In one of the fastest rebounds on record, the S&P 500 has soared more than 23% since the recent low (on a closing basis) on April 8,

hitting an all-time high on Friday and continuing the 28th “official” Bull Market since 1927.

Volatility – The Longer the Hold, the Less the Chance of Loss

No doubt, equities are a volatile asset class, but stocks have provided handsome long-term rewards for those able to stay the course through the inevitable ups and downs,

overcoming plenty of disconcerting events along the way.

Obviously, the sailing is not always smooth and certainly there will be more trips south in the future, but we offer the friendly reminder that time in the market trumps market timing and keeping the faith through thick and thin has always been the way to go.

Sadly, even though the historical evidence shows that the longer stocks are held the greater the likelihood for gains,

Sentiment – AAII Still Flashing a Contrarian Buy Signal

many still try to jump in and out of stocks, even as there is strong evidence that shows folks often zig when they should have zagged and that it pays to be greedy when others are fearful.

Fascinatingly, and a positive contrarian indicator for future near-term gains, fear is still the dominant emotion today for Main Street investors, as evidenced by more Bears than Bulls in the latest AAII Sentiment Survey!

History Lesson – Stocks Heretofore Have Always Overcome Middle East Hostilities, Trump Tariffs & Fed Interest Rate Moves

Of course, we understand why many may be worried, though the history books should provide comfort for those concerned about hostilities in the Middle East,

uncertainty surrounding tariffs,

and questions about what the Federal Reserve may or may not do with interest rates.

EPS – Corporate Profit Growth in 2025 and 2026 Remains the Expectation

Yes, the equity markets are not immune to sometimes-scary headlines, but over time, prices have risen because corporate profits have grown,

as the U.S. economy has expanded, not just on a nominal (actual dollars) basis, but on a real (inflation-adjusted) basis,

with about the only historical data point that one could point to as a true headwind (albeit short-term) for stocks being a recession.

Econ News – Mixed Numbers but Growth Still the Forecast

Alas, a recession, which is classically defined as two successive quarters of negative real GDP growth, is only known after the fact, but given that the U.S. economy contracted 0.5% in Q1, and data points out last week on new home sales for May,

and consumer confidence for June both badly trailed expectations, some may be worried the dreaded R-word is upon us,

but statistics on existing home sales,

and pending home sales for May beat estimates,

as did the numbers on first-time filings for unemployment benefits for the latest week,

and the Univ. of Michigan’s final Consumer Sentiment tally for June.

Nobody can predict the future, and we respect that the economic figures could head in the wrong direction as we move through the balance of 2025 and 2026, but even if a recession were to occur, we can’t help but take notice of the stellar average returns stocks have enjoyed coming out of the prior 15 contractions,

Fed – Inflation Still Elevated, But Rate Cuts Expected This Year and Next

while the latest projection from the Atlanta Fed for real GDP growth in Q2 stands at a healthy 2.9%,

and the Federal Reserve’s estimate from 10 days or so back for full-year GDP growth resided at a decent 1.4% for 2025 and 1.6% for 2026.

And speaking of the Fed, even with inflation still running hotter than desired,

and the equity markets performing fine, on average, whether consumer prices are rising or falling,

the betting odds now are calling for Jerome H. Powell & Co. to undertake more than two 25-basis-point rate cuts by the end of the year, with more than four cuts in total projected over the next 12 months.

Valuations – Attractive Metrics for Value Stocks

All else equal, lower interest rates make equities more appealing, though we would argue that Value stocks in general are already attractively priced,

and our broadly diversified portfolios of what we believe to be undervalued stocks boast even more reasonable valuations.

Miracle of Compounding – 11.5% Annualized Return on the $10 Billion Sale Price for the Lakers

So, as is usually the case, we remain braced for downside volatility, but we see no reason for long-term-oriented investors to needlessly interrupt the Miracle of Compounding.

Stock News – Updates on six 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.