Economic Data, AAII Sentiment, Valuations and more Stock News

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 Economic Data, AAII Sentiment, Valuations and more Stock News. 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

Wall of Worry – Inflation Near the Top of the Current Concerns

Historical Evidence – On Average, Stocks Have Performed Find Whether Inflation/Fed Funds/Interest Rates are Rising/Falling

Econ Data – Mixed Numbers but Solid EPS and GDP Growth Projected for 2025

Sentiment – Major Contrarian AAII Buy Signal

Valuations – Value Stocks Remain Reasonably Priced

Stock News – Updates on twelve stocks across eight different sectors

Wall of Worry – Inflation Near the Top of the Current Concerns

While tariff talk continues to heavily influence short-term market gyrations, even as stocks have managed to advance nicely since Trump 45’s Trade War began seven years ago,

Historical Evidence – On Average, Stocks Have Performed Find Whether Inflation/Fed Funds/Interest Rates are Rising/Falling

investor worries shifted toward inflation last week,

Econ Data – Mixed Numbers but Solid EPS and GDP Growth Projected for 2025

after the consumer price index (CPI) rose 0.5% in January, pushing the year-over-year increase to a higher-than-expected 3.0%,

with the Core CPI (excludes volatile food and energy prices) also climbing to a worse-than-forecast 3.3% on a year-over-year basis.

Certainly, higher inflation is not great for American pocketbooks, and the financial press was quick to blame the CPI for an equity market drop the day the numbers were released. However, stocks gained ground on the week and students of market history understand that equities have performed fine, on average, whether inflation is rising or falling,

with Value stocks proving to be a sensational hedge as evidenced by how they performed during inflation scares of the past like the one The Wall Street Journal seven years ago decided to highlight, with the scary conclusion, “From 1966 to 1981, inflation and interest rates climbed to double digits, decimating stock and bond values.

With all due respect to the WSJ editors, Value stocks appreciating 13.4% per annum hardly sounds like stock decimation, and we note that the Value party continued in the ensuing years, despite then-Fed-Chair Paul Volcker’s painful (there were two recessions) and ultimately successful efforts to vanquish the Great Inflation.

Obviously, this time (and every time) is different, and we understand that some market participants are concerned that stubborn inflation figures have diminished the odds of additional Federal Reserve rate cuts,

but seven decades of evidence shows that Value stocks have performed well in the short term, on average, whether the Fed has been tightening or easing monetary policy,

with it a similar story over the last century, again on average, whether long-term government bond yields are rising or falling.

What really matters for stock prices is corporate profits as sustained market downturns generally have corresponded with an earnings recession, something that seems today to not be in the cards, at least as far as analysts at Standard & Poor’s currently are concerned.

True, we learned last week that retail sales in January fell a greater-than-projected 0.9%,

and small business optimism last month dipped to a reading of 102.8, lower than predicted,

but the labor market remains robust with first-time filings for unemployment benefits continuing to reside near multi-generational lows,

the latest estimate for real (inflation-adjusted) Q1 GDP growth from the Atlanta Fed resided at a solid 2.3%,

and the chance of recession in the next 12 months, per tabulations from Bloomberg, stood at a very low 20%.

We also note that Fed Chair Jerome H. Powell told the Senate Banking Committee last week, “We’re in a pretty good place with this economy. We want to make more progress on inflation. And we think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further…If the economy remains strong, and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”

Sentiment – Major Contrarian AAII Buy Signal

We must always be braced for downside volatility, as selloffs, downturns, corrections and even Bear Markets are the price that has always been paid to achieve significant long-term gains,

but we were thrilled to see last week that pessimism on Main Street, per the weekly American Association of Individual Investors (AAII) Investor Sentiment Survey rose significantly with the Bull-Bear spread coming in at -18.9,

a reading in the lowest decile of all tallies, and a major BUY signal based on the history of this contrarian indicator.

Valuations – Value Stocks Remain Reasonably Priced

More importantly, given concerns about rich valuations, we continue to think Value stocks are reasonably priced,

and our broadly diversified portfolios of what we believe are undervalued stocks boast even more attractive earnings- and dividend yield figures.

Stock News – Updates on twelve stocks eight 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.