Federal Reserve, 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 Federal Reserve, 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 – Major Averages Hit All-Time Highs

Fed – Stocks Have Advanced, on Average, no Matter the Direction of the Fed Funds Rate

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

Sentiment – AAII Pessimistic…and Stocks Rallied Smartly in August

Econ News – Mixed Numbers, GDP Growth the Forecast

EPS – Solid Growth Expected in 2025 and 2026

Inflation – PCE Rises, but Stocks Have Proved a Great Inflation Hedge Through the Years

Valuations – Liking the Metrics on our Portfolios

Stock News – Updates on ANF, NTAP, HRL, DKS & CAT

Wall of Worry – Major Averages Hit All-Time Highs

There is still no end in sight to the war in Ukraine,

the Israeli-Hamas conflict continues to ravage Gaza,

and tariff uncertainty remains high,

Fed – Stocks Have Advanced, on Average, no Matter the Direction of the Fed Funds Rate

yet the major market averages are trading within a whisker of their all-time highs, with the S&P 500 now in the 40th advance of 10% or more since the launch of The Prudent Speculator in March 1977, this one on Thursday crossing the 30% threshold from April 8, 2025, before pulling back on Friday.

No doubt, there are numerous issues about which to be concerned, including drama related to Federal Reserve officials and questions about the size and speed of potential interest rate cuts. The betting is now on two 25-basis-point reductions in the Fed Funds rate before year end and as many as four or five in total by this time next year,

though seven decades of market history shows that stocks have performed fine, on average, whether the nation’s central bank is easing or tightening monetary policy,

while the long-term trend in equity prices has been higher, despite 27 Bear Markets over the last century,

and numerous other trips south along the way.

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

Indeed, history shows that every prior frightening event has been overcome in the fullness of time,

and returns on Value stocks, like those that we have long recommended, over the last two decades have been very much respectable, despite the Great Financial Crisis, COVID-19 and a host of other headwinds,

Sentiment – AAII Pessimistic…and Stocks Rallied Smartly in August

yet so many seem to forget that time in the market trumps market timing as illustrated by the decidedly pessimistic readings on the American Association of Individual Investors weekly Sentiment Surveys throughout a sensational month of August for reasonably priced equities,

with the contrarian gauge again confirming that it pays to be greedy when others are fearful!

Econ News – Mixed Numbers, GDP Growth the Forecast

Of course, it hasn’t hurt that the U.S. economy has held up very well of late, with real (inflation-adjusted) GDP for Q2 revised upward last week from 3.1% to 3.3%,

and the latest estimate for Q3 GDP from the Atlanta Fed ratcheted higher to a robust 3.5%,

as new home sales,

and durable goods orders for July both came in better than forecast.

True, there were mixed reads on the consumer out last week as the Conference Board’s Confidence survey for August topped estimates,

and the Univ. of Michigan’s Sentiment measure lagged projections,

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

EPS – Solid Growth Expected in 2025 and 2026

and the outlook for corporate profit growth over the remainder of 2025 and into 2026 continues to be solid.

Inflation – PCE Rises, but Stocks Have Proved a Great Inflation Hedge Through the Years

Yes, we respect that worries remain about inflation as the Federal Reserve’s preferred measure, the Personal Consumption Expenditures (PCE) Core Price Index, rose 2.9% on a year-over-year basis in July, up from a 2.8% increase the month prior,

but we note that long-term inflation expectations retreated sharply this month, per the latest Univ. of Michigan poll,

while stocks have proved a great hedge over the years, on average, whether inflation is rising or falling.

Valuations – Liking the Metrics on our Portfolios

As always, we remain braced for downside market action, and we are about to head into the statistically worst two months of the year,

but we see no reason to alter our enthusiasm for the long-term prospects of our broadly diversified portfolios of what we believe are undervalued stocks,

especially as the longer equities are held the less the chance of a poor outcome.

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.