Inflation, Historical Perspective, Recessions 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 Inflation, Recessions, Historical Perspective, 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

Week – Solid Rebound, Despite Tariff Uncertainty

Sentiment – More Bears than Bulls – Contrarian Buy Signal

Interest Rates – Long-Term Government Bond Yields Fall, a Positive for Stocks

Inflation – Declining PCE Tallies

Econ News – Mixed Numbers but Growth Still the Forecast

Recessions – History Shows Staying the Course the Right Move Even if a Contraction Were to Occur

Historical Perspective – Plenty of Volatility and Scary Events, but Long-Term Trend is Up

Valuations – Attractive Metrics on our Portfolios

Stock News – Comments on four stocks across four different sectors

Week – Solid Rebound, Despite Tariff Uncertainty

Predicting short-term market movements is a fool’s errand and equities remain at the mercy of developments on the tariff front, even as levies have always been part of the investment landscape,

including since the Trump 45 Trade War was launched more than seven years ago when the Dow Jones Industrial Average was then below 25000,

Sentiment – More Bears than Bulls – Contrarian Buy Signal

but it was nice to see stocks gain ground in the holiday-shortened final week of May, when the data points over the four trading days by conventional wisdom suggested they “should” advance, starting with the Bull-Bear sentiment survey from the American Association of Individual Investors again showing fewer optimists and more pessimists,

which heretofore has been a contrarian buy signal.

Interest Rates – Long-Term Government Bond Yields Fall, a Positive for Stocks

More importantly, the yield on the 30-Year U.S. Treasury dropped below the psychologically important 5.0% level,

with history showing that decreasing interest rates, on average, have been better for near-term equity returns,

as all else equal, lower yields on less-riskier assets like the U.S. government bonds add to the appeal of stocks from the standpoint of the earnings yield (inverse of the P/E ratio) and dividend yield.

We also note that the betting in the futures market is now calling for a greater number of cuts in the Fed Funds rate by the end of 2025 (a reduction of more than 50 basis points) and a year from now (a reduction of 96 basis points),

Inflation – Declining PCE Tallies

thanks in part to last week’s news that the Federal Reserve’s preferred measure of inflation, the core (excludes volatile food and energy prices) Personal Consumption Expenditure index (PCE), declined to a 2.5% year-over-year rate in April, down from a revised 2.7% in March,

and that the full PCE rose 2.1% on a year-over-year basis, below expectations and down from a 2.3% increase in March.

On the growth side of the equation, we learned last week that real (inflation-adjusted) U.S. GDP contracted by 0.2% in the first quarter of 2025, but the economic pullback was not as bad as feared (-0.3% est.),

Econ News – Mixed Numbers but Growth Still the Forecast

while orders for durable goods, excluding the volatile transportation sector, rose 0.2% in April, ahead of estimates for no change,

and the Conference Board’s measure of Consumer Confidence for May rose to 98.0, much better than the projection of 87.1 and significantly better than the revised April reading of 85.7.

Of course, the University of Michigan’s final figure for Consumer Sentiment last month came in at 52.2, a historically low tally, which from a contrarian standpoint could be a major “Buy” signal for stocks,

pending home sales for April retreated a worse-than-estimated 6.3% on a month-over-month basis,

and first-time filings for jobless benefits rose to a greater-than-expected 240,000 in the latest week.

Obviously, the health of the economy remains in question, but the latest estimate for real U.S. GDP growth for Q2 from the Atlanta Fed stood at a robust 3.8%, suggesting that a near-term recession is not in the cards,

Recessions – History Shows Staying the Course the Right Move Even if a Contraction Were to Occur

And, even if a recession ultimately materializes, we wouldn’t want to alter a long-term commitment to equities. This is especially true as timing the start and end dates is virtually impossible and the modestly negative average equity performance during prior contractions has been dwarfed by the average gains in the 12 months leading up to,

and the 12 months following the end of the recession.

Historical Perspective – Plenty of Volatility and Scary Events, but Long-Term Trend is Up

To be sure, we have no way of knowing what the near-term will bring, and we note that the equity futures are pointing toward a lower opening when trading resumes this week, while volatility is the price equity investors pay for very attractive long-term returns,

with 10% corrections having occurred 39 times since the launch of The Prudent Speculator in 1977,

but stocks have overcome plenty of bad news in the fullness of time,

Stock News – Updates on four stocks across four 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.