Tariffs, AAII Sentiment, Economic Data and Earnings

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 Tariffs, AAII Sentiment, Economic Data and Earnings. 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

Newsletter Trades – 2 Sales and 4 Buys

Tariffs – Returns Since Trump 45 Trade War

Shopping List – 25 Undervalued Laggards in ’25

Sentiment – Main Street Now Pessimistic

Econ Data – Mixed Numbers but Solid Real U.S. GDP Growth Projected for 2025

Earnings – Strong EPS Growth Forecast for ’25 and ’26

Valuations – Value Stocks Remain Reasonably Priced

Patience – The Longer the Holding Period, the Lower the Chance of Loss

Stock News – Updates on TSN, MRK, ADM, PYPL, CMI, GOOG, AMGN, OMC, PRU, QCOM, APD, SNA, TPR, ZBH & LITE

Tariffs – Returns Since Trump 45 Trade War

Given where the equity futures were suggesting the markets would open trading a week ago, we suppose we can’t complain too much about the modest red ink endured last week. Of course, as buyers of long-term value, we understand that uncertainty that leads to downside volatility, this time mainly related to tariffs,

can create opportunity to pick up or add to great companies at good prices and/or good companies at great prices, as was the case when Trump 45 launched a Trade War in March 2018.

Shopping List – 25 Undervalued Laggards in ’25

Obviously, tariffs are not without consequence, even if they are simply used as a negotiating tactic and never actually implemented, but market reactions often are overdone, with this year’s undervalued laggards providing a nice shopping list for those looking to put money to work,

Sentiment – Main Street Now Pessimistic

especially as the mood on Main Street toward stocks, often a contrarian indicator, has soured, with Bears outnumbering Bulls in the latest week by more than 9 full percentage points.

Econ Data – Mixed Numbers but Solid Real U.S. GDP Growth Projected for 2025

We respect that consumer sentiment also has retreated, with the Univ. of Michigan’s preliminary reading for February coming in at 67.8, well below expectations of 71.8 and January’s tally of 71.1,

while near-term inflation expectations ticked higher,

but the latest projection from the Atlanta Fed for Q1 real (inflation-adjusted) GDP growth continues to reside at a solid 2.9%,

and the latest figure on the health of the manufacturing sector from the Institute for Supply Management (ISM) was 50.9 in January, better than the estimate of 50.0 and up from a revised December number of 49.2.

ISM also states, “A Manufacturing PMI® above 42.3, over a period of time, generally indicates an expansion of the overall economy. Therefore, the January Manufacturing PMI® indicates the overall economy grew for the 57th straight month after last contracting in April 2020. The past relationship between the Manufacturing PMI® and the overall economy indicates that the January reading (50.9 percent) corresponds to a change of plus-2.4 percent in real gross domestic product (GDP) on an annualized basis.”

On the other hand, ISM’s gauge on the health of the services sector for January was 52.8, down from a revised 54.0 for December and below forecasts also of 54.0.

ISM states, “A Services PMI® above 48.6 percent, over time, generally indicates an expansion of the overall economy. Therefore, the January Services PMI® indicates the overall economy is expanding for the 56th straight month. The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for January (52.8 percent) corresponds to a 1.4-percentage point increase in real gross domestic product (GDP) on an annualized basis.”

We also learned last week that the labor market was not as strong as thought, with fewer job openings in December than expected,

and only 143,000 net new nonfarm payrolls created in January.

Of course, the unemployment rate last month edged down to 4.0%, versus projections of 4.1%,

wage growth in January increased by a greater-than-projected 4.1%,

and first-time filings for unemployment benefits in the latest reported week totaled 219,000, near multi-generational lows.

Earnings – Strong EPS Growth Forecast for ’25 and ’26

To be sure, many economic statistics are backward-looking, and tariff impacts and uncertainties, not to mention the housecleaning underway in Washington, are likely drags on GDP growth in the near term, even as an arguably more-business friendly administration could provide a tailwind. Clearly, nobody knows how things will shake out this year, but while Corporate America has been tempered in its outlooks, overall earnings growth still is expected to be quite favorable this year and next,

while there has been no change in Bloomberg’s tally of recession probability.

Valuations – Value Stocks Remain Reasonably Priced

So, while we are realists in our understanding that selloffs are the price we must pay for achieving terrific long-term returns,

we see no reason for Value stocks to prove any less rewarding going forward than they have over much of the last two decades,

as they remain reasonably priced relative to interest rates on an earnings- and dividend-yield basis,

while our broadly diversified portfolios of what we believe are undervalued stocks are even more appealing on both counts.

Patience – The Longer the Holding Period, the Lower the Chance of Loss

Yes, events on the geopolitical stage always are a wildcard, but there have been plenty of disconcerting headlines in recent years, yet equities have proved rewarding for those who remember that time in the market trumps market timing.

And we can’t forget that the historical evidence shows the longer the holding period the less the chance of losing money!

Stock News – Updates on sixteen stocks across nine 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.