Valuations, Volatility, Federal Reserve, Economic News and More

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 Valuations, Volatility, Federal Reserve, Economic News and more. 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 – Buys & Sells Across 4 Portfolios

A.I. Trade – Navigating the Ups and Downs with 11 TPS Holdings

Valuations – Reasonable Metrics for our Portfolios

Volatility – Stocks Go Up and Down, but Long-Term Trend Is Up

Wall of Worry – Seasonality, Government Shutdown, Bullish Investor Sentiment & Tariffs

Economy – Numbers Still Suggest GDP & EPS Growth

Historical Evidence – Stock Returns Before, During and After Recessions & Rising/Falling Inflation

Fed – Several Rate Cuts Still in the Cards

Patience – Long-Term Holding Reduces Risk of Loss; Dividends Provide Income Along the Way

Stock News – Updates on three stocks across two different sectors

A.I. Trade – Navigating the Ups and Downs with 11 TPS Holdings

Well, we suppose the good news about Friday’s equity market carnage is that we don’t have to make any imminent decisions about trimming more of our big A.I. winners!

Early last week, a series of A.I.-related developments pushed many of those stocks higher still, but they plunged by Friday after President Trump tweeted that he planned to hit Beijing with additional tariffs in response to new duties levied by the Middle Kingdom and that he saw no reason to meet China’s leader Xi Jinping at a planned summit in two weeks.

AMD struck a multi-billion-dollar agreement to become a strategic partner for OpenAI, supplying up to 6 gigawatts of GPU capacity over multiple generations. As part of the deal, OpenAI may acquire up to 160 million AMD shares, resulting in a tighter alliance and challenging Nvidia’s top spot in the A.I. hardware space.

Additionally, the Trump administration announced earlier this year that it will be pushing a new A.I. export program to promote “full-stack” A.I. packages (software, hardware, cloud, data) abroad. The government has until October 21st to set up the program.

Nvidia CEO Jensen Huang joined CNBC’s Squawk Box on Wednesday to talk A.I.. and the future of the technology. He said, “The only regret I have about xAI, we’re an investor already that the only regret I have is I didn’t give [Elon Musk] more money.”

He added, “If you look at the AI, the hyperscalers, that about two and a half trillion dollars of business that’s already operating today. That business, that two and a half trillion dollar business, and the capex that goes underneath that is about, call it, $500 billion that transition from a classical CPU based computing to now generative AI computing powered by GPUs. That transition is just starting, so we’ve got to build into half a trillion dollars worth of capacity infrastructure that’s already naturally growing by itself, and we’re in the beginning phases of that work. If you just look at envious AI infrastructure business, you know, call it a couple of 100 billion dollars. So far, it were a couple 100 billion dollars into a multi trillion dollar build out. So that’s number one.”

He continued, “The second part of it that’s really unique is that we have a new generation of AI companies, the new AI companies like Open AI and Anthropic and xAI, and companies that are that are, well, you know, thinking machine labs from Miura and IIya’s SSI and Misha’s company, Reflection and, I mean, there’s a whole bunch of amazing AI model builders. Now, this generation of AI model builders, what’s happened in the last several months? A transition happened that is really, really important. For the last several years, they’ve been generating tokens, you know, these AI tokens basically at a loss. And the reason for that is because the early AI models weren’t they were super interesting, really captivate a lot of attention, but they weren’t useful enough to pay for the last several months has been very clear that the new technology is now reasoning. It’s doing research before it answers a question. It goes on the web and studies other PDFs and websites, it can now use tools, generate information for you, and it creates responses that are really useful. I use it every day, to the point where now the tokens are profitable.”

No doubt, the A.I. buildout is rapidly developing, so we are content with our current portfolio positioning, especially given that momentum is an investment factor that has been working for quite a while. Still, we respect that valuations for the stocks in the table above are elevated, so our partial-sale program has allowed us to have our cake and eat it too, while we can’t forget that the financial metrics on our full portfolios remain very much in the Value camp…and, dare we say, they are even more attractive than most of the Value indexes.

Valuations – Reasonable Metrics for our Portfolios

Certainly, we do not mean to make light of Friday’s brutal trading session, though drops of equal or greater magnitude than the bloody 2.71% skid in the S&P 500 have happened more than four times per year on average over the last century,

and trips south occur every year,

while the current pullback has yet to register on the table of historic downturns that have always been a part of the lucrative long-term landscape.

Volatility – Stocks Go Up and Down, but Long-Term Trend Is Up

To be sure, the markets were overdue for some sort of a selloff, given the meteoric and near-straight-up advance,

off the early-April (unofficial) Bear Market lows,

and we can’t forget that we are in the weakest two-month stretch from a historical perspective,

Wall of Worry – Seasonality, Government Shutdown, Bullish Investor Sentiment & Tariffs

while the government shutdown is dragging on,

and sentiment on Main Street finally became more optimistic than usual on Thursday,

with the AAII gauge a contraindicator that folks might want to be less greedy when others are more Bullish

but it was the renewed worries on trade that triggered the red ink.

Nobody knows exactly how this chapter of the U.S. President’s Art of the Deal will play out, but the chart above illustrates that sticking with stocks has been the way to go throughout the tariff battles of Trump 45 and so far under Trump 47, while we note that levies of some sort have always been something with which investors have had to contend over the last 130 years.

Economy – Numbers Still Suggest GDP & EPS Growth

The worry, of course, is that an escalation of trade hostilities with China pushes the U.S. economy into recession, and the Univ. of Michigan’s Consumer Sentiment tally for October out last week was not great,

but the prediction for Q3 real (inflation-adjusted) GDP growth was a healthy 3.8% as of the latest (October 7) estimate from the Atlanta Fed,

and the outlook for corporate profit growth over the balance of 2025 and 2026 is strong.

Historical Evidence – Stock Returns Before, During and After Recessions & Rising/Falling Inflation

Still, we respect that those projections were made before the Trump China salvo on Friday, but we offer the reminder that even if an economic downturn is in the cards, returns on stocks historically have been good in the year leading up to the contraction, on average, while the timing of the prior 15 U.S. recessions was known only after the fact,

and, most importantly, the gains on Value have turned out to be sensational, on average, following their conclusion.

We also respect that many are worried about the potential inflationary effect of tariffs, but equities have proved a terrific hedge on that front over the years,

Fed – Several Rate Cuts Still in the Cards

including during the so-called Great Inflation more than 40 years ago.

Patience – Long-Term Holding Reduces Risk of Loss; Dividends Provide Income Along the Way

Anything can happen as we move forward, but we have always had to deal with disconcerting headlines,

while there was seemingly good news out of the Middle East last week,

there is a ton of money parked on the sidelines, much of which has missed the big rally since April,

and the Federal Reserve continues to be poised to cut the Fed Funds target in the months ahead,

with a lower central bank borrowing rate historically a positive factor for future stock prices.

So, while we are always braced for downside action, even as the equity futures are suggesting a favorable start to trading for the new week, we see no reason to alter our optimism for the long-term prospects of our broadly diversified portfolios of what we believe are undervalued stocks as we are always willing to remain patient, given that a century of data reveals that the longer stocks are held the less the chance of loss,

while we are buoyed by generous and rising dividend payouts,

and we do not think the gains on the Value indexes have been excessive over the past two decades.

Stock News – Updates on three stocks across two 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.