Volatility, Tariffs, Inflation and Valuations

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 Volatility, Tariffs, Inflation and Valuations. 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 – Soldiers Top the Generals

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

Sentiment – AAII Turns Even More Pessimistic…and Stocks Continue to Rally

Tariffs, Inflation & Fed – Stocks Have Performed Fine, on Average No Matter the Direction

EPS – Solid Growth Expected in 2025 and 2026

Econ News – Decent Numbers, GDP Growth the Forecast

Valuations – Attractive Metrics on Our Portfolios

Stock News – Updates on CE, CAH, CSCO, DE, TPR & FSLR

Week – Soldiers Top the Generals

While the five days of trading ended on a sour note, the 2025 rally broadened last week, which we view as positive for the overall health of the equity markets. Of course, smaller companies still have a long way to go to catch up, given that the Russell 2000 Value index has returned just 2.33% this year, as compared to 7.89% for the Russell 3000 Value index, while the proverbial generals have outperformed the soldiers for all periods over the past two decades,

but we can’t forget that over longer time spans, Small-Company Stocks, along with Value Stocks and Dividend Payers have won the performance derby.

The dog days of summer evidently concluded on August 11, so perhaps it was no surprise that there was plenty of drama with which stock market participants had to contend in the days since. No doubt, the big news was the Alaskan Summit on Friday afternoon, marking another major event on the U.S.-Russia timeline though all prior worrisome entries have turned out to be a relatively minor blip,

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

in the long-term uptrend enjoyed by stocks, albeit with a ton of volatility, including 27 official Bear Markets for the S&P 500 along the way.

Certainly, we are not suggesting that the move higher will continue unabated, but it is fascinating to see how relatively quickly prior frightening events are forgotten and short-term downturns recouped.

Sentiment – AAII Turns Even More Pessimistic…and Stocks Continue to Rally

We realize, given the latest plunge in optimism and spike in pessimism for the weekly Bull-Bear Survey from the American Association of Individual Investors,

that many folks don’t share our enthusiasm for equities, despite what the historical evidence shows for subsequent returns for stocks on this contrarian sentiment gauge,

Tariffs, Inflation & Fed – Stocks Have Performed Fine, on Average No Matter the Direction

as well as for worries about foreign trade,

not to mention changes in the inflation rate,

including during the so-called Great Inflation some 45 years ago.

Indeed, stocks managed to gain ground last week, even as the core (excludes volatile food and energy) Consumer Price Index (CPI) for July climbed 3.1% on a year-over-year basis, modestly above expectations

and the Producer Price Index (PPI) last month saw a jump of 3.3%, much higher than the consensus projection of a 2.5% increase and up sharply from a revised reading of 2.4% for June.

True, the full CPI rise of 2.7% was in line with estimates,

but the betting in the futures market called for a slightly lower probability of a significantly lower Fed Funds rate by year end as well as one year from now.

Of course, we offer the reminder that despite what many may think, changes in the Fed Funds rate have not been a reason to buy or sell stocks, based on 70 years of market history,

while the odds for equities decidedly favor the player not only to make money, but to outperform a long-term risk-free return they could get today on the 10-Year U.S. Treasury.

EPS – Solid Growth Expected in 2025 and 2026

Yes, there always is downside risk that must be considered and those with short-term time horizons should pay close attention to their asset allocation mix, but stocks have risen over the years because corporate profits have grown,

and increased EPS is the current forecast for the balance of 2025 and 2026, as the U.S. and global economies are likely to show OK real (inflation-adjusted) GDP growth.

Econ News – Decent Numbers, GDP Growth the Forecast

And despite all the angst about near-term prospects, the latest estimate for real domestic GDP growth for the current quarter from the Atlanta Fed stands at a solid 2.5%,

with that figure supported last week by a better-than-expected tally for August on the Empire State Manufacturing Survey,

an improvement in Small Business Optimism for July,

a solid reading on retail sales last month,

and continued health in the labor market as evidenced by historically low first-time filings for unemployment benefits in the latest week.

True, the preliminary consumer sentiment number from the University of Michigan of 58.6 trailed expectations of 62.0 and was down from July’s final figure of 61.7,

and long-term inflation expectations in the same survey rose sharply,

Valuations – Attractive Metrics on Our Portfolios

so we remain braced for downside volatility, but we continue to see no reason to change our excitement for the long-term prospects of our broadly diversified portfolios of what we believe are undervalued stocks.

so we remain braced for downside volatility, but we continue to see no reason to change our excitement for the long-term prospects of our broadly diversified portfolios of what we believe are undervalued stocks.

Stock News – Updates on six 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.