The market bull run continues: The committee's next move

[00:00:00] Speaker 1: The story though to me is the bullishness on the street. Targets go up, earnings estimates keep going up. I want you to listen to Goldman's global head of hedge fund coverage, Tony Pascarello, with me on closing bill on why he's so positive and why so many are. [00:00:15] Speaker 2: I think the foundation of the market is solid. Why do I say that? I think the economy's proven again to be very durable, running around trend. Earnings growth has been superb. I think the flow of funds is still very favorable, particularly in the month of August. And then we have a trillion dollars of AI CapEx working its way through the system. [00:00:33] Speaker 1: Those are just a few, Josh, of many reasons why, as I said, bullishness abounds. Targets go up. Optimism continues to rise. [00:00:42] Speaker 3: Yeah, that's right. And I think part of the optimism is just a function of how far through earnings season we now are. We've basically heard from almost all of the most important earnings growth stories, earnings growth stories. And then we're just getting such a panoramic virtuous cycle. It's everywhere you look is we beat, we're raising, we're raising the lower end of the forecast, et cetera, et cetera. So we're through 80% of the S&P 500 by market cap. Like we've got almost anything. I know Nvidia is still out there. But if you take the actual and then you blend that with what we're still expecting. So these are still estimates, even if you pull tech out, you're looking at 28.3% earnings growth. If you add tech back, it's 32%. It's outrageous. The net income margin has been revised up during the course of this season to 15.6% from 15. So margin is ahead of expectation. Then you look at sales growth and that's better. 15.2%. That's 300 plus basis points above what was expected as recently as two months ago. 10 out of 11 sectors were getting profit growth. So a lot of the narratives about it's all AI or it's so narrow, it's concentrated, throw them all in the garbage. They're money losing narratives. The reality is corporate America, the current management of companies in every sector, look at what they've had flown at them over the last five or so years. Whether we're talking about record inflation spike or we're talking about the pandemic itself and all the difficulty in hiring people and then the tariff stuff. These are like absolute warriors, the people running these companies. And they just continue to find more and more and more earnings growth, more margin, more upside to estimates. And in that environment, is 20 times earnings cheap? No. But why would it be less? Why would the multiple on this particular crop of companies be 16 times earnings? Because it was in 1994? It makes no sense. These companies are, it's the Michael Jordan of every sector. So I think that's what people are reacting [00:03:03] Speaker 1: to. And there are great stories everywhere I look. So Joe, you know, again, highlighting the important words from Tony. Economy, durable. Earnings, growth, superb. Flow of funds, favorable. Trillion dollars of [00:03:17] Speaker 4: CapEx. Fifth point, not on that list. And I agree with the first four points. Resiliency. We've really stress tested this market, this bull market this year, haven't we? Rising yields. We did talk about [00:03:30] Speaker 1: that too, by the way. Rising yields. You know, the deleveraging too. Right. The cleaner, the cleaner positioning. Right. All of it in total is, you know, frankly, why, you know, elevated oil prices or yields that are still a bit elevated aren't enough to derail the market because the other stories are just too [00:03:47] Speaker 4: good. So I think the question becomes, what becomes your indicator to alert you that potentially there might be trouble ahead? I continue to watch the S&P equal weight. I think that's a very important indicator. I'm also watching the U.S. dollar. But most importantly, the equal weight. And the equal weight is hanging in there, Scott. Hanging in there. Didn't we hit a new high on the equal weight on Friday? We did. And it's carrying forward today, even with oil prices moving higher. So I think that's validating everything that Tony has said and Josh has said and everything that we've been emphasizing over the last several days. You have to maintain your position, which is a bullish one, until you are greeted with some form of an indicator to suggest otherwise. Doesn't look like that is around the [00:04:31] Speaker 1: corner. I mean, who knows what's around the corner, Belsky? But Scott Rubner of Citadel sums it up, I think, as well as anybody else. And very simply, companies are not simply beating elevated expectations. They're driving the steepest earnings revision path since at least 2000. [00:04:50] Speaker 5: That's true. There's a sixth thing going on. It's called the yeah, but bull. People are still doubting this. After all of this, there's still an amount of skepticism. Every time the market goes up, you have an amount of people trying to guess on when the next correction is. How about let's sit back and really enjoy what's going on. The revision story has been amazing. As someone that's been looking at revisions for a long, long time, if you take a look at FY2 versus FY1 numbers and how they continue to go up, and just the second quarter earnings, Scott, and how they just blew away expectations and numbers continue to go up from here. Because companies are efficient in their earnings growth, in how they're valued, how they're operating the business in terms of return on equity, return on capital, and the debt to equity is down dramatically across most sectors. So that's why I think this is going to continue. And the yeah, but bulls are, yeah, but the market's going to pull back. Yeah, but the earnings are a bubble. Yeah, but we're an AI bubble. The Fed's going to misstep. You know, but yields are spiking today, so let's sell. I mean, [00:05:50] Speaker 1: that's not investing. What about you, Robbie? How do you feel about this market? You, I'm guessing that you probably agree with what many of the bulls are saying. I mean, sentiment indicators are so off the charts at this point. Is there any concern in your mind about that? The fact that when I do go [00:06:07] Speaker 6: down the list, it's bullish, bullish, bullish, bullish. Well, that's a reason when everybody gets on the same side of the boat, you're vulnerable to a surprise. But I don't think that's going to happen, to be candid with you. We're strong. Earnings are strong. They're broadening. They're not stretched. Let me put some numbers to this. Fifteen percent in the second quarter is the fastest revenue growth since 21. Fastest since 21. Eighty-eight percent beat rate record. P.E.'s down. And here's the thing that I think the yeah buts need to hear. Institutional positioning is in the 37th percentile. It is not stretched, not even a bit, which is going to draw people. And now retail positioning, if you look at some of the Goldman did, I think it is a little stretched. Retail investors feel a little more in than institutional investors. But we're all hanging on the number of stories that we talked about, some of which should cause us worries. But markets tend to climb these walls of worry with the slow removal of negatives. And I think that's going to be what draws institutional positioning back in and maybe pushes us towards eight thousand absent a bolt, like a hot inflation. [00:07:19] Speaker 1: Well, I mean, that's that's where many of the targets are now beginning again, eight thousand and above. And we do get the CPI tomorrow morning. And there's obviously a lot riding on it. A you know, a cooler read sort of takes the Fed off the off the hook and sort of validates the let's wait and see ideas. A hot number puts the pressure on like you talked about in the last news conference. The chair did. We have no tolerance for inflation being above target, but they didn't do anything about it at that meeting. So if you get a hot read tomorrow, are they under more pressure to do something about it in September? You still got to get through Jackson Hole, too. But the market, this just feels to me like a wait and see market for this number. It did yesterday. It does a bit today. And then we get the [00:08:07] Speaker 4: we get the prize in the morning. I think you're spot on. But let's let's play the other side of this for a second. Let's say inflation comes out and it's much hotter than anticipated. And you have to begin to price in that there will be a rate hike. Let's play the bearish argument. We're 50 50 right now, by the way, I think. So let's say let's say that. Let's say it goes 75, 80 percent towards a rate hike. Let's play the bearish argument for one second. Let's say they are right. We are all missing something. What do you think the return on that bearishness ultimately is going to be? Five percent, 10 percent to the downside. And you're telling me I'm going to be fast enough to know when everyone's going to rush in and buy the dip. See, the return on bearishness. You mean if they do hike or if expectations of a hike go up? Let's say they hike. You get your reasoning. If you're bearish. It's even funnier than that. You get that. And let's say the market goes down. OK, play that along for a second. [00:08:59] Speaker 1: It just depends. There are some on the Fed, by the way, voting members like Hammock who say one hike is [00:09:05] Speaker 4: not enough. OK, so let's say now we're into the process of multiple hikes. What I'm trying to point out is I actually think your return on being bearish is not that strong. I think you're looking at maybe five to 10 percent down and then you have to be fast enough to get back in because the dip buyers will return once again to be bearish here. You have to believe the setup looks something like it did in prior instances where the market goes down greater than 20 percent and stays there. And I don't see any fundamental evidence for that, even in fact, understanding that the Fed might start hiking rates.