Update On The ‘G-Shaped’ Versus ‘K-Shaped’ Economy Debate

[00:00:00] Ed Yardeni: Hello, everybody. It's Ed Yardeni. Nice to have you join us today. It's Monday, June 29th at 11:00 AM. Just a few folks. You know, you folks always help me out on these technical issues. If you can all see my image and hear my voice fine, let me know. In the wings, I have Nick Raich, who's going to be joining us shortly. But I do want to cover some of the issues. All good. Thank you. Thank you, everybody. Thank you. Got it. Looks good. Sounds good. Sounds as good for me. So look, lots of things to talk about. Let me just go right to the charts and skip the introductions. I guess I should say have a great Independence Day holiday. It's a great moment for our country, 250 years. It is a great country. I think we all agree on that. We have our differences, but that's always been the case. If you've been reading American history over the years, we've always had differences among ourselves, but at the end of the day, the country has prospered. And I think I've mentioned before that one of the things I've learned over the years in this business is that it's amazing how well the US economy and stock market do despite Washington. So that's kind of my positive spin on all that. Also, stay as cool as you can because we've got a heat wave heading our way. My wife and I managed to get over to Greece a couple of weeks ago before the heat wave struck. So we kind of dodged that, but it's getting pretty hard to be a tourist in Europe in July and August. Well, let's do a little tour here of some of the issues that are relevant to the market. So let me share my screen here. And this time I'm prepared here. And as you can see, the subject of the morning briefing today is update on G-shaped versus K-shaped economy. And we've been making this point for a while, but we do like to update it. There's always something new out there and especially like to update it when things are going our way. But we try to stay very objective. And when they're not going our way, we'll let you know and think about it and tell you why we're not that concerned or why we need to change our views. But here's an interesting chart. This is real disposable personal income versus real personal consumption. So adjusted for inflation. And you can see that consumer spending has been rising to all-time record highs. This is weekly data through May. So it's the latest data we have. And if we simply extrapolate this trend, you get this dotted line. And then we've got disposable personal income, which over the past year has kind of gone flat. And again, if you extrapolate that flat trend, then by 2030, you get that consumption is equal to a disposable income, inflation adjusted, which means that from then on, the savings rate turns negative. And this, in fact, happens to be our base case for the consumer. We think this is exactly the way it's going to play out. And the naysayers, the pessimists, the alarmists are going to say this is not sustainable because consumers can't continue to spend at a faster pace than their incomes are growing. I think this is one of the key points that we're making with the G-shaped economy. The G-shaped economy is generational rather than it factors in demography. And our view is that this is starting to reflect the flattening out of disposable income resulting from the fact that baby boomers who, to a large extent, well, we know they make more money than younger people, but they are voluntarily choosing to stop getting that paycheck because they're pretty confident that they can live pretty well on the net worth they've accumulated. And so we are looking for a negative savings rate when we get into the next decade without freaking out that that's an unsustainable situation. I think what the K economy folks are missing is the baby boomers, the demography, and all that wealth that's out there. Latest data on real consumer spending for May shows that there's no sign of significant weakness here. As a matter of fact, the only thing that's really weak is gasoline purchases. And that makes sense. Price went up. People are buying less gasoline. But that didn't stop them from generally going shopping. Maybe they didn't go out to restaurants as much. That was down. And transportation services was down. But everything else was up. Furniture. I guess they're staying home more. But they still had to go out to a store to buy furniture, I suppose. Motor vehicle and parts was strong. Anyways, you can look at that on your own. We've been pointing out, Elias and I have been pointing out that the retail sales weekly data on same store sales looks really quite good, remarkably strong. Some of that may be inflation. But keep in mind, this is the Redbook. The Redbook retail sales does not include gasoline does not include food services. So we are comparing it to retail sales ex-food services, autos, and gasoline. It doesn't include autos either. And so that looks mighty fine. Now, baby boomers. This is the baby boomers here. They're 62 to 80 years old. So to a large extent, they are already senior citizens. Seniors meaning 65 or older. And we can see in this, the number of households by age of head. And you can see that this has increased dramatically. There's a lot of baby boomers were born and they're living longer. So naturally, this is going to go up. And you can see we're at, let me make this a little bit bigger for you. 39 million households. So that could be one person, two or more. And you can see that's really taken off. Not much to say about the rest of them. I mean, this is this is the big story. There's a lot of seniors, senior households headed up by seniors. This is the number of households by age is a percent of total households. And you can see that they account for 29%. That's pretty substantial, and certainly beats the percentage composition of the others. This is just a pretty picture that kind of says the same thing. Let's go here. We've seen this before. This is the baby boomers didn't have much in net worth back here. The silent generation had most of the net worth. And then along the way, the baby boomers lived long and prospered. And as we can see, we're now up to this. Where are we? Where are we here? Oh, this is the, there it is. 89.8%. 89.8 trillion dollars is what the baby boomers have. The richest retiring generation of all times. And oh, by the way, some of the silent generation is still around and they've got 19.6 trillion dollars. So together there, the seniors have a hundred trillion dollars in net worth. And how could the cake economy proponents just completely ignore something that that important? Meanwhile, as we can see, the number of retirees are increasing, social security is going up. Number of retired workers receiving social security benefits increased by a record amount. That's only going to increase up ahead here. The number of retired workers receiving social security benefits is up to 19.5%. And that's been going up sharply as the baby boomers have increasingly turned to 65 or older. The participation rate of seniors is declining in the labor force. So again, we're already seeing signs that the saving rate is going down and the naysayers are already saying this is not sustainable. The consumers living on the edge. And again, they're completely missing the wealth effect. They're very good at telling us about delinquency rates. We watch them. We acknowledge that there's stress out there without a doubt. But on balance, the 100 trillion dollars goes a long way to supporting senior spending by consumers. And they're also sharing the wealth. I think there's there's some some data that shows that well, I want to quickly read to you recent survey evidence from our Northwestern Mutual 2026 planning and progress study shows that more than half of millennials do not consider themselves fully financially independent from their parents. This is something we wrote about in the morning briefing. And take a look also the Wells Fargo 2026 study found that 64% of parents with Gen Z children 18 to 28 provide direct financial support, housing or other assistance. Uh, this is a good one here. American, uh, uh, the, the annual, uh, yes, uh, older Americans, according to AIR P are transferring on average $7,000 to their, uh, to, to the young, to the youngins. So, uh, that's, that's, that's real money. Uh, anyways, here's, uh, the labor for the seniors not in the labor force. You can see that's gone up a great deal. Um, they're spending on fun related stuff. They're spending on travel and hotels. They're spending on online shopping. They're spending on personal consumption for health care. Now I ask you, um, the K economy, one of the, the, the big proponents of the K economy is, um, uh, Mark Zandi over at, uh, Moody's. And, uh, he's, uh, recently updated his data to show that, uh, 20% of, uh, the high income Americans do 60% of consumption. Uh, I mean, that makes no sense to me whatsoever. Um, as you can see, uh, household, um, real personal consumption expenditures per, per household, that's the average. It's not the median is 124.8, uh, uh, 124,000, 125,000. How could 130 million households, um, have a situation where only 20% of them are accounting for, uh, 60% of that kind of, uh, income and consumption. It just doesn't, uh, uh, make sense. And, uh, when you get into, uh, when you get into the, uh, the spending, uh, concepts, the idea of what, what are they actually spending on? Um, it's hard to, I mean, are the rich spending, uh, 60% of total healthcare consumption, uh, restaurant meals, clothing, uh, the only thing I can come up with uh, caviar and champagne and Porsches and, uh, you know, things like that. Uh, so again, it's just hard to imagine that that's a story. Well, uh, got another story for you and I'm very happy to, uh, bring in, uh, Nick, uh, Rache. Uh, Nick, you want to click on the, uh, on the video button and, uh, you got your audio on as well. How are you? I do. Hello, Ed. Good. Nick is a good professional friend, good personal friend over the years. And, uh, we've started to, uh, uh, I think, I think this is the beginning of a beautiful friendship, as they said in Casablanca. Uh, uh, Nick, uh, Nick, we, you disappeared. That's, oh, there you go. Thank you. I'm just doing the share. Okay, good. Nick has, uh, has his own firm now. Uh, it's called Earnings Scout. And Nick, you'd been, uh, the head of, uh, [00:12:59] Speaker 2: Zach's, uh, research there. Yes. Uh, that's where I started my career in the mid nineties as a junior earnings analyst. And by the time I left there, I was the director of equity research and also wore a second hat as the chief strategist. So build out the earnings, uh, the research department and, and the primary research arm of, of Zach's as well in the early 2000s. So you and I have a lot in, uh, [00:13:22] Ed Yardeni: common. We both decided to go off on our own. So we're, uh, what I call entrepreneurial capitalists. And, uh, in addition to that, uh, just by coincidence, I guess we both got the same memo about wearing a, uh, checkered, uh, blue shirt. Uh, but, uh, Nick does a great work on earnings. I'm going to let her, uh, Nick, uh, take it away here for about 10 minutes. The, the idea we had is, uh, you know, before earnings season starts, there's already the earnings seasons have already started. And Nick, uh, has noticed that, uh, the companies that report presumably before the official earnings season actually give you a pretty good insight on, on what the season is going to look like. So take [00:14:02] Speaker 2: it away, Nick. Thanks, Ed. Yeah. And, uh, you've been my mentor and helped me along throughout the course of my career. So I thank you. And I'm going to share a little about what I do with earnings. I've been following earnings now, uh, 30 years. Um, today's presentation is high fear, higher EPS part two. And I did that, Ed, because on March 30th was our last call. And that was the Tay, the market bottomed. Um, and the setup's the same, but it's, it's a sequel. Um, and like all sequels, it may not be the setup as strong as the original, uh, but the message is still going to remain positive. Um, cause something's going on here in June where, you know, there's a little increase here, you know, of fear, uh, of the June swoon, the markets have been selling off, but the earnings expectations are continuing to go higher. Uh, so I'll talk about what's going on. Uh, but the original thing we did on March 30th, we showed that earnings estimates were improving and the price of the market was falling. And I remember, Ed, you and I talking on that day and before that something we hadn't seen very often throughout our careers or when earnings estimates are going up, stocks usually go higher. So we said that was going to set up a rocket ship set up for stocks. Um, and given since that day, March 30th, the day we did that, uh, presentation together, the S and P 500 through Friday's closes up 15.93%. The Russell 2000 closed at an all time high, uh, last week up 24.69% since the end of March, the tech sector up 31%. Intel Micron and Sandisk parabolic through the roof. So I would venture to say that was a rocket ship for sure. I mean that those returns would be a phenomenal year, let alone they occurred in, you know, under 90 days. So pretty, pretty amazing thing. This was one of the things we showed back in that March presentation. There was a lot of fear. And if the charts look busy, this picture looks busy, the graphics, it's because if you follow the headlines, you would drown in the data. And a lot of the fears back then in March was the Iranian war was going to lift oil prices and oil prices skyrocketing. It was going to cause inflation, send earnings down. And the market went down 9%, um, from late January to the end of March, um, the tech sector did even worse during this period. So when we set up that call, the fears were high, the fears here in June, similar, you know, we got rate hikes. Now we're worried about, we got worried about microns, uh, rising, um, DRAM prices are going to hurt the hyperscalers. The fears are still there. Um, and the setup for June, you know, down 3% this month and tech stocks have fallen 10, over 10% this month as well. So it's a similar setup in terms of the sequel here. What I looked at back on that, uh, day in March, I said the improving earnings estimates and falling price for the rocket ship. How did I look at that? This is one of the charts we do at earnings scout. We measure the rates of change to the earnings. And what we do is I don't care what the earnings estimates are. I care if they're getting better or worse. So I never care if an earnings estimate for a company is $50 or minus 50. What we do is measure the percent change each week in those estimates. And we measure those overall, the quarterly and annual estimates to find out if the trends are getting better or worse. So what we show here is an earnings score. And this is the end of March at the time, because I want to show this is very important. What was going on in late 2024, up until March, when we did our presentation, uh, the earnings estimates in peak earnings seasons for, uh, the second quarter of 2024, third quarter of 2024 and the fourth quarter of 24 in peak earnings seasons, they were going down at increasing rates. And you might notice it looks like little that gets better, it gets worse. What happens is about 80% of the S and P 500 reports within a one or two week period. And that's when the analysts change their estimates because that's when they get the guidance from the companies. So what we saw in those three, two consecutive earnings seasons was the estimates falling at increasing rates. And when that happens and the price keeps going higher, we flag that with an alligator jaw. It's happened seven times over the last 35 years. And how we define that is two quarters in a row or more of weakening on a rate of change basis estimates for the S and P 500. And the price keeps going higher. And every time that's happened, it's always signaled a bad sign. And that's when we had that 19% drop in the S and P 500 in early 2025. And these are the last seven times, Ed, that the jaw has opened the last time at the end of 2024 before the 19% saw off when Trump escalated tariffs, but you can see it's predicted. It's preceded every bear market over the last 35 years and every major correction. So the key is here, why that returned. And we don't have an alligator jaw now. So in 2025, the estimates were still being cut, but they got cut at lesser rates. And this is what we saw in that March 30th presentation, the estimates are going up and we're going, hey, the estimates are going up at increasing rates, but the price was dropping. So this was the reverse of an alligator jaw. If an alligator jaw, we define as a negative divergence. What we saw here was a positive divergence. So it was a rocket ship getting higher. And the other thing I was looking at to determine whether that could persist, I was looking at the companies that were reporting back in March that have February quarter ends. And those were the companies that did it. I took those 14 companies and I love to use these early reporters to see how they're not only reporting, but how they're guiding and how the analysts are changing their estimates after reporting. And what we saw is their second quarter estimate revisions were going up at a rate of 5.05%. And you can see the year ago, they were going down by 49.98%. So we graphed that out. And just those 14 companies were showing, hey, they're getting better. And that is the litmus test that I use every earnings season. I've been using for the last 20 years to determine if earnings season is going to shape up to be good or bad, get better or worse. Now I'm going to take those same set of companies. And there's 20 of them that report May quarter ends. You may notice there's a new company in there, FedEx Freight. Lamb Weston is out, FedEx split into two. So we got a new company in there as well. And I'm actually, this is the last time FedEx is going to be an early reporter. FedEx is changing. It was on a fiscal year end of May. So it's always been one of those early reporters for me. They're going to move to a calendar year end, fiscal year end. So that is going to be one less data point I'm going to have going forward that kind of hurts me because I love these early reporters. But nevertheless, these are the companies that have reported already, highlighted. So we had Micron last week as a big one. FedEx also reported, AutoZone's reported. These are on the clock already for second quarter earnings season. And then these companies, FactSet, General Mills, Nike, and Constellation report this week. So we get all those. What do they look like? So out of those companies, after reporting last week, and the revisions are still filtering and Micron's estimates went up 29% after reporting, the best of all the companies. On average, the average estimate revision is up 6.31%. This sounds great, right? The estimates are going up. And that's pretty atypical because relative to the three year average, most of the times companies are cutting the outlooks. So this is better than normal. This information alone is not enough to determine whether the trend is getting better or worse. This is a snapshot. And markets are not a snapshot. They're dynamic. You need to see whether it's getting better or worse. So take a look, the same set of companies, how they guided these 14 companies that are on the clock as early reporters and what they're doing. And you can see the trend over the last year, a year ago in time, these same companies were having their estimates cut on average by 2.57%. Now they're going up by 6.31%. It's great. The general trend is up, but in this 6.31% are the best revisions we've seen in any quarter over the last five years. So you have to go back to the second quarter of 2021, when the comps on the revisions were, the economy was shut down because of COVID. So these are the best revisions in five years. second best. The best revisions were occurring last earnings season. So there is a little bit of cooling of the momentum, still very positive, but a little bit of a cooling in there. And this is the same data set that I'm showing here, but out a little bit further. And you can see when the estimates were being cut at increasing rates, when a jaw opened in that period, that's when it went and we had the market low. And when the revisions started to get better, we went up as well. So right now the revisions are still very positive, a little less positive. And one reason is Micron's driving a lot of that. And if you notice, the revisions for Micron were going up by 30%. Well, the prior earnings season, they were going up by 80. And the quarter before that, 100%. There's no company that can sustain that type of revisions going up at increasing rates for a while. So that's what we're looking at, seeing a slowing of the momentum a little bit, still very positive. The main thing here is the alligator jaw is 7.0 at a warning sign. That warning sign is gone. So we need to start measuring the estimates weaken this earnings season. This earnings season, another earnings season would take six more months, we think, of run-ups. So we like to say, well, like ground, how to fill. When we start to see the revisions start to actually weaken on a rate of change basis, you probably have at least another six months of run-up more in the market for people. That's because most people will still see Micron's earnings going up by 30% or the other earnings going up by 30% and keep bidding at higher. We'll start to notice the momentum slowing. There's definitely an increased number of investors who want to be the first to leave this party. They're doing comparisons to the 90s with the dot-com era and AI. We see the similarities, but what they're missing is they're missing what the main cause of the sell-off was. And that's when the delta on the earnings estimates actually start to go negative. It's not when you start to just have the fears. And they're focused too much, I believe, on what could go wrong versus actually what's actually happening with earnings and revisions. The rate of change in earnings are going to separate that signal from the noise. Second quartering season is going to be great, can take it to the bank. The positive revision momentum might not be as great as it once was, but it's not going to be enough, in our opinion, to send stocks lower. We want to stay long stocks and certain technology stocks as well, too, as well. So that's the message, Ed, that I have on the earnings season. It's going to be very positive again, just based on these early reports, the same thing we looked at back in March. And it is the sequel. It's just maybe won't be as good as the original, but it's going to be worth going to. [00:24:58] Ed Yardeni: Yeah, sounds good, Nick. Could you unshare, and I just want to show you a couple of the earnings charts we look at. We look at the things a little bit more macro than you do, and it's actually a nice complimentary approach to things. But let me see if I can pull this up real quickly. Yeah, we write a weekly, well, we write daily quick takes, but this is usually one called US market call AI fatigue weighs on the lag, lag seven. Like you, we try to have a sense of, you have to have a sense of humor in this business, I think. Anyways, this just shows the lag seven. This is the mags ETF. And you can see that it's underperformed relative to the 493. That was our thesis before the war, and it remained our thesis during the war. And it's continuing to work. Today, we're seeing some strength in the Magnificent Seven. But on the technology front, it's been kind of a rotation out of the software still. The software's still weak. Here's the Magnificent Seven. And semiconductors have been where the strength has been. But here's what I wanted to get at. This is what we show our audience on Monday. And that is, here's the S&P 500 operating earnings per share, and what the analyst consensus is for 2027 and for 2026. So they're finally being more typical of what they've done in the past. And they're getting a little bit cautious, because they're not, well, they're not as enthusiastic as they had been in 2027 and 2026. This looks like the first quarter earnings season has certainly popped up the 2026 numbers. And now they're kind of going flat. But what drives the market, in our view, is the forward earnings, which is a time weighted average of this and that. And that's also kind of looking. So it's kind of consistent with what you just said, Nick, that happy days are here again. But the euphoria may be coming down a little bit. This is the same story for the quarters. And we can see that finally, after some pretty heady increases in earnings growth expectations for the remaining quarters, but they're still looking over 20% on a year over year basis. So that's, that's impressive. This is a forward earnings for the S&P 500, 400 and 600, just to show that there is a broadening out of earnings expectations. So it's, you know, if you've got some issues with the quality of earnings in this, I think there's less issues in terms of the quality of earnings in some of these others, because this includes the hyperscalers and the semiconductor euphoria and all that. This is a chart showing the 12 month percent change in forward revenues and forward earnings. And this is, again, kind of consistent with the view you said that, you know, for the next six months, we're probably okay. This, there's still plenty of upward revisions going on when we look at from, from the forward perspective. This has got me a little bit concerned, maybe a lot concerned. There's no irrational exuberance in PEs. As a matter of fact, the fact that PEs are where they are today with the kind of earnings growth shows that investors aren't buying in completely to the the excitement of the earnings story as told by the analysts. But the analysts, when you ask, what do you think earnings are going to be growing in the next three to five years? They're, I mean, they've got a crazy number, you know, 43, 44 percent. And that, of course, that's for technology, I should say. And this is what it's done for the S&P 500. All of them are all-time record highs. One of the thoughts that's kind of starting to circulate around is that the irrational exuberance is actually in profit margins that, you know, can profit margins really hold up like this to support earnings? And that gets into the story of whether semiconductors are cyclical or not. And I guess we're going to find out. But my bet is there's somewhere between cyclical and growth. So I guess I'm kind of punting on that one. But again, this is the market cap story that we have on market cap share versus earnings share for the information technology plus communication services. And we don't have that kind of divergence here. We got a lot of support for the market cap share of these two sectors relative to their earnings. So I think, you know, our approach and your approach are kind of coming up with the same view of things. Let's take a couple of quick questions here for those of you who want to pitch us some, some fastballs here. So Lee, the worst performers for the June swoon have been the Mag 7. Has the earnings estimates finally taken the glow off of these? And should we lighten up on them? So what's your take on the alligator jaws story with the Mag 7? [00:30:38] Speaker 2: Yeah, that's it. It just has been the Lag 7 in June. Now from the period from March 30th to June 2nd, the Mag 7 ripped higher and completely outperformed. But you know, it's just the fears. It's almost like the sequel that we saw earlier in the year. It was the Lag 7. Then it was the old Mag 7 back from March 30th to June. And now it's back to the Lag 7. So the setup is similar. And what we're seeing is, you know, Meta has weakening earnings. But Microsoft and Apple still have improving earnings estimates. The only thing that's really dropped is the price. So the scores are moving up and we're starting to get scores move higher again for the Mag 7. Because the earnings trends are staying intact relative, it's just been more fear that for the hyperscalers, particularly this month with when Micron reported that their costs are going to go up. And you know how, if Micron's pricing goes up for Apple, how are they going to support that? They're either going to have to eat the cost or raise prices and that could hurt their sales. So that's the fear that's going on, but we're not seeing it in the numbers yet reflected from the analysts. So where the earnings scores are actually moving up for some of the Mag 7 that we like that we think have been beaten up. [00:31:52] Ed Yardeni: Yeah, I guess we covered a lot that people were interested in. Oh, here's some more questions coming in. Playing into the G-shaped economy, the boomers wellness agenda. What about the earnings growth prospects in the healthcare sector underperforming in Q2? Yeah, I mean, if you look at the demographic macro environment, healthcare has nothing but customers for as far as the eye can see. But the sector has been a dog. I think biotech is starting to show some signs of life and maybe the pharmas as they purchase some of these biotechs will be viewed as growth stocks again. What is your [00:32:34] Speaker 2: approach to the show? You know, just as you said, there's boomers and healthcare should be booming and they are making a lot of money, but it goes to show you what I've learned over the years and what we learned. Good companies can be bad stocks because in the market, it's all a game of expectations. So everybody knows the boomers and the healthcare are going to be spending a lot on healthcare and the healthcare companies are going to go. So relative to the expectations, the delta for the healthcare companies haven't been improving as much as what you see in tech. And that's where the money flows to where the improvement is going to be the greatest. So while healthcare still has very good earnings and results relative to expectations and the delta off of that, it's been subpar and that's why it [00:33:18] Ed Yardeni: underperforms. Is SpaceX on your screen at all or you need a lot more history before that becomes a [00:33:25] Speaker 2: serious stock? What we do, we always say we want to enhance our clients' returns you know, save them time with the analysis and eliminate guessing. So when we track companies, what I showed for the S&P 500, we do that for 4,000 stocks and about 3,000 stocks we rank. We do these charts for everyone. We have indicator scores, but to rank the companies to measure their estimate changes and then analyze it and then rank it, we need roughly about three years of prior estimate revision data to rank where the trend has been to predict where it's going to go. As Wayne Gretzky says, we want to skate to where the puck's going to be, not where it's at. So for a company like SpaceX, we don't cover, we'll build the history, but we're just guessing to where the earnings are going to be because we have no prior history. So we need almost roughly three years of prior revisions to measure and rank in our system to get in there. So SpaceX will give a ranking on it in about three [00:34:23] Ed Yardeni: years. So we don't cover the IPOs. Okay. Well, we try to cover a lot in about half an hour and looks like we, let's see. There's another question here. Why not? If you folks are willing to spend a little bit more time with us. So let's see what Jennifer has to say. Would either of you like to comment on the new head of the reserve vis-a-vis expectations or changes to less guidance? Yeah, Jennifer, we've written quite a bit about Warsh. You know, we're professional Fed watchers, which brings us some distress these days because if Warsh isn't going to provide as much information and forward guidance, you know, does that mean we're going to be short of content? I don't think so. We'll come up with something to say about the Fed. And right now we're looking forward to what Warsh will say at a panel discussion that he's going to be in, in Sintra, Portugal on Wednesday. I've been to Sintra. It's absolutely beautiful, but I wouldn't want to be there when it's like a hundred degrees in the shade. So, you know, they may have to start rethinking when they schedule these things. At some point, maybe Davos will be an alternative. But look, we, like everybody else, were pretty surprised by his press conference in which he stressed off over and over again that the name of the game is price stability. And I think maybe Warsh gets it. Back in 2024, we were saying that the Fed should not be lowering rates, the Fed funds rates, because the bond market is not going to like it. But they didn't listen to us. They went and lowered the Fed funds rate by 100 basis points and the bond yield went up 100 basis points. 2025, they lowered it by 75 basis points. So no, it doesn't make sense to us. Economy is doing fine. You haven't gotten the 2% yet. And the bond yield is basically back at 4.5%. So maybe Warsh gets it, that if he talks hawkish and maybe actually tightens by a quarter point, that the bond market will love it and bond yields will come down. And that's the most important interest rate when it comes to a lot of activity in the US. Nick, anything you want to add on that? [00:36:50] Speaker 2: I think you're right. He, being appointed by Trump, you just assume he's going to cut rates, right? That's how he gets the job. But he's doing the right thing. And you mentioned, Ed, that the earnings growth is above 20%. And I know you and I both believe this market can handle a hike or two to cool things down if needed. I mean, the earnings trends are positive. The growth is high. I don't think the market people have to fear a rate hike is an automatic reason to sell as long as the earnings still stay strong and high and you can curb inflation. That's a Goldilocks scenario. So I think that's one of the fears people have. They think Fed raising rates is an automatic thing to go bearish. No, that's a variable. And how does that impact earnings? And as long as they stay strong, you can stay bullish. [00:37:34] Ed Yardeni: One last question from Michael, how much do the upward revisions in your work, Nick, have to slow for your system to provide a sell signal? [00:37:44] Speaker 2: That's a great question. So we look at the revisions for the company on a rate of change, how they're moving to itself and then relative to everything else in the database. So we're ranking. So we do a normal distribution in our indicator scores. We come up one to 100. So on those charts I was showing we actually then have a paint by number indicator score for clients. And it's a percentile ranking in there. So we always have the same numbers of buys as we do sells. It's a normal distribution. And typically what we're going to see is companies with the strongest estimate trends and weakening prices. Those are the ones we're going to want to buy as a rule of thumb. And we're going to want to sell the ones where the estimate trends are consistently weakening and we think are going to continue to get worse on stocks that have been up 100, 2, 3, 400%. We're going to want to sell those and get out. So it's a relative ranking system in there. So how we set it up. [00:38:36] Ed Yardeni: Nick, thanks very much. It's always fun doing this and getting an update right before the earnings season, kind of an insight into what the earnings season might look like. And this looks pretty promising, but first quarter was so kind of off the charts that we shouldn't expect something like that again, but we should be in good shape. Thanks again, everybody. Stay cool. There's a big heat wave hitting the U.S. now after hitting Europe. Europe's supposed to get a break, I think, in the next few days. I hope you're all enjoying the soccer and let's all enjoy July 4th and just have fun. All the best, everybody. Thank you. Thanks, Nick. [00:39:26] Speaker ?: *outro music*