저자: EdYardeni·NickRaich · 외국인
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결론: 시장은 아직 하락 신호가 없으나 실적 추정치 증가율 둔화를 근거로 2027년 리스크를 경고하며, 연말까지는 상승을 전망한다. 금리 상승 원인: Yardeni는 경제 성장 호조(중립금리 상향), 정부 차입 증가, 베이비부머 은퇴에 따른 저축 감소를 이유로 꼽았다. 명목 GDP 성장률(약 6.5%)보다 10년물 금리(약 5.3%)가 낮아 채권 자경단(bond vigilantes)의 본격 개입은 아직 아니라고 봤다. 금리 시나리오: 네 가지(좋은 성장, 전쟁·유가 정상화, 엔 캐리 트레이드, 부채위기)를 제시했으며, 현재는 성장 요인이 가장 크다고 판단했다. 프랑스 부채 위기 우려도 언급했다. 연준: Warsh 연준의장 체제에서 6월·7월 매파 발언 후 9월 만장일치 0.25%p 인상. 연준이 중립금리 이하로 과도하게 인하했던 실수를 바로잡는 중이라는 평가와 함께 추가 인상 가능성을 열어뒀다. 유가: 호르무즈 해협 통과 물량이 전쟁 전 95% 수준으로 회복되는 신호가 있으나, 오늘 헤드라인은 여전히 낙관적이지 않다. 증산 기대는 있다. 실적 전망: Yardeni는 S&P500 2026년 말 목표 수준을 419에서 425로 제시했다. 2026년 실적 추정치는 hyperscaler들의 SpaceX·Anthropic 투자 평가이익으로 왜곡되었고, 시장은 2027년 추정치를 더 중시한다고 봤다. Nick Raich 분석: 2분기 실적 시즌 37% 어닝서프라이즈, 실적 성장률 26%(평가이익 제외 기준). 추정치 상향 강도는 1분기 3.2%에서 2분기 1.96%로 둔화됐다. 'Alligator jaw'(추정치 변화율 2분기 연속 약화 + 주가 상승 괴리)가 35년간 7회 발생했고 그 중 2022년 약세장으로 이어진 사례와 2021년 패턴이 유사하다고 주장했다. 지금은 1분기 괴리만 확인된 상태다. Micron: 3분기 실적 발표 기업 중 추정치 상향 폭이 가장 큼(8%)이나 추세는 둔화 중이다. 리스크·대응: 괴리가 확정되면 고베타 기술주(Tech)를 먼저 비중 축소하는 것이 원칙이다. 지금은 현금 보유보다 매수 기회를 우선할 시점으로 봤다. IG·HY 스프레드 확대와 CDS 상승은 주의 신호로 언급했다. 출연자 전망: Yardeni는 기본적으로 낙관적이며 성장 둔화 신호가 확인될 때까지 긍정적 관점을 유지한다. Nick은 연말까지 상승, 2027년 리스크 대비를 주장하며 지표가 확인되기 전에는 결론을 보류했다.
다듬은 글
Hello everybody, it's Ed Yard Daily. It's Monday, October 5th at 11:00 a.m. Our usual weekly get-together. Glad you could get together with me today. I'm I'm going to be joined with Nick Nick Rach shortly to discuss some of the insights that he brings with his earning scout uh uh techno- technology and analytics.
Um here we start out with the weather and here in Long Island everything is just peachy. Uh nice nice autumn day. Actually, it's a bit on the warm side. Very sunny and looks like we may get a a nice autumn after somewhat uh uh sketchy summer. Uh but at any rate, I hope everything is good in your neighborhood.
And in our neighborhood in the stock market, it's kind of a mixed picture. In terms of good, we're now thinking about spectrum of possibilities, scenarios for the stock for the for the bond market. The bond market obviously has become rather important to say the least to what's going on in the financial markets.
And the spectrum that we wrote about in the morning meet in the morning briefing is on the one hand the increase in interest rates. We're trying to explain why bond yields have gone gone up and everybody's gone through this exercise. We just try to put a little bit more discipline in it and kind of put together some of the various ideas, thoughts we've had on this back up in bond yields.
So at at one end on the on the spectrum, what think is the fact that um the uh economies have been growing better than expected. Uh and uh as a result of that, uh the neutral interest rate uh might be higher than the Fed thought. Uh remember at the beginning of the year, Fed officials were saying that they thought that uh there the Fed funds rate was uh modestly restrictive.
In other words, they thought that the federal funds rate uh was actually still above the the neutral rate and that uh and the markets uh responded by anticipating one or two rate cuts uh for the year. Uh then uh Kevin Warsh came in as the new Fed chair in June. He was very hawkish. Fed did nothing. In July, he uh once again at the July meeting, uh he was uh very hawkish and nothing happened other than we had three dissenters who actually wanted to to raise rates.
And then suddenly in September, we have a unanimous vote at the Fed uh for raising rates, uh the Fed funds rate by a quarter point. And now the question is, where do they go from here? Do they do October, December? Do they just uh do December? But uh the Fed has made a huge pivot from the beginning of the year to now, where they're thinking, as uh Fed chair Warsh said, that they've uh the latest rate hike was removing a dose of accommodation, uh clearly implying that the Fed funds rate is below uh the uh the neutral rate and that they need to get it up there uh to be in line with this Nirvana uh level of interest rates that's consistent with a growing economy and yet that's uh stabilizing and moderating in- inflation.
Um uh so um some more and more of the growth, I think, is coming uh from uh productivity and uh that means that uh again, the economy is uh uh growing at potentially a a higher neutral uh interest rate. Certainly the government's demand for credit remains very high. I mean, the reason we have a strong economy is the consumers been resilient for reason we've discussed related to the baby boomers.
Capital spending has been resilient strong because of the AI boom. And then the government has been kicking in with something like $2 trillion in in borrowing in the capital market. So you add up all that borrowing in the capital markets in an environment where baby boomers are retiring. And when you retire, you don't you stop saving because you don't have disposable income anymore.
So naturally rates should be higher. The question of course is how much higher? And I think we can maybe look at the bond yield relative to the growth rate in nominal GDP. Nominal GDP growth rate is around 6 and 1/2% on a year-over-year basis. We're below 5 and 1/2% Does that mean we have to go up 100 basis points?
I don't think so. I don't think the the bond vigilantes are in the United States at work just yet. I'd be telling you the bond vigilantes are working overtime if I saw the 10-year yield rising above nominal GDP GDP growth. Um so uh the other end of the spectrum so that's the good that the economy is doing well and all we're doing is really re-re-pricing the bond yield to reflect the fact that the economy's back back to its old normal.
So rates are back to they're not the phrase higher for longer is one that irks me because it's not higher for longer, it's normal for longer. We're back to to normal. The other end of course the the ugliest potential is that this is a debt crisis kind of like what uh not kind of but uh exactly like what um Ray Dalio's been talking about for for quite some time.
Uh it's basically the revenge of the bond vigilantes to put it in terms that are more familiar to you in terms of what we we've been saying is a possibility. But we we don't view it as as as where we are right now. And by the way, if we got there, I think you would see Scott Bessent pulling out the bazooka and buying back a lot more Treasury bonds and issuing a lot more Treasury bills.
So, it doesn't necessarily have to be as doom and gloomy doomy and gloomy as uh if there are such words as Ray Dalio has been talking about. Um I guess on the on the other back to the good side of the spectrum or the not so terrible is the war. I mean, the war itself is of course terrible, but this too shall end at at some point here and we're already seeing some signs that oil is getting through one way or other either through the strait or around the strait.
And that should bring oil prices down. Doesn't seem like it's happening right now. The headlines have been making the point that we're back to like 95% of shipments comparable to what we had before the the war. Oil prices still looks looking pretty pretty sticky cuz today's headlines aren't quite as optimistic about oil getting through the Strait of Hormuz.
But the the assumption is that oil will get through and more oil will be pumped in response to these high prices in Canada, United States, Venezuela, other places. And then back closer to the debt crisis would be the end carry trade that what's really going on here and this explains the global synchronized increase in interest rates and that's really what's going on.
So you got kind of four scenarios in the spectrum and then of course it could be all of the above some combination of all of them but right now we think we're what explains the rise in yields in the United States is better than expected growth. What might explain what's going on on a global basis is more the Yen carry trade and of course we seem to be having a looming debt crisis in in France right now.
So we'll see how that plays out. We France has started to remind me of Greece back I think it was 2010 when their yield went up to 40% when the bond vigilantes were mad as hell at at Greek policies. Let me just share one chart. I'm not going to go through the all the charts now because I want to segue to discussion with with Nick.
This is the way that uh Yardeni Research typically keeps on top of what's going on with earnings. We look at it for the S&P 500 400 600. We look at it for the sectors and we're looking for is what analysts are saying that they think what their consensus expectation is for earnings for this year and then for next year.
This year has been distorted by mark-to-market accounting gains for a couple of the hyperscalers that invested in SpaceX and Anthropic. I think Amazon invested in Anthropic and and Google invested in SpaceX. At any rate this is 2026 is less and less relevant. For the fourth quarter we're now in the approaching the third quarter estimates, the fourth quarter estimates will be largely irrelevant unless they actually have an impact on 2027 because the market discounts forward, it looks at forward earnings.
Forward earnings is a time weighted average of these two, and now we're converging towards the 2027 estimate, which is flattened out, and I guess this the subject that we want to discuss with Nick is from the tools he uses. I think he does it more from a bottom-up approach. Is this looking like it's something to worry about, or are we about to get into the third quarter and earning season and find that this continues to go up?
We're we're projecting that by the end of the year we'll be up from 419 to 425. So, we're we still think that we're not particularly troubled by this, and we think that 425 is where where we where we get to by the end of the year. And then, depending on what multiple you want to come up with, you can you can you can obviously traverse a a large range for the S&P 500.
Well, let me stop sharing here, and let me bring Nick in. Nick, you want to come out come on down? We almost got you. Oh, good. And I think you just need your video so we can see you. But anyways, we've had Nick on before. He's a good friend of Ed Yardeni Research, he's a good friend of Ed Yardeni. We've known each other for a long time professionally.
I met Nick at KeyBank, he was the director of research there from 2010 to 2013, director of equity research at National City Private Client Group, 2005-2009, and director of research at Zacks Investment Research. So, he knows what this business is all about and he feels your pain. He's he's he's he's been a portfolio manager himself in the past.
So, Nick welcome. Thanks thanks for joining us and we like to do this quarterly right before the official earning season start because you have some unofficial numbers that aren't considered to be part of the earning season but they actually are. Why don't you take it away Nick and give us an idea of how things look from the perspective of the tools you
and it's sunny skies here in Cleveland, Ohio too. So, they're forecasting sunny skies all week. And I think that's what the earnings picture right now. It's sunny skies out right now but uh I want to talk about how hurricanes don't strike without warning signs and neither do stock market sell-offs. So, every major stock market sell-off of my career over the past 35 years there's there's been warning signs ahead of it.
I'm going to show you how we're looking at earnings to see is a storm brewing for 2027? Right now we project higher prices through year end. Well, like you Ed, we were bullish a little bit more 6 months ago, a little less bullish today but still believe prices are going higher through year end. Um but but make no mistakes.
We're we're measuring something out at sea right now. When we look at the trend now, it's clear skies from an earning standpoint. As you mentioned Ed, the estimates are going up. 37% beat in the second quarter earning season. 26% earnings growth and we're stripping out those in mark-to-market investment gains you're talking about.
Extraordinarily strong 26% growth in the second quarter. Normal growth is 6 to 8%. Second half half outlooks were raised after companies reported. You have a market that's up 13% year-to-date, 22% since March 30th and 116% since the bull market began. The one thing that we track, you could be on the beach and see the sunny skies.
There could be something brewing out 3,000 miles out to sea off the coast of Africa. You have time to prepare, but when you do, you got to prepare in the market just like the hurricane. You board up when it's sunny skies. So, when it's time to sell, you won't want to cuz things are going to look great.
Cuz if you actually start to board up and sell stocks when the storm's hitting, when the market is starting to tank, um you're going to be too late. You don't want to sell low and then panic sell when the market's crashing. You need to board up soon because if you do at this point, you just have to hunker down.
We're going to show you how I use the earnings trends to figure this out and to see that storm that's tracking out there. We do something with what we call an alligator jaw because what we see is an alligator jaw is a negative divergence that develops in the market. And this is for the S&P 500. We're tracking 3,000 companies.
For the S&P 500, when we see the rate of change to the overall estimates in the S&P 500 weaken for two quarters in a row or more, as the price keeps going higher, we flag that with an alligator jaw, that divergence. It's done it seven times over the last 35 years. And right now we're seeing a one-quarter divergence.
Uh the estimate trends actually weakened in second quarter even though they were phenomenal. We're going to show you how they were a little less phenomenal. And right now we're actually starting to compare this year. People have been asking me, is this like 2000? And I'm actually going to show you this is this year 2026 from an estimate revision standpoint is more like 2021.
It's almost identical. And if you remember, 2021 was a great year for stocks. 2026 is going to be a great year for stocks. But we're going to show this how this comes out in here and show you the charts of what we're looking at in in the measurement of the data. Um because in 2022 we went into a bear market.
But let me show you what's going on this year with revision trends and what we track and how we do it. We measure what we call an earning score. We take every estimate in the S&P 500, and this is over the last year. This is through Friday's close. And we measure the percent that they're moving up or down.
Multiple quarters, multiple years of estimates. All you need to know here is over the last year the estimates were going up at increasing rates. And in first quarter earning season, in peak earning season, the majority of the companies report the estimates were going up after companies reported at a rate of 3.2%.
Fantastic, right? Well, the estimates were still going up in second quarter earning season, which peaks at the end of July, early August. And they were going up by 1.96%. So, what we're noticing is the estimates are still going up. Fantastic, people are going to bid shares higher. But what we want you to observe is they're going up at a lesser rate.
So, the positive revision momentum may be cooling. Why is this important? I want you to look at what happened in 2021. So, we're going to show that chart. So, this is now through the one-year chart ending October 1st, 2021. Five years ago the estimates were going up at increasing rates. And in first quarter earning season of 2021, the estimates were going up around 5.1%.
And then in second quarter earning season they went by 3.38%, which is actually better than they're going up today. But what we noticed is the revisions were cooling. Why is that important? Because take a look at these trends in the charts between 2026 and 2021. When we look at this and go, "Wow, they look the same." Um but what happened in 2021?
We know stocks kept going higher, but 2022 we went into a bear market. So, let's show you what actually happened. There's the 2021. If we extend this out over a period and look out all the way to when the market bottomed on October 12th, 2022, there's the estimates going up by 5.15% then 3.38. There's where we're at today.
We're at this point in time right now with 2026. So, we're going to use this as a road map possibly for next year because what we saw in third quarter earning season of 2021 is the estimates were flat. So, we had two quarters in a row of more of weakening on a rate change basis earnings for the S&P 500 as the price kept going higher.
That's what we flagged with the alligator jaw. And this is what it's reminding us we think could happen this year as well. And then when that jaw opens, it closes with the 23% bear market of 2022. So, that could be setting up these sunny skies could be going there could be a storm out in the horizon.
What I'm going to look real quick for you to see, will the revision trends weaken again this earning season? We're forecasting higher prices. So, take a look at the first 16 companies that have reported third quarter results. And third quarter earnings are underway by the major data service providers.
These are the 16 companies that have reported August quarter ends and none of them have had a better revision trend than Micron right now. Micron's estimates are going up by 8%. But what we want to show you for Micron is take a look at what Micron's revisions were doing 3 months ago, 6 months ago, and 9 months ago.
Uh they're cooling. And overall trends for the S&P 500 are also 6 months ago, the estimates after these 16 companies reporting were going up by 11%. Now, they're going up by 1%. So, are we watching the cooling momentum that we saw like we did in 2021? And we think yes, these are going to be a great barometer.
So, visually we can show you these 16 companies and how when their estimate trends got better, they represented the S&P 500. And then towards the end of 2024, a jaw opened again in the S&P 500. We had an alligator jaw at the beginning of 2025 where we had a 19% sell-off in the market. We've had the improvements since, but now look at the cooling.
And that I This is what I want to show is the estimates are still going up. We think your your bars are going to keep going up for 2027 as well. But what we want to look at is are the estimates is the momentum starting to lose steam. And as we look at it here, last year we had a Fed that was cutting rates when earnings investments were improving and earnings growth was accelerating, and that led to explosive growth this year.
The setting today is we got a Fed that's raising rates. Interest rates are going higher. Earnings growth is set to decelerate next year, and we're telling you the estimates are weakening. So we got a little bit different setup. We're not bearish yet. We're tracking a storm that's out there. Uh but right now we think it could be a an ugly 2027 if we see the revision trends weaken and the price is going higher.
So and that's what I'm looking at from a high level for for uh your clients to see. Um and if they want to see what we're doing, they they can clearly see it. Our daily commentary uh to track these trends. We do it very objectively. Uh or if your clients want to see what we're doing on dangerous individual company basis, we have a client portal with all the companies, 3,000 companies we track as well.
Uh but yeah. No, I'm not calling a hurricane coming yet. Um but we're certainly tracking something out there right now cuz it looks a lot like 2021 to me. Uh the the only problem Nick I have with your hurricane analogy is you might remember that Jamie Dimon used it uh back when like 23 or something like that uh uh early on and and there wasn't a hurricane, but uh uh at least you've got a very disciplined way of do of doing what you do, and uh we uh we we tend to be very comp- complimentary.
Uh we we compliment each other, but we also compliment each other in the sense that we we approach the earning story from the macro perspective and Nick, you you you get down into the weeds and and look at individual companies and I I always thought your work was was great and I think you reciprocate, right?
You think our work is great, too, correct? Absolutely. And I I find it you're coming from the top and you know, your firm has become a little less bullish, still bullish through year-end. Yeah, yeah, yeah. Well, you know, our story is we're we're still positive on the earning side from a macro perspective.
I mean, I I totally get what you're saying in terms of the growth rate at the you know, whether whether whether if earnings are going up, but they're going up at a slower pace, that that's there's a there's a storm off of Africa. But, can you give us a little bit more technicals on what you do? So, when you're looking at earnings revisions, are you looking at at a kind of like at a you know, are you looking kind of weekly or or monthly and are you comparing earnings revisions?
In other words, if you're saying that the pace of earnings revisions is slowing, what does that mean in terms of the arithmetic that you're you're using? What are you comparing to what? It's a great question. So, we take all the estimate revisions each week that come in, all the new ones. Really, the reality is companies only change their estimates about four times a year after they report.
So, the data doesn't come in linear. And what we're doing and measuring is the expected business momentum in the economy using estimate revisions and the sales estimates as well to see and what we find is momentum is a powerful force. So, when the momentum starts to slow and build, you can see it coming from a mile away.
So, that's why I say hurricanes no hurricane has ever struck without a warning. You can see it coming. So, you have time to board up and and what we do is use that two-quarter divergence where the price keeps going higher and the earnings go to really start to say now is the time to de-risk. That's when we say the market's pricing in perfection and any negative trigger can create a downside that's out there.
And that's happened seven times before every major correction and bear market over the last 35 years. So, we're looking for that warning sign now. It's not quite there yet because we can say this hurricane that's off the coast of FL. It could veer off course, and we hope it does. We hope we start to measure improving earnings again.
But if we measure another earnings season of weakening estimates with rising price, that jaw opens for the eighth time in the last 35 years. And that's that's when we'll start to de-risk. Now, from from your experience, how much of kind of what you're tracking turns out to be cyclical versus secular?
In other words, uh uh if you're looking at uh the the rate of growth of earnings, uh clearly it's going to be cyclical. I mean, you you just can't see earnings growing uh you know, 25% year over year and expect that it's going to show 50%, especially, you know, taking out mark-to-market uh gains. So, I I would say that uh a 25% year-over-year increase is a pre- pretty pre- pretty convincing sign that the the the that the next the next set of comparisons comparisons are going to be weaker.
Uh in other words, there's got to be sort of a a kind of a built-in cycle in in into your work. Uh and yet uh and that and that might coincide with the cycles in uh in recessions and in uh the stock market. I mean, it has to, right? It's P E times Z. Uh What what's what's your experience with kind of how much of what you're looking at is inevitable cyclical stuff.
Uh you know, what goes up comes down in terms of growth rates. You know what I've always liked about using I you know, the sell-side consensus gets a a lot of bad rap at times. One of the great things there is there's a a lot of brainpower on Wall Street. And they factor in the secular the secular trends into the estimate that they're getting from the company guidance.
So it's already baked in. And then what we measure is take the consensus as your estimate and then measure the delta on that to see if that's getting better or not. So a lot of those factors already calculated in by the collective brainpower of Wall Street. And then we're measuring are those expectations getting better or worse.
So the cycle's built in a lot to the estimates already and coming from the company guidance right off the bat. And you know, I find it interesting the market's so smart. This year, a lot of people think the market's cheaper this year because than last year. The market multiple was 22 times last year.
It's 18 times this year. Correct. And I look and go, "The market is so smart." Last year the market was going the fence cutting rates, growth is accelerating, and we're going to have explosive growth in 2026. And the market was right, and they were willing to pay more. This year the market's not willing to pay as much for the for next year's earnings because they think it's set to decelerate.
The Fed might tighten. Growth may start to weaken as well and decelerate back to our normal trend. So that's why the market multiple is decelerated because the market's following the expected E. And that's what we're tracking. The expected E tells you everything in there. So that's why the market multiple's cheaper today, but it might be cheaper for a reason because the market's willing to pay less.
Do you want to turn off your sharing just so uh uh we're look looking at each other more, and there we go. Um okay, let's let's do some uh questions. So we don't have a lot because uh you and I are just so amazingly comprehensive. What we have to do You are certainly. Uh but uh uh there's uh a few questions about uh whether uh your deck is available and you have it right there folks.
So, just Google it the earning scout and Nick Nick will respond to you and if you want to give you're offering you're offering trials correct? Yeah, sure. We always do that. If you people want to see what's going on the trends for third quarter earning season, we'll we'll we'll give them to you for sure.
Yeah, we this this is also a bit of an alliance because I think we invited a lot of your accounts. So, if anybody on your side wants to try it give us a holler yourdenny.com is the easiest way to find us. Okay, so there were like I said a few questions about getting the the deck. Now, let's see our good friend Michael for Nick historically how often does it happen that we get only one quarter of declining earnings estimate momentum with no follow through in the next quarter.
Good question. In other words, could it be a head fake? Yeah, one quarter doesn't make a trend. That's why we don't get bearish right away because it could pick back up. The only thing is I'm using the early reporters as a guide and you can see the early reporters are seeing a negative trend as well.
So, it looks like the bottom part of the jaw the e is going to go lower. We just need the price to go higher and you know, bull markets die on euphoria. They don't die with a whimper. So, we need to see that divergence from the underlying trend before jaw opens. And when that does occur, that's when the extreme prices go on and that's when we'll tell you to do risk.
And that's probably we'll tell you to move to an underweight in tech. If when we saw a jaw open for the S&P 500, we're going to be recommending an underweight in tech. And we've been very bullish on tech this year. Became a little less bullish in August, but we're still bullish nevertheless because we think we'll get that blow off top in that space.
As as you know uh at the end of last year we switched from overweight to market weight mostly for for the sake of diversification. I mean if you add up information technology and communication services you get something like 45% of the S&P 500 and I just found it hard to recommend overweighting these two sectors when the it just market weight you're kind of you're you're you're kind of overweight.
I my my old rule of thumb was when one sector gets to 33% that's usually a top in the sector but uh anyway I call those two sectors the mag seven. Yeah, that's true. Okay, a question from Joe. Does the alligator jaws work if you use revenue estimates? Uh for yeah, that's a great question. So we tend to look the more established companies earnings matter more.
Uh revenue estimates we track as well and do a sales indicator score. Those tend to be more for micro caps and startup technology companies where sales matter more initially than the earnings. Once companies become established for the S&P 500 the earnings matter more for about 90 to 95% of the companies in our database.
Okay, I think this is a question for me but you can jump in too. Any thoughts on the recent spread widening in IG and investment grade and high yield? Is this growing worrisome? It seems to be following CCC spreads that have widened the last few months and then we the Yeah, the the CDS uh prices have also gone up on the IG and HY.
The short answer is yes. You know, when the Fed tightens and this is I kind of view this as the second round of tightening. We had the first round from zero to 5.5% and then the I think the Fed made a mistake in lowering by 175 basis points in 2024 and 2025 and that's that's not just my personal opinion.
It's the opinion of the bond market. The bond yields went up instead of down. And now it looks as though the Fed is I think correcting its mistake with at least two two rate hikes. But we we all know that when the Fed is raising rates, there's always the risk of something breaking. Back during the first round, I said that the economy would remain remarkably remarkably resilient.
But I'm not but uh and again, we didn't see the spreads really widening then cuz there was no recession. This time around, yeah, I think we have to pay attention to what's going on in the credit markets. Mitchell has a question for Nick. What might cause you to change your forecast about a gathering storm?
It seems oil and yields are heavily related. So if oil if oil geopolitics improved, would could that reduce the likelihood of alligator jaws forming? Well, yes. I mean, if we see the price of oil subside, interest rates subside, and 5.32 on the 10-year today going up doesn't scare me as long as earnings expectations keep improving.
So we're just going to follow that trend. So at that point, if energy stays elevated, we don't get to quite the boost from the AI infrastructure build out that we were getting, you know, 6 9 months ago, and the trends weaken, that's what we're doing. We're just going to follow the trend. We won't guess.
But yeah, if we see that earnings estimates pick back up, that changes our view, and then I would say the hurricane view is off course and doesn't hit us on shore. Okay, so this is a question for me. What is it that turns you negative credit spreads? Question mark. Rates are higher, inflation above trend, really strong dollar, more narrow market.
Yes to all of the above. You know, we try to be objective and reasonable. You got to be. We are kind of natural born optimist, but that doesn't mean that we don't worry a lot. Fortunately, a lot of the really good work on things that can go wrong is done by the permabears, so I don't know if they work that hard on that on that that that side, but but they do a good job in telling us what could go wrong.
And yeah, I would say you know, credit markets is always where the the the trouble trouble start. And so we may very well have uh we we want to watch the credit markets very closely and uh you know, we just laid out these four scenarios, growth, uh war, yen, and a debt crisis is sort of the spectrum.
And sounds like uh Nick and I are basically in agreement that right now we're uh the reason rates are going up is to a large extent uh uh growth. Um let's take another one or two questions. Uh Okay, uh Toroku. Somebody's uh oh Bailey Bailey wants some love in here. Easy, Bailey. I got four of these.
Bailey was hanging on to every word of yours, too, Ed. It was great. Did Did you see Did you see Bailey? Oh. Where we got I got Bailey. Bailey was tuned in. Oh, she was Bailey in Bailey and Max sometimes can be confused. that was tuned in. I'm sorry. Max is tuned. Yeah. Uh okay, uh assuming the alligator jaws coming, what is the recommended process for reducing risk in the equity market by sector, by waiting how much reduction?
A great question. It's a great question. So, what we're going to say is when the jaw opens, um the high beta plays are going to sell off the most. That's when you're going to want to underweight tech. So, if that jaw opens on the S&P 500, our call recommended probably and we become less bullish on tech, that's probably where we're going to go first.
And getting that call right is going to matter big time when that happens. And again, we're not saying that the storm's going to hit, we're just tracking it out there right now. So, Nick this is a This is a tough crowd. They expect us to have all the answers. So, uh Macron says uh okay, we have de-risked.
What do we do with the cash? I mean, We don't want you to de-risk yet. We don't want you to de-risk just yet, but it's it's coming, so you got to start. But but but the fact fact is they have so maybe they're anticipating that you're going to be right or that that your model Yeah. Yeah. You're building Noah's Ark a little early, but they're and they might be laughing at you now cuz it'll be sunny skies for a while, but you want to buy an umbrella on a sunny day nevertheless.
You want to buy low sell high. Yeah, the the the problem with cash is it's actually attractive right now. It's not Yes, right. It will be. Yeah. Okay, uh I will take one last question here. Lee, given the unprecedented earnings that defied many analysts' expectations in the past except yours and mine Nick of course, uh can't the drop in expectations still call for an increase in earnings albeit not as high still keep the market going up albeit not as high?
[snorts] Yeah, no, I think that that's what we're going to see. Well, you know, at the end I I always love the phrase from Sir John Templeton that bull bull market or bull markets are born on pessimism, grow on skepticism, you know, mature on optimism and die on euphoria. We need to see that euphoria at the end here even though the estimates may be decelerating and getting a little bit weaker cuz that's what we've always seen.
So, we're just going to keep following that pattern in the projection when we go. So, higher prices through year end, watch the delta on the estimates and if it opens the jaw opens, you're going to be putting your hand into an alligator jaw. You might get bit in 2027, but we'll see. Well, Nick, thanks very much.
Thank you all for tuning in. We had a great audience and uh we appreciate your interest in both both of our uh research efforts and uh we try to do the best for you and let's have a pleasant week. Thank you. Yep. Thanks, Nick. Much.
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