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Let's ask Tom Lee. He is Fundstrat's managing partner and head of research. Welcome back. Great to see you, Scott. So, what do you make of the price action today? This was a undoubtedly better than expected jobs report. Yields ticked up, maybe expectations of cuts by the Fed ticked down. We're trying to just figure it all out today?
Yes, I think the macro is a little confusing for investors at the moment because we not only have a new Fed chair that's announced and his policy stance isn't clear, but I think investors have been thinking AI was going to eat the jobs market, uh but we have a pretty decent jobs report. I think it's going to put a lot of weight and we of course had a weak retail sales, but it's going to put a lot of weight on Friday's CPI report because if that comes in tame, at least the market can understand that the inflation part of the Fed's equation is cooling and of course now if the job market is showing decent strength, it it kind of relieves us from a macro perspective because at least we're not seeing an economic downturn.
How about the the fact that the market's been a little frazzled? That's that's the word I've been using today uh lately. Bespoke points it out. For the first time in history, the S&P went from overbought to oversold back to overbought in a week or less. Goldman's Tony Pasquariello, Tom, says he can't recall a time that was this noisy, this high velocity, this wide open.
What about you? Uh it's it's very confusing, Scott. I think that there's two things happening, but I think one is really the bigger effect. I think the smaller effect is that AI, as you know, has gone from being this sort of driver of S&P earnings. Now the market questioning is AI just wrecking tech so badly that it's bad for the stock market.
And also, they're not buying the data centers and hyperscalers anymore. They've they're actually trying to buy the bullets, not the armies. Um but I think the bigger effect is that gold has become like this singular monolithic trade that's worth but you know, gold now is a $40 trillion market. Next to mag seven, the S&P is $40 trillion.
Gold is now bigger than the stock market. So I think as gold rises, I think investors are wondering you know, do they really want to use stocks as a store value if they can just be buying gold? Man, I just feel like we're we're we're kind of going down the line of the AI shooting gallery. And first you take down some of the mega caps and then you take down a lot of software and then you take down some of the private credit names and then you take down some of the financial data related names.
Is that just how it's going to be? We're just trying to guess on who's going to be disrupted the most? Well, I do think AI's capabilities, Scott, are are showing improvements. Maybe as they say, doubling every 7 months and and it now it's going from mediocre to quite good and and substituting some jobs.
I think that of course is rattling markets, but at the end of the day, uh and this is a half-full perspective, kind of proof of productivity. So to me, I think what we're seeing is that there is a payoff coming from AI because for software companies, for the ones that are actually truly disrupted by AI, that actually is a cost savings for a client.
So I I think it ultimately is productivity. Tom, when someone like David Einhorn comes on today and says, "Quote, I think this is the most expensive market that we've been in." Can you argue with that? I mean, you can you can say that it's and it's pricey. Others would say, "Well, it's justified because look at how earnings are are beating expectations." How do you parse that out?
Well, I mean, on a relative basis, his statement is correct because you know, as the late Art Cashin said, "Bull markets don't die of old age, get by the Fed. So, every year the market does get a little more relatively expensive, even if earnings are good. But, this year is pretty unique. Earnings growth is accelerating.
The ISM is back above 50 after spending basically 3 years below 50. We have a new Fed that ultimately, I think the market is concluding is dovish, and David Einhorn actually believes he's dovish. So, that's supportive of multiples going up at a time when the stock market has been shown six black swans, you know, from all the way from COVID to the tariff disruptions, and still grew earnings.
So, I I think the market's going to have to start to give a higher PE to the equity market, just in the same way that gold's being re-rated at the moment. You know, gold's PE multiple, price to sales, I think is over 50 times right now. So, as if gold can re-rate, I think equities can re-rate higher.
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