Mm hmm.

Just given that, okay, let's say they do, worst case scenario, have to pull back their spending, the hyperscalers, that means their free cash flow profile becomes more attractive, right? But I do think on your question around, like, is there potential for the Fed to think about what's happening in the market and take that into account in terms of what they do next? I think that's exactly what they've been saying, right? Like the market is doing a lot of the work for them, right? And that's exactly what we've seen.

The market is taking funding out of the hands of the companies that they don't think should be involved in this build out as much as they had in the past, right? Because they have indebted profiles.

They don't have the longevity.

They don't have this clean balance sheets.

And that's what this market is doing.

And that kind of does take the pressure off the Fed in terms of what they're thinking.

But if price action is bad, what do we do with that?

Does this have more legs because of everything else going on in the market just keeps pushing people back to tried and true offense plus defense equals comfort?

Yeah, I mean, I think, look, this obviously started a few months ago when we got earnings that were actually really strong, right? We got that ROI that we needed to see.

And now you add on top of this that you've got this macro uncertainty as it relates to rates, and you're seeing a lot of rotation out of the cyclical parts of the market, particularly, say, small caps, and gravitating towards these companies that have really showcase that they are earning money.

They're driving the magnificent earnings that we're seeing in the S&P 500.

And yes, that is expected to slow, but they've continued to beat those expectations.

take a base point?

Well, your question was if it stays the way it is today, how does the rest of the market work? It doesn't.

I don't think it does.

And you're confident that earnings are going to maintain the momentum for the 12 months that are coming, not the 12 months that just finished, which have obviously more certainty.

Yes.

So looking forward, you're going to see a deceleration in the growth rate, right? Like core operating earnings for 2026 are going to grow 20%.

So that's excluding those one-time gains that have been talked about.

So going into next year, it's going to be closer to mid-teens, right? So you're seeing that deceleration that's reflected in the market multiple.

And to your point on yields, that is certainly the biggest risk out there, I think, in terms of what's going on with the equity market.

Maybe not so much from a multiple perspective, just from a fundamental perspective.

You do?

I mean, as, what do you make of what Waller has to say when you're, know you're gonna get that report tomorrow morning, hear from the chair himself? You did have rates move up a little bit and stocks move down a little bit.

Yeah, I think, um, well, while he and Steve were speaking, it wasn't like anything was relatively new in that, right? Like, inflation was running above the Fed's 2% target before the war in Iran, and now you have this further impetus from obviously what's happening with energy prices.

But I thought what was interesting as it relates to the comments today was he did note that the labor market is nowhere near where it was in 2021 and 2022 when we had that really, really big inflation issue.

So I think unless that, a- again, like going from him expecting a Fed cut to now hinting at Fed rate hikes, does he think something has changed in the labor market? It's very hard to tell given that the monthly data as it relates to employment is very choppy.

Bull case is 9,800 to 10,000.

10,000.Well, I mean, think about everything...

And I do think all of your points, Chris, were really important in terms of the broadening too because this, like I'm talking about 23% earnings growth.

Obviously a lot of that is being driven by tech and AI, but the median stock is growing 13, 14, 15%, right? We're in that, that teens double digit growth area when we were in high single digits last year.

You are allowed.

Okay, great.

[laughs] I think there is scope for this market to continue to broaden, right? We do have the removal of what was an overhang from a sentiment perspective as it relates to oil, which could help things like, in particular, I think like financials.

Healthcare has been a standout for, you know, more of a defensive reason, but I do think that you can continue to see that broadening.

But I also think with the hyperscalers having the worst month of performance in like 10, 15 years, I think there's obviously consternation around the amount of money that they're spending, the fact that they are gonna be negative free cash flow for maybe one, two quarters.

But I do think they're gonna show an incremental ROI, return on investment, of their spend in the two- upcoming Q2 earnings, and there's gonna be a reignite- a reigniting of that trade, I think, as well.

What's the catalyst for that?

Well, I mean, I do think a component of that is very much obviously tied to oil prices.

Right

... you know, 15% year over year, and so that's creating a windfall for, you know, the consumer in terms of gas spend.

And if you look to what, you know, the bank said last week in terms of their results for earnings, it was very much that the consumer is still strong, right? Like, spending volumes are mid-single digits, 6%.

There's still that K-shaped economy that's happening in, in the sense that, you know, the high-end consumer is continuing to, continuing to prevail that spend.

But for the most part, I mean, everything that we heard last week in terms of earnings is fundamentals remain strong.

So to Dan's point, if you did do nothing, that was the right call, right? And that, that really is why the market moved as quickly as it did, right? Positioning got really off sides because of the geopolitical events, but underneath, like, if you really look at what was happening with earnings revisions, they were positive, right? So if you have any indication this war might end sooner rather than later, then you wanna get back involved in the market, and that's exactly what happened.

What, what's the change? What's the inflection point here?

Well, the inflection point really had to do with both valuation and fundamentals.

The risk is that constant flip-flopping and headline fatigue is starting to seriously undermine the efficacy of the Trump put." Now, what do you make of that?

Yeah, I mean, I think there's, there's obviously some truth to that.

And what Dan was just saying was this is ...

I mean, if we take a step back, like, this is all sentiment driven, right? Like, from a fundamental perspective, we haven't seen anything change except for for the better, because you've seen positive earnings revisions over this period.

So this is sentiment related, and I do think that there is just some fatigue, to your point, on, you know, relatively conflicting signals from what is said versus what's happening on the ground, um, so to speak.

And I, I do think your point on bond yields is extremely important, though, because I do think to a certain extent that's driving markets more than necessarily oil.

Like, oil has been kind of range-bound, obviously very volatile, but the significant march higher in yields, that would suggest, right, if you're trying to understand what the yield, what the bond market is telling the equity market, is that this is stagflationary, right? That the Fed won't come to the ...

Have you updated your bear case since this war started some four weeks ago, or was that always sort of there where if things didn't go right, we could reach those levels?

How much of the tech trade hangs on what happens tonight with all of these companies reporting?

I mean, it is a lot.

Um, and I think that whole conversation was really interesting to listen to and there was a lot of talk about sentiment and what could make it work.

I don't know that tonight is gonna be that answer, right? Like, I think, yes, on the semi side there is this question on whether or not we're at peak CapEx from the hyperscalers.

I don't think that's gonna be the issue because I think there's a supply constraint.

On the software side, I think we talked about this last week, you know, this is a sentiment overhang that isn't gonna be answered in one quarter, right? Like, this is gonna take several quarters of proving that they're not obsolete.

And so, yes, it would be great if we saw a revenue acceleration on a sequential basis, but we're gonna need to see several of those.

Are you spending a lot of time on that and you think other strategists are too, just trying to pick through the market, turn things over maybe more than you otherwise would to see what has some level of perceived immunity?

Mm-hmm.

And I think when you're trying to disprove a negative, which this industry is trying to do, and some other industries within the business services and, you know, financial services industries, that's very difficult, and it takes a lot of time.

It's not gonna be one quarter, we see an improvement in, you know, ROI for these companies.

It's gonna be a longer-term, multi-quarter thing, where they can prove their relevance, and that's where the valuation comes back.

Well, most of them are.

Right.

And so I think valuations had just gotten a little bit extended, and then I think that during earnings, what spooked people was really the expense side, right? It wasn't like anything from your point on anything on the fundamentals r- related to whether that's, you know, the M&A cycle, whether that's credit, whether that's the consumer.

There isn't really concern around there.

Did we shake out enough of whatever we had to shake out last week that we can regroup and start anew now?

I mean, it certainly feels that way from a positioning standpoint, right? You saw a lot of that washout.

It really started at the end of October as we kind of had some liquidity that came out of the market.

But within this technical driven move in terms of like the AI and tech related names, you still had this really solid fundamental backdrop in terms of the AI story and the AI spending story.

Now, I think going forward, yes, it sets us up nicely as we head into the end of the year.

there's going to be a little bit more of a discerning eye on, you know, where are you getting your revenues? How backward loaded are they? You know, are they concentrated in one vendor? Like there's going to be a lot more, I think, distinguishing that.

Maybe

I'm wondering how you think the market's gonna continue to react to news like this, not that the financing terms were released, but since the start of September, the hyperscalers like Amazon, Alphabet, Meta, Oracle have issued nearly $90 billion of investment grade bonds, more than they had sold over the previous 40 months.

you feel like, yes, we were asking ourselves some questions about valuation and spending related to AI, but that's all fundamental case is still intact and just continue to go with that trade?

Yeah.

I mean, look, we got the reports a few weeks ago.

They were really strong, not only from like an incremental CapEx perspective, right? We've had $200 billion increase in terms of the CapEx that's expected for 2026.

Yeah.

And obviously it's not to the same extent, but you are seeing an increase in ROI, right? Like you're seeing a positive inflection amongst the hyperscalers, and that's what people are really focused on, right? That's what investors want to see, maybe to a larger magnitude.

It does feel like we're at that inflection point, but we think it's still amazing.

You're a believer.

How do you think about that?

equities relative to gold.

I mean, I think there's definitely I think the gold move and the more speculative parts of the market that you were just talking about, like are somewhat similar that the froth had build up.

And I would say it hasn't been all year, right? Like it's not like that's been the case all year.

It's really been ever since the Fed started really messaging that they were going to cut rates and that became more solidified is when you start to see the more frothy parts of the market start to take off.

And I think, again, going back to maybe why that some of that's in reversal this week is, OK, if inflation comes a little bit hot and you have to take Fed rate cuts off the table, what be one or two, then that's going to be bad for those rate sensitive parts of the

What do you think about it?

I mean, I think it's been like just really underestimated over the past couple of years, like what these companies are willing to spend and where they're willing to go in terms of developing this technology.

Where has it taken us, do you think, in terms of the market's reliance on that part of technology and what else is going on as we figure out if we're in for something more in the way of a pullback?

Well, I mean, there's no arguing that over the past couple of years, the biggest component of earnings growth in the S&P 500 has come from the MAG-7 and the tech-related names.

Now, I think we're at a point where going into next year, because we've seen such, like, increased development and increased efficiency and capabilities of this technology, that you start to see it broaden out in terms of, you know, the sector use cases across the board, financials standing out as a very, you know, big, proponent of using it and implementing it across the businesses, where you can start to see, you know, the overall market, therefore having, you know, a better margin profile, right, because you're, in theory, increasing revenues and decreasing costs, and therefore also garnering a higher multiple, because if you're a higher margin business, you get a higher multiple.

So I think going forward, that's the bull case where you see that, you know, broadening of use case for AI that extends beyond the current incumbents at the moment.

Valuations aren't necessarily all that attractive, but valuations tend not to bite, really, when you have the economy hanging in their earnings growing and all the rest.

Yeah, and I think the conversation on the economy is a little bit, well, obviously, we don't even have any data at the moment.

We're going to get a lot of information, I think, from the banks.

Like, that's what we're going to be thinking about.

Not that only a few stocks are going up, but the biggest stocks, the growth stocks are going up the most.

Yeah, well, and I think that's a major concern around like concentration risk.

But when they're backed by solid fundamentals, it's not necessarily a bad thing, right? But in terms of what we favor from a sectoral perspective, we like utilities, financials, and technology.

So those are where we're really focusing.

Utilities is going to benefit and kind of be like an ancillary trade in terms of the AI play.

And financials, I think, are really interesting because we're just at the start of this deregulation period, right? Like, the Fed just held this meeting with a bunch of bank CEOs last week talking about, like, hearing from them.

What can we do to help? How can we simplify? And that's really just the start of that momentum in

So how do you view that?

I think you still are, right?

Yeah.

Yeah.

I mean, I think.

Yeah, we were talking about this, and I was mentioning our bull case, which has the S&P at around 7,000 in the middle of next year.

And it seems like we have a lot to learn over the month of July, I would say, between earnings, between policy, like what's really going on in terms of the background tariffs, obviously.

But that 7,000, that bull case seems like relatively plausible, right? If you get this and not just based on momentum, but by based on real fundamental strength, right? From a margin perspective, from an earnings perspective.

I mean, this says everything about market conditions getting better.

But we kinda are uncertain as to whether there's a lag effect that's still gonna hit us.

Yeah, well I think, so the question really is, do you see the soft data moving up towards the hard data, or do you see the hard data collapsing basically down to where the sentiment data is? And there's also an in-between, right? Where they meet, and it's soft data moving up, which is what we've been seeing.

And the hard data catching down a little bit, but not like falling off of a cliff, right? Which is what we kind of think.

And then, but more specific to, you know, companies and their fundamentals is how they're navigating that, you know, that basically that, you know, the next couple of months as we work through the lagged effects.

And what we heard, and I think we talked about this last time, is that there are a lot of different ways that companies are thinking about mitigating this.

And I think, you know, they're high quality companies and that's why we're favorable.

Why so? What's the message in that?

Well, I think historically, when you think about where investors will put their money if they want growth, it was always this, historically again, this conversation, oh, is it tech or is it healthcare? And starting in 2023, it really became tech over healthcare, and you've seen underperformance since then.

How do you feel about that?

I mean, I think that's the common narrative, right? That like, okay, we're about to go on.

We're not in recession yet, but we're about to go in recession.

And I think...

It's important to keep in mind the starting point.

We're just coming from a really strong position in the US from an economic standpoint, growing above trend GDP growth for the past two years, from an earnings standpoint, profit margin standpoint.

So I think there's a lot of pain that can be tolerated from the economy and companies.

I mean, how do you see that here?

What do you make of what you heard and how does it mix, if at all, with your own view?

I mean, so there was a lot that went on there that we talked about.

But I think the last point on having this contrarian U.S. view resonates at least with me.

Like I think everything that we've just heard about what could hurt U.S. corporates, right, like uncertainty.

That's not a U.S.-centric thing.

This is a global phenomenon that's going on in terms of this trade war, right? So uncertainty in the U.S.

doesn't mean that there's no uncertainty in Europe, and there's no uncertainty in Japan when these CEOs are making calls, too.

Yeah.

I mean, have valuations corrected enough across the whole tech space?

Yeah, well, I think Stacey's point right is around whether or not the E is correct, let's say.

And we're pretty confident that it is.

Oh, really? Yeah.

So we came into the year, the Mag 7 was expected to grow 19%.

year-over-year, it's down to something like 16%, which is in line with the negative revisions that we've seen with the overall market.

But today, you're now able to buy the MAG7, and again, they're not a monolith, but if we're going to group them that way, at the cheapest level since 2016.

I mean, you