The Week: A Market With Mixed Signals, the Price of Surveillance, and a Collective Feeling of Abandonment

The S&P 500 closed at a record on Tuesday, its first since August.

It got there with the 10-year Treasury yield above 5.3%, the highest since 2002, and oil back over $100 a barrel.

On Wednesday's PropG Markets, John Maury, Chief Investment Officer at NFJ Investment Group, told Ed Elson he wouldn't have predicted it.

It really is remarkable.

If you had told me at the start of the year that the five-year, or excuse me, the 10-year bond yield was gonna go to five-point, you know, 25 or 3%, oil would be at 100 or higher for multiple consecutive days, I think that's kind of textbook.

You'd ex- have expected the market to be lower.

I think the reason that we have seen such resiliency is that we've got, you know, forward earnings at nearly 38% for the S&P.

And to contextualize that, the only time you've seen earnings growth at 30% or higher is coming out of recession, so coming out of COVID, coming out of, uh, the 2009, the GFC, um, in 2008.

That was the only other times you saw that.

So the earnings have been incredibly resilient, and what's fascinating, Ed, is actually the market has gotten cheaper even though it's hitting all-time highs-

Right

... uh, as we sit here today.

Much of that earnings growth traces back to AI spending.

Ed asked whether it will last.

So if we think about are those earnings durable, you know, there's a lot of people that look at the AI trade and they think, "Hey, uh, is this a bubble?" And I might take the other side of the equation.

I might, I might take the side that maybe we're mistaking a bubble for a boom.

Because when I look at the durability of earnings, it's across sector.

This is not one group.

I think there's a misconception in the market that this is a narrow trade, and I keep hearing people say that only a handful of stocks are holding the market up.

I would take the opposite side of that.

You know, small caps are doing, uh, you know, well this year.

They're up double digits.

Mid caps are up double digits, and you've seen tremendous performance out of refiners, uh, industrial machinery, material stocks.

Um, there's a whole cohort.

I think that the counter to that is, well, is that being driven by kind of the CapEx cycle, which is, you know, roughly, you know, 900 billion coming from the hyperscalers? And my answer is largely yes, you're seeing a lot of that come from that.