2026 Is Coming!

Episode Overview

• The episode provides a comprehensive market analysis, highlighting a rotation within the "AI trade" and the fundamentally healthy, earnings-driven nature of the current bull market.
• It challenges the narrative that market strength is solely dependent on the "Magnificent 7," presenting data that the other 493 S&P companies are also seeing record earnings growth.
• Ed Yardeni presents his long-term bullish "Roaring 2020s" thesis, projecting the S&P 500 could reach 10,000 by the end of the decade, fueled by a technology-driven productivity boom.
• The discussion covers tactical sector recommendations, an underperforming outlook for small and mid-cap stocks, and skeptical views on assets like Bitcoin compared to gold.

Key Concepts

• AI Trade Rotation: The market is seeing a resurgence in AI-related stocks, but leadership is shifting. While Nvidia has lagged recently, companies like Google and IBM are now leading the rally, suggesting investors are becoming more selective.
• Earnings-Driven Bull Market: The market's significant gains since the 2020 lockdowns have been supported by equally strong growth in forward earnings, which has kept price-to-earnings ratios stable and indicates a healthy, sustainable rally.
• Broad Market Strength (The "Impressive-493"): The idea that the market rally is exclusively driven by the Magnificent 7 is a misconception. The S&P 500, excluding these seven companies, is also experiencing record-high forward earnings, providing a broad and supportive foundation for the market.
• The "Roaring 2020s" Thesis: This long-term forecast posits that a productivity boom, driven by technological advancements and a scarcity of skilled labor, will fuel strong economic and earnings growth throughout the decade, similar to the 1920s and 1990s.
• SMidCap Underperformance: Forward earnings for small and mid-cap stocks are less impressive compared to large-caps, partly because the most promising companies in this category are often acquired by larger firms before they can realize their full growth potential.
• Sector Analysis: Due to their massive existing market capitalization, a "market-weight" recommendation is now being considered for the Technology and Communication Services sectors, with potential opportunities in other areas like Health Care.

Quotes

• At 1:06 - "the AI trade is apparently trying to make a comeback here, pretty good comeback actually." - Describing the current market action, highlighting the renewed strength in artificial intelligence-related stocks.
• At 3:26 - "It's been an earnings-led melt up, which is the healthiest and most sustainable kind of melt up." - Characterizing the market's performance since the 2020 lockdowns, where stock price gains have been matched by earnings growth.
• At 17:44 - "That's just not true." - Directly refuting the narrative that only the Magnificent 7 are seeing earnings growth and that the other 493 companies in the S&P 500 are not.
• At 18:43 - "We like to call them the 'impressive 493.' They'd be a lot more impressive if they didn't need to be compared to the Magnificent 7." - Highlighting that the earnings growth of the S&P 500 excluding the top seven stocks is strong on its own merits.
• At 21:14 - "We're actually going to market-weight on Technology and Communication Services... Mostly because it's getting harder and harder to recommend overweighting sectors that are remarkably overweight already." - Explaining the difficulty in advising clients to increase their exposure to sectors that already dominate the index.
• At 24:12 - "The Roaring 2020s scenario was predicated on the notion that skilled labor... would become increasingly scarce... we need to augment the skills of our workers with technological tools that'll increase their productivity." - Detailing the core drivers behind his long-term bullish thesis for the economy and the market.
• At 36:39 - "The genius act, I think, may have topped the Bitcoin market because when the genius act came out that created stablecoin... stablecoin takes away the transactions function that Bitcoin was supposed to serve." - Offering his skeptical view on Bitcoin's long-term utility after the introduction of stablecoins.

Takeaways

• Be more selective with AI investments; recognize that leadership within the sector is rotating as the market shifts focus from broad enthusiasm to company-specific fundamentals and earnings.
• Broaden your market perspective beyond the "Magnificent 7," as the strong and rising earnings of the other S&P 493 companies provide a solid, independent foundation for a bullish market outlook.
• Consider positioning for a long-term productivity boom driven by technology, which could fuel significant market gains through the end of the decade, as outlined in the "Roaring 2020s" thesis.
• Re-evaluate portfolio concentration in mega-cap technology and communications sectors and consider rotating into other areas with potential, such as Health Care, to manage risk.