00:00Cameron Dawson of New Edge Wealth writing, we see potential for higher equity and bond volatility,
00:04wider credit spreads, and a continued climb in rates. Cameron joins us now for more. Cam,
00:09good morning. Good morning. It's good to see you. Look,
00:11risk assets have stood up really well in the face of this repricing in rates. I sense from
00:14the way you're thinking, you think that's about to change. Well, I think that the reason why
00:18equities have been able to tolerate the rise in rates is because earnings have been so strong. If
00:23you look at the stats, the equity market says in P500 was up about 12% on a year-to
00:28-date basis as
00:29of yesterday, you looked at valuations, they're down about 12%. And that gap between the two is
00:34because earnings have been so powerful. Earnings revisions have been really powerful. 26 and 27
00:40earnings estimates are up 17% year-to-date. So you can tolerate a lot of rise in yields. You
00:46look at
00:46the 10-year yield, it's up about 80 basis points year-to-date. That can be digested. But if you
00:51stop being able to increase earnings estimates, then it creates a challenge where you have less
00:56buffer to be able to tolerate a rise in yields and thus multiple compression. Do you think that's
01:00where we are now? Well, I do think that 2Q is likely the peak in earnings growth rate. On the
01:05headline basis, certainly at 50%. But even if we remove some of those one-time gains at 30%,
01:10that looks to be the peak, we think, in earnings growth. I think it also is interesting in the context
01:15of ISM data that we get today. We're in an environment where you've had this big acceleration
01:20and ISM data. And I think it's important to remember, you typically sell good news and things
01:25like that because it's mean reverting. You don't buy good news. So it speaks to we can't drive with
01:30the rearview mirror. And so it suggests that the big question is, how does it get much better from
01:35here? And that also brings us back to this idea of financial conditions. Financial conditions are at
01:40their easiest level since 2021. We struggle to think at this point how they get more easy,
01:46more stimulative, more loose from this point. So what do you do in the meantime? Is this just
01:50a moment to get close to the ground? Well, I think that waiting for some volatility to come
01:55certainly suggests that as we move through September, normal seasonality, we might get
01:59better buying opportunities. We're about 3% above our 100-day moving average, 7% above our 200-day
02:05moving average. We think that that weakness is ultimately buyable. We don't think that we're on
02:09the precipice of some kind of big earnings recession, meaning that would be something that you'd
02:14have a much deeper and more protracted type of correction. So we would be looking to be
02:18able to take advantage of this volatility as we see things like positioning and valuation reset.
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