00:00So I would say in my work, Tom, there's a clear line between sort of where we are right now
00:05on
00:05the 10-year and what's being priced in in terms of hikes, which is about three hikes over the
00:09next 12 months. Our rates team is still forecasting 10-year yields are going to stay below 5% over
00:17the next 12 months. That seems to be like what equities can handle. It wouldn't necessarily
00:23be pleasant. I'm not saying we wouldn't have a short-term drawdown, but when I look out on a
00:2812-month view, the market looks okay. But if we sort of take things up to, say, six hikes,
00:34if we take inflation closer to 4% than 3%, and if we kind of model in 5.5%
00:40on the 10-year yield,
00:42then we start to see some real damage done to equities on a year-over-year basis. So I think
00:46we're at sort of a critical juncture right now. And my modeling says, as Blake, when our rate
00:52strategist put it, he's expecting three kind of adjustment hikes over the next three meetings.
00:57I think equities can handle that. But we are kind of pushing up against the ceiling of what they can
01:01handle. Paul Sweeney, in real time, a headline. Again, I'm just not capable to translate this.
01:11NVIDIA, Palantir, Booz Allen to limit anthropic model use. That's from the information.
01:20And this moves the market. NVIDIA breaking down to new intraday lows. Futures are negative 51 and
01:26negative 58. Futures now negative 61. I have a VIX out two big figures.
01:32Lori, what's the view? How do you think about earnings? They've been so, so strong for the
01:38first half of the year. If nothing else, comps are going to make it really tough going forward. How do
01:43you kind of think about earnings as a continued driver of this market? So, you know, I would give
01:48you two points, Paul, is number one, normally estimates start out too high if you're looking
01:52at bottom-up consensus estimates and have to be ratcheted down. And if you look back at 2019 and
01:582023, so years after the first trade war, years after the Russia-Ukraine war, we saw the kind of
02:04current year numbers, 2018 and 2022, held up well. But the following year numbers got ratcheted down,
02:10you know, pretty significantly. When I look at 2027, the numbers just continue. They did, the
02:15growth rates sort of moved down initially, just on the basis, frankly, of upside surprises to early
02:2026. But now we've started to see the growth rates implied in 27 move up again. So they define the
02:26typical gravity that you normally see to pulling down estimates. I think the other thing, Paul, that
02:33I've noticed is when I talk to investors, you know, there has been over the last kind of month,
02:37six weeks, you know, some concerns that maybe the AI side of things is a little too frothy.
02:43So what we've done in our modeling, we were at the beginning of the summer kind of baking in a
02:475%
02:47haircut to consensus EP estimates for next year. We model now right to the second quarter trailing 12
02:54months. But now in the last two updates, we've started doing 10% really to kind of address investor
02:59fears and see if equities still have a path higher. If we bake in all these things we're worried about
03:04on rates, inflation, the Fed, and now a little bit of AI froth as well. We can still get you
03:09to
03:0981.50 on a 12 month timeframe right now. But admittedly, you know, those concerns about the
03:15AI side of things has started to creep in over the last, say, four to six weeks.
03:19So we are going to hear one of those cross currents you mentioned, or one of those issues for the
03:23markets to deal with is the Federal Reserve. And we're going to hear from the Fed this Wednesday.
03:27And a lot of folks are saying this is one of the more highly anticipated meetings.
03:31Um, how do you think it's going to go? What do you think the market is? It's kind of discounting
03:34here. So you know, it's it I love that I don't have to forecast the Fed. I leave
03:45frozen. And he Yeah, he's moved. He's moved to looking for three, three hikes over the next three
03:52meetings. And he thinks the Fed pauses after that. You know, we I have one chart I look at in
03:57terms of
03:58how much hiking is baked in over the next 12 months and compare it to small large performance
04:03S&P 500 performance. We're seeing that kind of hold steady, you know, kind of in the three
04:08hikes type area. And you've seen small caps suffer pretty significantly on a relative basis over the
04:13last few months. So I think that equities, you know, we can watch small caps for a signal to see
04:19how the market feels rather, I would say than the S&P 500 itself. But small caps have really been
04:24kind of taking the brunt of the pain on a relative basis for the hike for your trade.
04:27Just one final question. And then do you feel like you need to rewrite your message into Q4? I mean,
04:35to me, you know, you staggered to September 30. You come up with Larry Calphacino wisdom before you
04:41write the big 32 page memo for it's like an 85 page PowerPoint. Oh, yeah. I mean, it's nuts. End
04:47of
04:47year. Yeah, sure. But what's your mystery September 30? What are you going to be writing about?
04:52So I'll tell you, Tom, we moved from a December 31st price target, you know, which is what most
04:57strategists do to a rolling 12 month view. And that has really forced us this year to keep our eye
05:03on
05:03the long term with that price target. So I don't think we have to rewrite much. I think that new
05:07process we've introduced allows us to adjust every single month to what we think the long term view
05:12is. I do think that, you know, kind of big question that I have in the back of my head
05:17is not
05:17just as the Fed stop at three, do 10 year yields stay contained at this 5% level. But it's
05:24also a
05:24question of what happens with inflation in the middle quarters of next year. So if you look at
05:28consensus numbers, they're in the low two. As I've talked to my economist friends, I'm hearing that
05:33has to do a lot with
05:34you.
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