Episode summary
Stocks Fall as US Reopens Amid Cloudy Fed Outlook
Bloomberg Surveillance
· · Guests: Sam Stovall, Carol Schleif
Summary
The guest said earnings strength is doing a lot of the work for stocks, with third-quarter results coming in well above expectations and fourth-quarter estimates still drifting higher. He pointed to roughly 14.5% actual earnings growth versus about 7% expected, and said that kind of beat pattern helps offset valuation concerns. He also noted that companies have exceeded end-of-quarter estimates in 64 of the last 66 quarters.
On positioning, he said the market has shifted from growth toward value, with pure growth now below its 200-day average and the Mag Seven showing a broken trend. Even so, he remains constructive on technology over the longer term, arguing that current multiples are elevated but not remotely comparable with the dot-com peak. He said tech is trading at about a 24% premium to its five-year average forward P/E, versus far richer valuations in 2000.
Looking ahead to year-end 2026, the guest expects the S&P 500 at about 7400, assuming the index closes this year near 7000. He said that implies about 6% price appreciation and reflected a more cautious outlook around midterm-election season and a potentially split Congress. He said he is still overweight communications services, financials and technology.
Key takeaways
- The guest said third-quarter earnings came in around 14.5% growth, far above the roughly 7% expected, which he sees as supportive for equities.
- He expects the S&P 500 to reach about 7400 by year-end 2026, assuming the index finishes 2025 near 7000.
- He said the market has rotated from growth toward value, and pure growth is now below its 200-day average.
- He remains overweight communications services, financials and technology.
- He said tech valuations are rich versus history, but still look far less extreme than the 2000 bubble.
Notable quotes
“there's not as much change as you might expect”
“Certainly, we are looking at the fact that there has been a definite shift from growth into value”
“we are going to get about 7% earnings growth, according to S&P Capital IQ, but you end up with 14 and a half percent, That is a pretty nice gift”
“I think we're looking at something like 7400 on the S&P”
“So we're still constructive on the longer term, even though we do think a digestion of recent gains would be quite healthy”
How the episode opens
Well, our analysts take a look at their stars ratings pretty much every day based on whatever news that they do get. But I would tend to say that because our outlook is 12 months rather than 12 days or 12 weeks, there's not as much change as you might expect. Certainly, we are looking at the fact that there has been a definite shift from growth into value, especially from pure growth into pure value doing a relative strength chart.
The pure growth is now below the 200 day average. So the question is how long would this last if the Mag seven broken trend? Mag seven has broken trend.
There is a weakness in this category. Tech is down almost 4% since the most recent high on October 29th, when tech was trading at a 73% premium to its average 20 year forward. P.
Sam, we just kind of getting through earnings here, pretty solid third quarter numbers across the board here. Are they enough to support this market going forward? Well, when you think we are going to get about 7% earnings growth, according to S&P Capital IQ, but you end up with 14 and a half percent, That is a pretty nice gift.
Also, fourth quarter estimates are now at six and a half percent versus the 6% at the end of September. So when you see numbers like near 13% growth now expected for 26 and 14 plus percent or 27, I think both investors believe that we will be seeing improving earnings to help keep down the concerns about valuations. Oh, that was absolutely brilliant.
The summary there of a repeat of double digit. Sam, how unusual is it to have 13% earnings growth? It is pretty unusual.
The average is about 8% earnings growth from memory on a quarterly year over year basis for quarters going back over the last 64 quarters or so.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed rate cut outlook
- us government shutdown reopening
- jobs report data blackout
- treasury yields
- megacap tech selloff
Companies and tickers mentioned
- BMO
- CSCO
- FOX
- FOXA
- CFRA Research
- BMO Private Wealth
- Bank of Montreal
- Cisco Systems
- Fox News
Watch the episode
Watch “Stocks Fall as US Reopens Amid Cloudy Fed Outlook” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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