Episode summary
Why US Equity Returns Are Broadening Beyond AI Stocks
The Markets
· · 12 min · Guests: Shawn Tuteja
Summary
Shawn Tuteja argues that US equities are broadening beyond the narrow AI trade because earnings are strengthening across the market, not just in mega-cap technology. He points to a very strong Q2 season, saying 64% of reporting companies beat estimates by more than one standard deviation and that 9 of the 11 S&P sectors have posted double-digit earnings growth year over year. He also says the market is beginning to question when peak earnings will arrive in parts of AI, which he views as a healthy sign of discernment rather than indiscriminate buying.
He says the equal-weight S&P has outperformed the regular S&P by almost 300 basis points year to date, helped by easing uncertainty around geopolitics, the Fed, and AI disruption. At the same time, he notes volatility has fallen, with the VIX dropping from about 21 to 15, while implied correlation sits near record lows. That makes index-level options look attractive to him, especially as investors rotate across sectors instead of crowding into one trade.
Beyond equities, Tuteja is watching oil, longer-dated bond yields, and Fed policy as linked macro risks. He also highlights consumer experiences — theaters, live sports, theme parks, and concerts — as an under-owned and undervalued area, citing rising spending and a roughly 17 PE. Looking ahead, he says Jackson Hole will be important for reading the new Fed chair’s approach and whether the broader rally can persist.
Key takeaways
- Shawn Tuteja says 64% of Q2 reporters beat estimates by more than one standard deviation, one of the highest beat rates on record.
- Shawn Tuteja says 9 of the 11 S&P sectors have delivered double-digit earnings growth year over year, helping the market broaden beyond AI.
- Shawn Tuteja says the equal-weight S&P has outperformed the regular S&P by almost 300 basis points year to date.
- Shawn Tuteja says the VIX fell from about 21 to 15 and implied correlation is near all-time lows, making index hedges look cheap.
- Shawn Tuteja says consumer experiences trade at around a 17 PE and could benefit from higher spending and continued earnings revisions.
Notable quotes
“64% of them have beat their estimate by more than one standard deviation, which is one of the highest beat rates on record”
“9 of the 11 S&P sectors have seen double-digit earnings growth year over year, which is pretty remarkable”
“what we're starting to see this year, especially in the last month or so, is a real broadening out where other sectors are starting to become more investable”
“The equal weight S&P has outperformed the regular S&P by almost 300 basis points year to date this year”
“Implied correlation is essentially at the all-time lows in the index, meaning that it's very cheap to hedge your book or express directional views at the S&P level”
How the episode opens
This is The Markets. I'm Chris Hussey, and today is Wednesday, August 19th, and I'm here on the Goldman Sachs trading floor with Shawn Tuteja, who oversees our ETF and custom baskets vol trading businesses within global banking and markets. Shawn, thanks so much for joining us.
Thanks for having me again. Well, it's great to have you, and it's been a heck of a period since we last saw you, and particularly a heck of a summer because we worked through some July volatility, and now we've got ourselves back at an all-time high. Not coincidentally, second quarter results were unbelievably strong.
Is this just a case of earnings driving stocks? It's interesting because you look at the market, and at a top level, the S&P is sitting at or near the all-time highs, and it's very easy to see that and say, "This must have been a quiet summer or a smooth summer," and it's been anything but that. Clearly, there's been a lot of under the surface volatility.
And I think going forward, the key thing amidst all of this uncertainty in the markets and which theme to rotate into has been the certainty of the earnings story. We're about 92% of the way through earnings season for Q2. And of the 92% of companies that have reported, 64% of them have beat their estimate by more than one standard deviation, which is one of the highest beat rates on record.
But what's interesting is, because of these high beat rates, we've started to see 2027 consensus earnings lift by about 2%. So the market's implying around 390 to 400 consensus EPS for 2027, which is extraordinary earnings growth. 9 of the 11 S&P sectors have seen double-digit earnings growth year over year, which is pretty remarkable.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai stocks leadership
- s&p 500 sector breadth
- earnings strength
- ai-related volatility
- oil and bond yields fed policy
Companies and tickers mentioned
- Goldman Sachs
Watch the episode
Watch “Why US Equity Returns Are Broadening Beyond AI Stocks” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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