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Mike Wilson's capitulated, he's moved from forty five hundred to fifty four hundred and all of that. Can we just start with the skub the wide range of outcomes, because that was the headline of the piece, the back case versus the bull case. Has it ever been this wide?

Mike Wilson's capitulated, he's moved from forty five hundred to fifty four hundred and all of that. Can we just start with the skub the wide range of outcomes, because that was the headline of the piece, the back case versus the bull case. Has it ever been this wide?

Well, not for us, I think for other people they've had wider skews. And look, it just reflects the uncertainty that has been the case for the last several years. And quite frankly, I wouldn't be surprised if we hit both sides, you know, I mean, like, that's kind of the world we're in, which is, you know, think about this year, and we talked about this at the beginning of the year, which is we had three sort of equally similar opera you know, sort of outcomes. One was a soft landing is the goldilax, which is kind of consents us now and that's our house view. Then you have the no landing, which is kind of a reacceleration, the stickier inflation even maybe a stagflationary outcome, which is what the market was thinking about in April and now you're back to a soft link, but you still can't rule out of recession either, right, So like all these are very possible, and you know they could help. All happened with a higher than normal degree of certainty.

Well, not for us, I think for other people they've had wider skews. And look, it just reflects the uncertainty that has been the case for the last several years. And quite frankly, I wouldn't be surprised if we hit both sides, you know, I mean, like, that's kind of the world we're in, which is, you know, think about this year, and we talked about this at the beginning of the year, which is we had three sort of equally similar opera you know, sort of outcomes. One was a soft landing is the goldilax, which is kind of consents us now and that's our house view. Then you have the no landing, which is kind of a reacceleration, the stickier inflation even maybe a stagflationary outcome, which is what the market was thinking about in April and now you're back to a soft link, but you still can't rule out of recession either, right, So like all these are very possible, and you know they could help. All happened with a higher than normal degree of certainty.

So that's that's really.

So that's that's really.

The headline that should have been out is that, look, nobody knows anything, right, I mean, and particularly at a point in time. And I think maybe maybe our mistake is just admitting that we don't know as much as maybe everybody else claims to. That's called humility, something that we've learned the hard way over life.

The headline that should have been out is that, look, nobody knows anything, right, I mean, and particularly at a point in time. And I think maybe maybe our mistake is just admitting that we don't know as much as maybe everybody else claims to. That's called humility, something that we've learned the hard way over life.

But anyways, the point here.

But anyways, the point here.

Is that the meat of our report this year or this this update was really more about how do you make money in an environment we have basically zero percent upside and the base case and you could have twenty percent upside or twenty percent downside.

Is that the meat of our report this year or this this update was really more about how do you make money in an environment we have basically zero percent upside and the base case and you could have twenty percent upside or twenty percent downside.

And that's what clients pay us for, right. It's the process.

And that's what clients pay us for, right. It's the process.

It's understanding, Okay, what kind of environment and how are we going to navigate that and manage that. So we spent a large part of the report yesterday talking about trade ideas, specific sector ideas. That's not the headline that people wanted to write about. That's fine, and it's your prerogative, but that's what we want to talk.

It's understanding, Okay, what kind of environment and how are we going to navigate that and manage that. So we spent a large part of the report yesterday talking about trade ideas, specific sector ideas. That's not the headline that people wanted to write about. That's fine, and it's your prerogative, but that's what we want to talk.

About that was never going to fit in the headline. We will talk about some of that stuff in just a moment. Let's talk about the headline just brieflake Sure a youth the emphasize in the fifty four hundred. Are you saying it's a price target? It's not actually that important to you in affirm what is that?

About that was never going to fit in the headline. We will talk about some of that stuff in just a moment. Let's talk about the headline just brieflake Sure a youth the emphasize in the fifty four hundred. Are you saying it's a price target? It's not actually that important to you in affirm what is that?

Well, it's not important to most clients.

Well, it's not important to most clients.

Institial clients don't care about the target on the S and P five phnals to being honest say they're trying to pick stocks and look. One of the most important things we talked about in the report is alpha generation. This year has been spectacular. The way we measure it with our client our client base, which is significant. Is this the best alpha generation alpha capture we've seen since we've started recording it since twenty ten.

Institial clients don't care about the target on the S and P five phnals to being honest say they're trying to pick stocks and look. One of the most important things we talked about in the report is alpha generation. This year has been spectacular. The way we measure it with our client our client base, which is significant. Is this the best alpha generation alpha capture we've seen since we've started recording it since twenty ten.

So that's what people care about.

So that's what people care about.

We're trying to help them in their process of Okay, what kinds of stocks work in this environment? Oh, by the way, when we skew from these different outcomes, you need to be ready to pivot towards different types of securities right now, like our house call is it's a soft landing goldilocks outcome. We're not that confident that we want to make that bet fully, like, we think it's still late cycle, which means quality okay, large caps over small caps. Still, we like staples over discretionary. We have two defensive sectors overweight utilities and staples because that kind of protects against slowing growth risk. So there's a bunch of different things, but the main factor.

We're trying to help them in their process of Okay, what kinds of stocks work in this environment? Oh, by the way, when we skew from these different outcomes, you need to be ready to pivot towards different types of securities right now, like our house call is it's a soft landing goldilocks outcome. We're not that confident that we want to make that bet fully, like, we think it's still late cycle, which means quality okay, large caps over small caps. Still, we like staples over discretionary. We have two defensive sectors overweight utilities and staples because that kind of protects against slowing growth risk. So there's a bunch of different things, but the main factor.

That's been working is quality.

That's been working is quality.

Quality has been the most consistent factor, and we don't see that changing.

Quality has been the most consistent factor, and we don't see that changing.

I just want to say that if you wrote a headline saying nobody knows anything, I mean, we could do that every day, but it probably wouldn't really gain that much attraction. I am wondering if there are certain areas that would win in either scenario, the fifty four hundred or the forty five hundred.

I just want to say that if you wrote a headline saying nobody knows anything, I mean, we could do that every day, but it probably wouldn't really gain that much attraction. I am wondering if there are certain areas that would win in either scenario, the fifty four hundred or the forty five hundred.

Well, I think that we laid it out once again, that's our bare case. A forty five hundred scenario is that's not really our bare case. That's our base case for a year end Originally that obviously has proven to be wrong, mainly because of multiples. Right, I think this is the main thing said that people have either gotten right or wrong in the last twelve months. Is that I mean, a twenty one multiple is in the top death style of the last eighty years. I mean, that is an expensive multiple. So the question I think investors have to ask themselves is is that a fair multiple to be paying well in the goaldilocks, you know, perfect soft landing. I think that's plausible, but that's where we're trading, and that's why there's not a lot of upside at the index level.

Well, I think that we laid it out once again, that's our bare case. A forty five hundred scenario is that's not really our bare case. That's our base case for a year end Originally that obviously has proven to be wrong, mainly because of multiples. Right, I think this is the main thing said that people have either gotten right or wrong in the last twelve months. Is that I mean, a twenty one multiple is in the top death style of the last eighty years. I mean, that is an expensive multiple. So the question I think investors have to ask themselves is is that a fair multiple to be paying well in the goaldilocks, you know, perfect soft landing. I think that's plausible, but that's where we're trading, and that's why there's not a lot of upside at the index level.

Which raises this question, are there specific sectors that win regardless of the overall index? Do you see certain areas that are kind of independent of this overall shift of whether there is this momentum and international money that pours in and keeps valuations high and sends them higher.

Which raises this question, are there specific sectors that win regardless of the overall index? Do you see certain areas that are kind of independent of this overall shift of whether there is this momentum and international money that pours in and keeps valuations high and sends them higher.

It's large camp quality.

It's large camp quality.

I mean that, I mean that is what's continues to and by the way, it's not just high growth. It's also cyclicals can work in that. But it's still up the quality curve, and we show it in the note very clearly. I mean, it's just it's it's the it's been the best carry factor for the last year, year and a half, which is a classic late cycle winner, which is where we are so you know, don't overthink that and don't try to be cute and say, well, I'm going to jump over here because I think there's better returns there could be. Look in the small cap and in the lower quality areas. You can't own nothing. I mean, but it's very idiosyncratic.

I mean that, I mean that is what's continues to and by the way, it's not just high growth. It's also cyclicals can work in that. But it's still up the quality curve, and we show it in the note very clearly. I mean, it's just it's it's the it's been the best carry factor for the last year, year and a half, which is a classic late cycle winner, which is where we are so you know, don't overthink that and don't try to be cute and say, well, I'm going to jump over here because I think there's better returns there could be. Look in the small cap and in the lower quality areas. You can't own nothing. I mean, but it's very idiosyncratic.

It's very idiosyncratic. It's not a.

It's very idiosyncratic. It's not a.

Factor that's carrying well, it's a okay, I have a stock specific idea. It's a low quality stock potentially that has a very unique story to itself.

Factor that's carrying well, it's a okay, I have a stock specific idea. It's a low quality stock potentially that has a very unique story to itself.

Next me still for this mall case. You know it's tomorrow afternoon. We get numbers from and Vidia, megacap Tech. What supports that fifty four hundred? What supports it for you? Is it mega cap tech? The in videos of this world? Is it elsewhere?

Next me still for this mall case. You know it's tomorrow afternoon. We get numbers from and Vidia, megacap Tech. What supports that fifty four hundred? What supports it for you? Is it mega cap tech? The in videos of this world? Is it elsewhere?

Well, it's basically you're assuming that multiple stay elevated.

Well, it's basically you're assuming that multiple stay elevated.

Right.

Right.

You know, we didn't change our earnings forecasts in this report. We've had this sort of boom idea that we had the boom bust thesis for a while. We probably were early in calling for a recovery and earnings this year in twenty twenty five, so that didn't change. So you have earnings coming from a lot of different groups. Now, I would say the biggest contributors have been technology. Energy has been a big contributor surprisingly, industrials because of all the spending that's going on fiscally. So those are three major sectors that are contributed to the earning story. But ultimately the fifty four hundred is being supported by policy, right by very loose fiscal and monetary policy. Now you may say, well, monetary policy is tight, not really. I mean we have an incredible amount of liquidity coming in to pay for that fiscal So, to me, the risk in the story for the next six to twelve months is do the market start to balk at this unsustainable fiscal policy and the way that they're funding it.

You know, we didn't change our earnings forecasts in this report. We've had this sort of boom idea that we had the boom bust thesis for a while. We probably were early in calling for a recovery and earnings this year in twenty twenty five, so that didn't change. So you have earnings coming from a lot of different groups. Now, I would say the biggest contributors have been technology. Energy has been a big contributor surprisingly, industrials because of all the spending that's going on fiscally. So those are three major sectors that are contributed to the earning story. But ultimately the fifty four hundred is being supported by policy, right by very loose fiscal and monetary policy. Now you may say, well, monetary policy is tight, not really. I mean we have an incredible amount of liquidity coming in to pay for that fiscal So, to me, the risk in the story for the next six to twelve months is do the market start to balk at this unsustainable fiscal policy and the way that they're funding it.

And we wrote about this, you know in detail.

And we wrote about this, you know in detail.

We have these liquidity provisions in place now, the reverse repo which everybody knows about. The Treasury General Account can be drained if necessary to pay for fiscal stemus in a budget if they need to. And the Fed has already said they're going to start tapering QT. Well, that's like a trillion dollars of liquidity that's pretty loose right to pay for the fiscal So to me, does of the market and I think this is. This is something we're watching very carefully. Last fall, when multiples came down hard, it was because rates were going up due to term premium widening, meaning the bond market we're starting to push back on this strategy right now.

We have these liquidity provisions in place now, the reverse repo which everybody knows about. The Treasury General Account can be drained if necessary to pay for fiscal stemus in a budget if they need to. And the Fed has already said they're going to start tapering QT. Well, that's like a trillion dollars of liquidity that's pretty loose right to pay for the fiscal So to me, does of the market and I think this is. This is something we're watching very carefully. Last fall, when multiples came down hard, it was because rates were going up due to term premium widening, meaning the bond market we're starting to push back on this strategy right now.

That's not a problem.

That's not a problem.

So one of the things we're going to be watching this, you know, to change our view on how things trade at the index level is does the term premium start to widen again?

So one of the things we're going to be watching this, you know, to change our view on how things trade at the index level is does the term premium start to widen again?

We don't know, but that's what we're gonna be watching.

We don't know, but that's what we're gonna be watching.

So big risk factor is in the bond market, and in the bond market, the big focus is November. Does this have a political twist to it? An election co embedded in it?

So big risk factor is in the bond market, and in the bond market, the big focus is November. Does this have a political twist to it? An election co embedded in it?

Well, I mean yes and no, because I wouldn't say either party has shown any fiscal discipline right So in other words, I think we're going to get a strong fiscal support no matter who wins the election, both in Congress or at the presidential level. The real question for markets is how does it get funded?

Well, I mean yes and no, because I wouldn't say either party has shown any fiscal discipline right So in other words, I think we're going to get a strong fiscal support no matter who wins the election, both in Congress or at the presidential level. The real question for markets is how does it get funded?

How is it funded?

How is it funded?

Can they fund it at a reasonable rate? Right now, the bondb market seems very relaxed about that feature, which is why multiples have expanded again.

Can they fund it at a reasonable rate? Right now, the bondb market seems very relaxed about that feature, which is why multiples have expanded again.

So if the bond market stays relaxed about this, but there's a lot of people prick that it will and believe me, I get very excited about auctions, but every week people tell me that I shouldn't because there's plenty of interest at these levels. If there isn't pushback, then fifty four hundred is that too conservative?

So if the bond market stays relaxed about this, but there's a lot of people prick that it will and believe me, I get very excited about auctions, but every week people tell me that I shouldn't because there's plenty of interest at these levels. If there isn't pushback, then fifty four hundred is that too conservative?

Maybe it could be.

Maybe it could be.

I mean, look, I can make a case for seventeen times, which is when our target was originally for this year, seventeen eighteen times. I can make a case for twenty one times. I can make case for twenty two times. That's the problem, right, We don't know, so that's why we have a wider skew.

I mean, look, I can make a case for seventeen times, which is when our target was originally for this year, seventeen eighteen times. I can make a case for twenty one times. I can make case for twenty two times. That's the problem, right, We don't know, so that's why we have a wider skew.

And I would say this Lisa, that.

And I would say this Lisa, that.

The target will be more determined, probably by multiples than we're going to be wildly surprised on earnings. Okay, unless it's recession, of course, then you'll be surprising the downside. But I don't like the earnings haven't really moved that much for twenty twenty four and twenty five. Right, if you think about since October, which is with the low last fall, twenty twenty four, earnings estimates are a couple percent. You know, the markets at twenty five thirty. So it's all multiple. So this is why you just need to be alert to things changing potentially in the bombing market first and then that will feed into the equity multiples.

The target will be more determined, probably by multiples than we're going to be wildly surprised on earnings. Okay, unless it's recession, of course, then you'll be surprising the downside. But I don't like the earnings haven't really moved that much for twenty twenty four and twenty five. Right, if you think about since October, which is with the low last fall, twenty twenty four, earnings estimates are a couple percent. You know, the markets at twenty five thirty. So it's all multiple. So this is why you just need to be alert to things changing potentially in the bombing market first and then that will feed into the equity multiples.

When you talk about fiscal spending, to go back to John's point earlier in the election, it's very different what the fiscal spending may be used on depending on who wins the White House. You're talking about potentially industrials, the green energy economy. This is a new industrial policy from the Biden administration that could continue or it could stop short if it's Trump. How are you thinking about twenty twenty five.

When you talk about fiscal spending, to go back to John's point earlier in the election, it's very different what the fiscal spending may be used on depending on who wins the White House. You're talking about potentially industrials, the green energy economy. This is a new industrial policy from the Biden administration that could continue or it could stop short if it's Trump. How are you thinking about twenty twenty five.

Well, I mean, look, I think the industrial policy will remain strong. I mean that's our reshoring thing, which is which was part of the Trumpet iministration. So half of the industrial policy is potentially green energy and half of it, I would say, is reshoring in the de globalization trend.

Well, I mean, look, I think the industrial policy will remain strong. I mean that's our reshoring thing, which is which was part of the Trumpet iministration. So half of the industrial policy is potentially green energy and half of it, I would say, is reshoring in the de globalization trend.

So there's going to be spending either way.

So there's going to be spending either way.

It may be redirected, like I could see maybe the energy policy shifting back towards traditional energy, but I would be surprised as spending is curtailed in a meaningful way. From that standpoint, I think we will see changes or differences is in maybe in the tariffs sol though recently that seemed to be more aligned. And then, of course immigration is a big one, and that was a huge surprise this year that really nobody saw coming around the label to positive labor shock from immigration. So to me, that's a while. That's probably the single biggest wildcard depending on.

It may be redirected, like I could see maybe the energy policy shifting back towards traditional energy, but I would be surprised as spending is curtailed in a meaningful way. From that standpoint, I think we will see changes or differences is in maybe in the tariffs sol though recently that seemed to be more aligned. And then, of course immigration is a big one, and that was a huge surprise this year that really nobody saw coming around the label to positive labor shock from immigration. So to me, that's a while. That's probably the single biggest wildcard depending on.

Who wins the election.

Who wins the election.

Bigger not tighter is if you coming from men and Zenner and the team more and Stanley, this economy can grow without it getting tighter and generating inflation pressure. Are you saying that could flip the other way pretty quickly based on the outcome the election.

Bigger not tighter is if you coming from men and Zenner and the team more and Stanley, this economy can grow without it getting tighter and generating inflation pressure. Are you saying that could flip the other way pretty quickly based on the outcome the election.

I think that well, depending on how things behave if policy really changes.

I think that well, depending on how things behave if policy really changes.

But yeah, sure, if you if you all of a sudden.

But yeah, sure, if you if you all of a sudden.

Sh borders down and you know, Trump's talking about deporting people, that would be a negative labor shock, and then we'd be in a reverse situation. So look, right now, I think the election is literally a fifty to fifty I mean, I mean the polls are right there forty eight, forty nine to fifty percent for both sides.

Sh borders down and you know, Trump's talking about deporting people, that would be a negative labor shock, and then we'd be in a reverse situation. So look, right now, I think the election is literally a fifty to fifty I mean, I mean the polls are right there forty eight, forty nine to fifty percent for both sides.

So this is this is not an issue yet. We've talked about this in the.

So this is this is not an issue yet. We've talked about this in the.

Note two, which is that volatility and election years typically doesn't start picking up until August September, so I think it'll be okay for the next month.

Note two, which is that volatility and election years typically doesn't start picking up until August September, so I think it'll be okay for the next month.

Or this is not going to be a topic, but it can

Or this is not going to be a topic, but it can

Come at us quickly, probably post the conventions.

Come at us quickly, probably post the conventions.