00:00Julian Emanuel of Evercore writing, the increased probability of a bubble scenario gives the S&P 500 a 30% chance to rise to 9K by year-end 2026.
00:09Julian joins us now for more. Julian, good morning.
00:12Good morning.
00:12It's good to see you, sir. Let's put some meat on those bones. 30% chance of 9K next year on the S&P.
00:17So if you think about it, actually going back to Y2K, right, where all this sort of talk of bubbles originated, over the course of this last 25 years, you have had numerous bubbles.
00:32Housing, global bond markets, Chinese equities in 2015, meme stocks, this, that, and the other.
00:40And frankly, when you add all that up, first of all, academia would tell you that those many bubbles in 25 years is absolutely impossible.
00:50But when you think about it, it really does speak to the fact that, number one, each bubble was larger than the last.
00:58And from our point of view, when you think about Y2K at 28 times earnings peak, it's very reasonable to think about 30 times a $300 number, getting you to 9,000 in the S&P 500.
01:11But it's bigger, more, you know, grander every time.
01:15Well, let's speak to this moment. There are whiffs of vendor financing.
01:18We see NVIDIA investing in some of their companies and some of their customers, and we know that money is going to come back to their company.
01:26What's different about this moment, it seems to be the strength of the balance sheets compared to where we were in the late 90s,
01:30and the absence of leverage on those balance sheets of some of the major tech players.
01:34Does that give this more legs? Is that how you think about things?
01:37Well, again, when you think about the late 90s, you were having companies that didn't have earnings, that had barely had revenues, that were doing all the spending on CapEx.
01:49You don't have it this time. Most of the companies, to your point, have incredibly strong balance sheets.
01:55But when you think about what we've heard in the last couple weeks, the memory for us is this Japanese phrase,
02:03Koretsu, cross-shareholdings. You saw it in the 1980s and the early 1990s, which inflated valuations into the Japanese equity market bubble.
02:14And look, if you're not concerned about the potential knock-on effects of all this kind of cross-shareholder relationships,
02:23you're probably not paying sufficient attention.
02:26So is this bullish or bearish? You're talking 9,000, which sounds great, let's get in,
02:29and then you're talking about a bubble that's bigger than anything we've ever seen before.
02:32So, and you have to think about it in terms of cycles, okay?
02:37What we have been very plain about in getting ourselves around the idea that you invest in a higher valuation environment
02:48is this notion that what ends structural bull markets, and to be very clear,
02:53what we had in February to April was a cyclical bear market in a structural bull market.
03:00What ends structural bull markets is a Fed that's going to be hostile.
03:04If anything, the Fed is going to be perhaps too friendly to the point about stoking inflation.
03:10Higher yields on the long end, amazing how quiescent the 10-year yield has been.
03:17And then, you know, recession, that doesn't seem to be in the cards.
03:21But the last thing, the fact that every one of these capital market cycles
03:26has ended with an incredibly robust corporate action pipeline,
03:33and we're just starting to see that form, tells you that there's further to run.
03:38And as difficult as it is, and it is difficult to invest in these valuations,
03:44we think that you need to stay invested.
03:47And that's what we need to do, and that's what we need to do.
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