00:00Savita Sabrahmanian of Bank of America Securities expecting the S&P 500 to end the year at 7,100,
00:06writing, our economists' above-consensus GDP forecast and our above-consensus earnings forecast
00:11are more consistent with middling equity returns. Thus, we have a target for the S&P 500
00:16that is lower than most, and Savita joins us now. Savita, this is a wonderful view
00:22because it is both bullish and cautious at the same time.
00:26When does that cautiousness come into play?
00:28Isn't it? Well, look, I'm not necessarily bearish on equities, but I do think that expectations
00:35right now are much higher than they've been over the last three years of double-digit aggressive
00:41gains in the market. So here's the deal. The market usually has its best performance coming
00:47out of these disaster-averted scenarios where you think everything is going wrong, and then you get
00:53a sigh of relief or some kind of a break. Think 2009, even, you know, post-COVID. So I think that
01:00where we are right now is a market that has a lot of expectations baked in. The multiples are high.
01:07We've got, you know, a lot of tech companies that used to be asset light and innovators now becoming
01:12more clunky and asset intensive. You know, our view is earnings are going to be great. You know,
01:18the economy is going to be great, but you're going to see significant multiple compression.
01:23And this is actually right in line with history. If you look back over time and you look at years
01:29with above-trend earnings growth and above-trend GDP growth, those have actually been the worst
01:34years for equities based on average return. So it's not necessarily, you know, the market doesn't
01:40react to what's happening. It anticipates what's going to happen. And I think that's where we are now
01:44as a market that's already anticipated the good stuff that's about to happen.
01:48It's such a good point because not only are valuations rich, but all the data of ownership
01:52of this equity market feels really stretched too. I know your team in the latest fund manager survey
01:57put out that hedges just don't exist right now for equities and equity-correlated assets. To what
02:02degree does that in itself just represent a risk for this market? Yeah, I think that is a risk. And in
02:06fact, I think what's even more risky is that a lot of prior, previously uncorrelated asset classes have
02:13grown more correlated in this liquidity injection that we saw in 2025. So here's the other kind of
02:20risk is going forward, we're kind of as good as it gets when it comes to liquidity. The Fed has been
02:26cutting, profits have been accelerating. We've got the government buying stocks. We've got individual
02:31investors buying stocks. Everybody's buying stocks. And now we're starting to see maybe a less good
02:38backdrop. So you've got, yes, you've got tax receipts probably going to be healthy, but everybody's
02:43talking about that. Nobody is talking about the fact that capital gains on short-term trading are
02:50probably going to be a big draw on a lot of investors' wallets. So I think there's puts and
02:56takes for everything, but the fact that everyone's talking about the good stuff and not the bad stuff
03:00makes me worried about the next, the next 12 months.
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