00:00Cameron Dawson of New Edge Wealth looking ahead to earnings writing with an acceleration in revenue growth.
00:05Surging margins to new records and a big broadening of companies who are driving earnings.
00:09The big question for...
00:10How much room is there for this normal margin expansion to go?
00:15Cameron joins us now for more.
00:16Cameron, good morning.
00:16Good morning.
00:17Normal.
00:18Let's get into that.
00:18Yeah, just frame how...
00:20Massive, the margin story's been in the last 12 months.
00:22It has been incredibly surprising and...
00:25We even would frame it as a miracle, given the fact that how much you threw...
00:30at corporations over the course of 2025 with tariffs, which we know were primarily born...
00:35by corporations.
00:36We had that Kiel Institute report that said that 96% of...
00:40terrorists were born by the U.S. consumer and corporations.
00:43So companies had to do a lot of...
00:45blocking and tackling in order to just keep margins flat, but they actually expanded them in 25 by...
00:50over 100 basis points, and that's without a concomitant acceleration in...
00:55revenue growth, which is typically the relationship that we see.
00:58So when we boil it down, it comes down...
01:00to productivity that is likely a function of a lot of investments that came out of the pandemic.
01:05And it's also a lot of labor productivity.
01:07There's a big dynamic where we have labor...
01:10wage growth slowing to a material extent, which means that wages are not...
01:15causing as much upward pressure on margins at the same time as workers aren't switching jobs as much.
01:20So the workers that you have are becoming more productive, and thus you get the margin expansion.
01:24The last point...
01:25The last point is, this probably doesn't have a lot to do with AI.
01:28Why not?
01:29Because...
01:30Because AI is still in these test phases.
01:32AI is still in...
01:34in testing...
01:35It's interesting to see how much it could impact growth.
01:37This is not AI necessarily causing people to...
01:40fire workers.
01:41It is supplementing workers.
01:43Maybe at the margin, it's causing some companies...
01:45to not have to hire as many low-end workers.
01:48You can see that with college...
01:50unemployment rising.
01:51But this is likely not an AI story of what we saw in 2020.
01:552025, which raises the question, is that what is baked into 26 estimates?
02:0026...
02:0026 estimates have 200 basis points of margin expansion baked into the forecast...
02:05for $310 a share.
02:06That, to us, looks like a productivity boom.
02:09Another productivity...
02:10miracle.
02:11Given how you're framing this, it sounds like you think there is...
02:13pretty decent downside risk here...
02:15the year ahead.
02:16So, let's think about the cadence of earnings growth through the year.
02:198% growth is...
02:20expected for this quarter.
02:21It's coming about bang in line with that 8%.
02:23That's very different than the last two...
02:25quarters of earnings season where you saw earnings growth come in...
02:27about double what was expected going into the quarter.
02:30That 8% accelerates to 18% in the second quarter.
02:3421%...
02:35in the third quarter and another high teens in the fourth quarter.
02:38So, it's not a...
02:40a big thing to say that there is a high bar for earnings to jump over.
02:44It's not to say it's not...
02:45achievable.
02:46There's a lot of parts of the economy that didn't experience...
02:48great earnings growth over the last couple...
02:50of years because of the concentration in just Mag 7.
02:53But that is still an extraordinary...
02:55high bar for this market just to meet expectations...
02:58let alone beat them.
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