00:00So look, there's nothing that's really changed since our mid-year outlook.
00:03You know, I think we still have this list of things that we think could present short-term
00:07tactical risks to the market, but we view those as things that might generate something
00:12like a 5% to 10% drawdown at worst.
00:14You know, those are things like the mid-term elections later this year.
00:17I know, you know, there's a lot of stories starting to percolate there, and interest
00:22from clients starting to percolate as well.
00:24At some point, we'll deal with 2027 earnings growth expectations.
00:27We're not there yet.
00:28We're still sort of sorting through 2026, but that's something to keep on your radar
00:31as well.
00:32And it feels like interest rate fears have eased back a little bit, but that's something
00:36also to keep on our radar.
00:37I know there's just a whole range of outcomes predicted around the street right now, some
00:41people looking for cuts, some people looking for hikes, but we do sort of keep that hike
00:45risk on the radar.
00:46But, you know, Tom, we really, with the price target, we try to be longer term.
00:50We've recast it this year from a December 31st number to a 12-month forward number.
00:54We update it once a month.
00:55We did a little bit, you know, later last month than we probably should have, but we
01:00had a number of events to get through.
01:02And so we upped our target a little bit to 81.50.
01:05Healthy, not heroic.
01:07We still think that the earnings strength, the earnings tailwind is offsetting pressures
01:12on the P.E. from the trickier rates and inflation environment.
01:14So no real change.
01:15What is the AI theme in your work these days?
01:18I guess we all started our own AI investing by just buying the chips, which is still a
01:22way to go, no doubt.
01:24But is there other ways to play AI that you and your team are thinking about?
01:28So, you know, I think it started out as sort of a MAG-7 type story, right?
01:32And then we saw in the earnings data that the AI trade was really sort of broadening out this
01:36year.
01:36And then the semis were front and center, and we're kind of at peak revisions there
01:40on earnings.
01:41You've had expensive valuation.
01:43So people are looking around for other opportunities.
01:46And frankly, Paul, that's been a consistent conversation for the last two months, including
01:50last week.
01:51Okay.
01:51And I think that, you know, we've got to sort of look at the earnings growth trajectory
01:56over the course of the next year.
01:57I think the broadening we've been seeing recently could go farther.
02:01But at the same time, I still expect that earnings story to favor the AI-centric name.
02:05So we think the market will come back to that after the valuation correction has been solved.
02:10But, you know, I'll give you one example.
02:11Our energy conference at RBC in early June, and we have a rock star lineup of companies.
02:16Excuse me.
02:17They all talked about AI.
02:18Stop.
02:19You mean the Halima Croft moment.
02:21Yeah.
02:21Well, Halima did our panel.
02:23I only went to the first day.
02:25But on the first day of the conference, Halima did a fantastic lunch panel.
02:30Did your people let you speak to her?
02:32We're very good friends.
02:33We talk all the time.
02:35But, you know, it was funny.
02:37Outside of Halima's presentation, which was all about sort of the Iran war and the oil price dynamics,
02:43you know, I was listening to a bunch of energy companies talking about how they're helping power data centers.
02:48So I guess my point, you know, going back to Paul's original question,
02:51is increasingly investors are going to be looking for how AI affects, you know, kind of the end users.
02:57And we're still in the early stages of that right now.
02:59I brought Yardini out reaffirming folks.
03:01We're with Lori Calvacina, RBC Capital Markets, reaffirming on Standard & Poor's 500.
03:05So I did a log regression from the Yardini and Campora low of 2022.
03:13And basically, it's an exercise in extrapolation.
03:18People are just taking the trend we've been on and moving it out.
03:22I get to year 8,100 near the end of the year, plus or minus, you know, a couple weeks
03:28and all that.
03:29Is it just simply an exercise in extrapolation?
03:33Not for us.
03:34You know, we have five different models.
03:36And 81.50, you know, it's a 12-month target, but it's basically the median and average and approximation of
03:41those of the five different models.
03:43And at the low end is our GDP test, which comes in at, I think, 77.77,
03:48which is, you know, only looking for about a 5.7 percent return based on the idea of a 1
03:52to 2 percent GDP environment.
03:54We could be in the process of moving those forecasts up, so we'll have to see how the consensus trends.
03:59But on the high end, some of our models are signaling more than 8,300.
04:03You know, two of them, our sentiment model and our valuation and earnings work, are right around that 81.50
04:07mark.
04:08And, again, just kind of going back to the valuation and earnings data, we take the current consensus, haircut it
04:13by 5 percent,
04:14take a P.E. that's based on a projection of inflation that's still running at 3 percent, one hike from
04:19the Fed and 10-year yields,
04:20you know, with some pressure on them as well.
04:22And, you know, what we see in our modeling is that the earnings tailwinds can still offset, you know,
04:28those headwinds from the P.E. compression in the year ahead.
04:31I know historically you've looked at Duke's CFO survey.
04:34What's that telling you now?
04:35It's a fun survey.
04:37The what?
04:37The Duke CFO survey.
04:39And it comes out, you know, shortly around reporting season every quarter.
04:45And so I think it gives a really good reading.
04:47Those folks do just a fantastic job of asking hot topic questions in addition to kind of the basic outlook
04:53question.
04:53And I would say the basic outlook question was the most interesting to me this time around.
04:57And what you've seen consistently in the post-COVID world is there's a gap between companies' optimism about their own
05:04company versus the economy.
05:05So we saw optimism on their own companies ticked up just a little bit, optimism on the economy ticked down.
05:11But that gap remained very, very wide.
05:13And I think it speaks to the resiliency of corporate America and their faith and their ability to manage through.
05:18So we expect to hear more of that in this upcoming reporting season.
05:21Not a trick question, Paul, to you as well.
05:24What is more valuable, the CFO survey or the CEO survey?
05:31Well, we look at a number of different surveys.
05:34So we look at the business roundtable as well.
05:36Conference board has a good one.
05:38I mean, you know, maybe I'm just a data nerd, right?
05:41So I'm partial to the people who are crunching all the numbers and deep in the weeds.
05:46But the CFO one sort of speaks to me a little bit more.
05:49Those are the ones allocating the capital and they decide, you know, what gets funded and what doesn't.
05:53And when you get into trouble, all of a sudden, that's where the phone calls come into.
06:00Yep.
06:00Right.
06:00But outside of AI, what's screening well for you guys, whether it's an industry or a factor?
06:06What are you guys looking at?
06:07So, you know, I think the financial sector still looks interesting.
06:10And this has come up a bit in conversations recently.
06:12You know, so valuations still look very reasonable.
06:15They're moving up a little bit in absolute terms, but still look cheap in relative terms.
06:18Earnings revisions have been good.
06:20If you look at, you know, one of the ways the sector trades, it tends to do very well when
06:25consumer sentiment on the Michigan survey is rebounding.
06:29And we have seen, you know, across the consumer surveys, you know, I know the headlines are always, you know,
06:34negative in how low they are.
06:35But if you kind of zoom out, it looks to me like those indices are trying to stabilize.
06:38So we've been increasingly talking to clients about if we have sort of seen the lows on consumer confidence or
06:44sentiment and get a turnaround, this looks like a sector that should benefit from that.
06:48And it's also, you know, one of the more reasonably valued areas of the rotation trade.
06:52So we've been looking at the top of the rotation trade.
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