00:00You can't make up what you've lost. One of the most important statistics is that the best month
00:06of the year always follows the worst month of the year. And so we show our clients in various ways,
00:15like if you try to time the market, you're likely to miss that massive rally like we had yesterday
00:22because you were so fearful of what was going on from June and July. The favorites were
00:29underperforming. People have done studies. Tech was over. I mean, essentially, if you go back 30 years
00:33and you miss the best month of the year, you're underperformed by 500 basis points.
00:40I'll go to a capital group out in Los Angeles who've done great studies on this. You got to
00:44be in the market. We all know that. But you were weaned at Chicago, the land of Fama and French,
00:49where you have to play. Discuss that. Discuss. As my three male children would tell me,
00:57you miss all the shots you don't take. And I think it there is there. As you say,
01:03it's a disease of trying to time the market. I'll say this. People can be pretty good
01:08at selling more or less near like, you know, local peaks. Right. Well, you can see deterioration.
01:14You can see it percent of S&P with advanced decline lines. You can kind of see you could
01:20be headed into a nice little sell off or consolidation phase, whatever you want to call it.
01:25And then you never get back in. And that's the issue, because the lows are ugly. You know,
01:30if you think about last Thursday, it just looked like the apocalypse. Actually, it turned out to
01:34be a clearing event. And, you know, Citadel did great on that. But I'm sure a lot of people were
01:40selling right into it. And it's just it's too emotional. It doesn't matter how many years
01:44you've been doing this, but people fall for it the same time. You're not going to save yourself
01:47anything. You're going to damage your forward returns. The only time you really want to think
01:54about next 12 months possibly being lower is if you think a recession is coming. We haven't had a
02:01proper recession since 2008. The one in 2020 was manmade. It was manmade. OK, that's stunning.
02:07The market, the market since 2010 is up 14 percent annualized. OK, that includes the 25 percent sell
02:17off in 2022. That includes the down 6 percent in 2018. So trying to time it is is it's fruitless.
02:26It's from a different era when you actually had recessions every five to seven years and coming
02:31out of the market perhaps saved you some losses. So, you know, the most important thing is,
02:36is there a recession looming? This market, this economy, there's no recession. And by the way,
02:41the banks are doing terrific. When banks do great, you're not going into recession. They're
02:45the forward leading indicator. Technology, AI, focusing on returns on AI CapEx. How do you guys
02:52think about that theme right now? So I think that's the most important theme in the market. And that,
02:57of course, was the clearing was the earnings that we had from some of the hyperscalers.
03:00You know, even where the market was disappointed in some of the others,
03:04the revenue was going much higher on the cloud business. And what we saw was the one question,
03:11there are two questions. Can equities rally with the 4.5 percent bogey on the 10-year being breached?
03:21Right. And the answer was like, yeah, actually, it was kind of fine. It was fine. OK, so that question
03:27was answered. So, look, yields probably could get to 5 percent here simply because between the inflation
03:32numbers and, you know, from the questioning of the Fed's reaction function and the uncertainty in
03:37Iran, the Iran war. So that's number one. But equities are fine. The second big question is the
03:42ROI on spending. And that could have killed the entire market. OK, you would have wound up with
03:47health care, you know, utilities and staples working. And the answer is actually the business
03:54model is working. Even if free cash flow is going negative in the short term, even if they have to
03:59sell
03:59debt to fund it, they're re-accelerating the core business, which is cloud. And so it's working.
04:06And once you answer that question, you're off to the races. The whole complex can rally.
04:10Alicia Levine with us, BNY. Thrilled with us today across America, around the world. Futures up 28.
04:16Paul, I ask a question because I got to go nerd here in a moment. Paul Sweeney with Alicia Levine.
04:22Alicia, you say industrials, attractive entry point. And we had great numbers out of Caterpillar
04:28yesterday. So, boy, that's a great timing. So you have like it's a perfect storm. You have the
04:33CapEx incentives from the one big beautiful bill, which are rolling through the economy and are
04:39definitely helping hard assets. That's industrials, as well as the funding from the hyperscalers. So
04:46if you think about what you need to build a data center or what you need to kind of to
04:51build out the
04:52AI on the hard asset side, the projections for next year is $1 trillion in spending. That is going
05:00directly into the P&L of 20% of the S&P. So that's why we like it. I mean,
05:07industrials have been actually
05:08the best sector of the year. We think that continues.
05:12So give us your targets here quickly.
05:13Okay. 8,000 with risk to the upside. Yeah, but risk to the upside here. Right. Okay. Forward
05:18earnings are growing at 30%. Okay. Jeez. The multiple is lower than it was June 2nd with
05:23the market peak before. If I look at two sets of difference equations on the x-axis, and I look
05:29at all this CapEx, all these tech companies are spending, and matched against that as the same
05:34timeline of their huge cash flows and profitability, I say they've only got to go out one quarter,
05:41two quarters, three quarters, four quarters after that CapEx expense to be made whole.
05:47Yes. Is that in the zeitgeist now? I don't think so.
05:50So we've been running models on it, and it looks like they returned to cash flow positive
05:54in about 18 to 24 months.
05:57Okay. So that's six quarters, I think.
06:00And then it explodes again. Then it explodes. Then they become the...
06:03Wait, whoa, whoa. Positively exposed.
06:05It explodes. The cash flow becomes positive, and then it explodes to the upside.
06:11So what's your...
06:12Because they're monetizing the investment.
06:14Okay. This is... You're the first one who's done this. Thank you.
06:16What's the fan distribution of outcomes 24 quarters, whatever?
06:21Whatever.
Comments