00:00First of all, the end game is to thank you, to start out, for after a month plus of World
00:06Cup,
00:07you have refocused the country on the sports rivalry of all time, the one that really matters,
00:14Yankees-Red Sox. That's the end game of the World Cup.
00:17What a joy last night to listen to, I think, W-E-E-R in Boston, Will and the team,
00:24and nobody was pulling a jersey. Nobody was stepping on somebody's ankle.
00:30You know, they have their moments, but it was great. Continue here. What's an end game element?
00:35So the question is, is that in this environment, where we know that AI is dominating as an investment theme,
00:46where we know we're on course for political change in the fall,
00:52where we know that earnings have been unprecedentedly strong,
00:58is there, how does the end game develop?
01:01And a lot of the questions that we've been fielding is, does this have to end like it ended in
01:07Y2K?
01:08And our answer is decidedly, it doesn't, because earnings are good.
01:13And oh, by the way, you look at this year, value is outperforming growth.
01:18The stock market is very strong, and the economy is solid.
01:22So Julian, we're getting into the teeth here of the second quarter earnings.
01:26First quarter earnings were just extraordinary across the S&P 500.
01:29Bar's pretty high for the second quarter as well.
01:31How do you feel about earnings?
01:33It's going to be great again.
01:34Okay.
01:35We know that, which is why essentially as the season has started, you've had mixed reactions to earnings reports.
01:44And that's actually been a feature of the majority of this bull market.
01:49But ultimately, for us, what we think investors will likely do is refocus on the stocks and the areas that
01:58have been sort of laggards and that are going to report great earnings.
02:03And oh, by the way, that's large cap tech.
02:06Large cap tech.
02:08So we're in large cap tech.
02:09I mean, Tom and I, we talk about the softer stocks all the time, like a Microsoft down 20%.
02:13You just, you rarely see that type of performance over any meaningful period of time.
02:18How about some of these software names?
02:21Well, software is going to be pick and choose.
02:23Okay.
02:24Okay.
02:24But broadly, you know, when you think about the Mag 7, they have been punished already for what we're going
02:34to find out this reporting period,
02:37that free cash flow, because of the AI build-out, is likely to cross below the zero line.
02:44Stocks have discounted it.
02:46I just want everybody worldwide to know that all three of us have what I call air-conditioned throat, which
02:51is in the summer.
02:52And we said this room is very cool because of all the electronic equipment and that.
02:57And then you go home where Mrs. Keene has an iceberg.
03:00Right.
03:00And then you get in the Uber where it's, you know, can we hit or miss iceberg, and none of
03:05us can speak this morning.
03:06So I, in advance, apologize.
03:09I'm looking at Amazon.
03:09Paul Sweeney taught me how to do this.
03:11You can see on page two of the DES screen, the description screen.
03:15Yep.
03:16Tom Secunda taught me how to use the screen.
03:18Yep.
03:19Yep.
03:19The institutional ownership.
03:22Evercourt nails this.
03:23Are they under-owned?
03:25Are the Mag 7, you know, when you look at percentages of index funds and all that,
03:29are they under-owned by the long-only buy side?
03:32They are.
03:33There's no question about it.
03:34And not only are they under-owned by the long-only buy side, they also have been reasonably active shorts
03:42from the hedge funds.
03:44And we all know that it's very frequently the case, certainly it was the case at the beginning of April,
03:50that the most vigorous rallies start with short covering, and we think we're going to see that this earnings season.
03:56What are we going to see from the Federal Reserve?
03:58We've heard Mr. Warsh a couple of times now in public.
04:02Inflation is, quote-unquote, intolerable from his perspective.
04:05So it seems like the focus is on inflation.
04:07What do you guys expect from the Fed?
04:09So we don't think you're going to get anything next week.
04:15But the problem for Warsh is twofold.
04:19Number one, the escalation with Iran has sent oil to a level that's uncomfortable.
04:25Now over 90 a barrel Brent crude.
04:27Right, exactly.
04:28And then you mentioned it at the top of the hour, the 10-year yield is getting to an uncomfortable
04:34place.
04:35And it looks to us like, you know, actually the U.S. has been best behaved,
04:41but it looks like you're on the verge of another global breakout higher in long-term yields.
04:48And that's a problem.
04:49Across America this morning, Julian Emanuel joins us.
04:51Severcourt ISI, we thank you for listening the way you choose to listen to us on YouTube.
04:56Building, growing each and every day, humbled by the length of listening on YouTube.
05:03What Colin of the Twins told me, people have it on their phone.
05:07They're listening to YouTube while they're driving, and they turn the phone over so they can't peek.
05:13And they just listen to my lousy voice.
05:15Perfect, perfect.
05:16You know, it's, you know.
05:18That's how we roll.
05:19That's how we roll.
05:19Paul Sweeney with Julian Emanuel.
05:22Julian, what screens well for you guys, whether it's a sector or a factor?
05:26What's the screening law for you guys these days?
05:28So, what's fascinating, again, is we are in one of these rare environments where value stocks are outperforming growth in
05:37a tape where the index is up on the year.
05:40And that is rare.
05:42But for us, what's even more fascinating is that within that, there are a universe of stocks, which we've referred
05:51to as negative beta.
05:53They're mostly value, but day in and day out, they've been correlating inversely to the S&P 500.
06:00And it is in a world where AI has become a predominant investment theme, truly portfolio diversification.
06:08I want you to talk about what you put your name at the top, but it's Michael Chu, Barack Hurwitz,
06:13and Stephen Fendozy doing all the work.
06:15You have a report, folks.
06:16Get it from Evercore ISI.
06:18It's the best thing on the street.
06:20Earnings edge.
06:21And it's a big, long paragraph here.
06:24What's the tone so far?
06:25Is it a revenue edge?
06:27Is it a down-the-income statement edge?
06:29What's the distinction so far that you publish in that document?
06:33Well, the distinction, again, is that both revenue and earnings are just absolutely unprecedented.
06:43And again, I referred to this idea that we're going to find out that hyperscalers will probably cross the zero
06:50line in terms of free cash flow.
06:51But guess what?
06:53The rest of the S&P 500 continues to move towards record-free cash flow.
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