00:00Well, look, there are a lot more smart people in the business, and we've got a lot more information.
00:05So theoretically, we should be better off.
00:08The most difficult thing is processing all this information and making sense of it.
00:12So I'd like to think we're better today, given the greater amount of information, the greater computing capability to process
00:21all of that.
00:22But the business is much faster.
00:24I mean, you've got to be able to make decisions instantaneously because the person on the other side of your
00:29trade is doing exactly that.
00:31What are you doing coming into this earnings season, Phil?
00:34We had the first quarter.
00:35Boy, it was just extraordinary.
00:36I know the bar is pretty high here for the second quarter as well.
00:39How do you feel about Q2 earnings?
00:41We're feeling great about Q earnings.
00:43We think the first quarter revenue is up about 12 percent, earnings up, I don't know, maybe 28 percent or
00:50so.
00:51We're looking for comparable numbers in the second quarter.
00:53Profit margins were record high in the first quarter.
00:58We're looking for comparable numbers in the second quarter.
01:00So there's nothing wrong with revenues and earnings.
01:04The economy is doing fine.
01:06The corporate profits are doing fine.
01:09Now, we can argue that disproportionately maybe the growth in technology names, the MAG7 technology, et cetera, is contributing the
01:19bulk of that.
01:20And from a valuation perspective, that, you know, a lot of those stocks are trading at, you know, 20, 30
01:26times earnings.
01:28We've got to manage that mix.
01:31And, you know, given the fact that we are expecting a little bit of an air pocket here over the
01:37summer months, disproportionately, the NASDAQ names, which are up, you know, 30 percent plus over the last quarter or so,
01:45may bear the bulk of that pullback.
01:49So we're not suggesting to get out of the market that the other sectors of the market, the value names,
01:54the international names, the smaller cap names, still great companies, much more attractive valuation.
02:01That's a reasonable place to hide out while we wait for this thing to play itself out.
02:05So inflation, I mean, you talk about the economy being in good shape.
02:10There are fundamental concerns about inflation outside of what we see in the fluctuations in energy prices.
02:15How do you guys view that?
02:17So I wrote about this, my piece last week.
02:21And as we take a step back and look at the bigger picture, inflation dropped from a 40-year high
02:29in 2022 to a five-year low in January and February of this year.
02:34So we thought inflation was moving in the right direction.
02:37And then Iran happened, the U.S.-Israeli invasion, energy prices up 80 percent, gasoline prices up 50 percent.
02:45And then the inflation numbers in March and April and May just sort of went vertical.
02:52As the energy prices came down in the month of June, we were expecting that there would be an immediate
02:58flow through into the inflation data.
03:00Because our view is that most of the spike in inflation was energy-related.
03:04And we got that.
03:05We got a better-than-expected set of CPI and PPI inflation data last week.
03:13We think that will flow through to the PC data that we get next week.
03:16So we're feeling pretty good about that.
03:19And then we get this re-ignition of the Iranian situation over the last two weeks.
03:24Phil Orlando with us, Federated Hermes, we welcome all of you across America and around the world.
03:29A really complex set of data today, DXY well out over 101.
03:33For those international, the yen 163.04 is truly historic.
03:39Speaking of historic, Phil Orlando, and I remember this, looking at housing prices 06 into 07 and going,
03:46this can't continue, trees to the sky and all that.
03:49I got an SPX 10-year trailing, 15.4% per year total return in the Standard & Poor's 500.
03:58Explain regression to the mean.
04:00I got to be in the market or I'm not going to be able to retire.
04:04I'm going to get regression to the mean.
04:07So then how do I invest given the outsized decade returns?
04:12This is one of the most powerful slides that we share with our clients.
04:16And we go back and look at the performance of the S&P 500 from 1970 to the present, all
04:25right?
04:26That's more than half a century's worth of data.
04:28And over that period of time, we as a nation have had our struggles.
04:33We've gone through eight recessions and 10 corrections in the equity market that were 20% or more.
04:39You know, down 20, down 30, whatever.
04:41You know, the COVID pandemic, the global financial crisis, the bursting of the Y2K technology bubble.
04:50Horrible periods.
04:51But if you had the wherewithal to be patient, to be calm, to look through the noise and the nonsense,
05:00the compound annual growth rate price only was up just under 10%, total return up just under 13%.
05:08So rule of 72, double your money every six years.
05:12So the message to us that we're providing to clients is, okay, there's a lot of noise going on right
05:19now.
05:19We get that, all right?
05:22It's an unstable environment.
05:23But you've got to be able to sort of look through the noise and look at the underlying fundamentals.
05:28Okay, Goldman Sachs did a study a year and a half ago where they said doom and gloom we're going
05:32to have a vector that's like 0% return, whatever.
05:36It's old news.
05:38My answer is I got a 15% or 13% per year SPX.
05:42And the answer is I got to get used to making 7% a year in equities.
05:46Are we prepared to make just 7% per year total return in equities or are we addicted to this
05:54odd bull market?
05:55Well, we don't think we're going to do 7% a year in equities.
05:58Do you think we're going to do better?
05:59Well, absolutely.
06:00I mean, we've got a $450 earnings estimate for the S&P 500 in calendar 28.
06:07Right.
06:07And we are below consensus.
Comments