00:00 Speaker A
So far, stocks have defied the traditional September slump, and there certainly was no reason to sell in May and go away with records through July and August as well. With the boost from a Fed rate cut, can markets continue at these levels or could this be the sign of an emerging bubble? And Jeff, I know we briefly talked about this, and I want to pose that question to you. Are we at all approaching bubble territory or are these valuations justified?
00:27 Jeff
I think the valuations are justified, um, based upon, you know, we're trading at 23-ish type of earnings, which is at the higher end. I I can I can uh rationalize that based upon the S&P 500 not being your grandfather's S&P 500 when you throw out averages like 16 times earnings as a historical average. Well, return on equity and profit margins were far lower back in those times when we weren't so communication services and technology oriented in these these growth names. So I think it can be justified. And if you look at the earnings prospects for these companies, you're talking, you know, earnings expectations that have come up. Um, you know, and they're over 20% um earnings growth expectations, um, for, you know, these tech companies, um, you know, going forward. So, um, absolutely there there are from an economic standpoint and from a bottom-up standpoint, um, supports for uh the S&P 500 being this level. What would worry me is if we got a real meltup where folks kind of go gaga over Federal Reserve rate cuts and it carries us to even higher levels. Uh, that would make me nervous particularly if you had a scenario where rates were rising, ironically, as the Fed would cut. So, you know, we're we're watching um, really trend in interest rates and, you know, the drivers um, of of this this um move in the market pretty closely and I would not like to see a lot of upward drift in PEs from here for sure.
02:18 Speaker A
And and so Brooke, given what Jeff was just laying out, what are strategists saying when it comes to year end? Are they still calling for higher highs?
02:29 Brooke
Yeah, well we've heard from a number of firms that have raised their outlooks for the S&P 500 over the past few weeks, over the past few months as we make our way. We heard from Wells Fargo, Barkley's, Deutsche Bank, all raising their year-end targets. In addition to that, we also heard that some strategist like city strategist, Scott uh Scott said that the index sits around 6,600, really maintaining that year end target citing that equities are fairly valued. But really all eyes will be on that Q3 earnings report after such robust as as Jeff had mentioned, robust reports coming out of Q2. Now, really we do see Q3 as the next driver of this year end rally.
