00:00 Speaker A
The market action right now, to what extent do you feel it’s going to be driven by earnings in lieu of trade negotiations given that we are not getting those headlines at this time?
00:11 Speaker B
Earnings are always going to be important, especially for long-term market prospects. But but as Josh just mentioned, right, so much of what’s going on right now will likely only be realized several months down the line. The numbers right now from an earnings perspective seem to be shaping up pretty good, mean pretty pretty well. They’re actually looking better than they did at the start of the quarter, at least for a year over year growth from a year over year growth perspective. What I’m very curious about is is forward guidance particularly from those quote unquote magnificent seven. Um you know we we when we do look at the market, Josh again mentioned this earlier, you know, so much of the selloff has been driven by this very small handful of names that in turn did most of the heavy lifting in 2024 and 2023 and the valuations that you saw on those names made them extremely susceptible to shocks like the ones that we we are seeing right now. And when you think about a handful of those magnificent seven names, right? We think about some of the the smartphone manufacturers for example. Think about how many smartphones these companies sell to China and think about how many of these smartphones are made in China, right? There are sort of two different exposures to regions that are being that are sort of in the crosshairs I guess I’d say for tariffs that make the magnificent 7 particularly vulnerable, right? So that forward guidance I think is going to be just extremely important right now and frankly, I think a lot of businesses don’t really know what to expect in in the near term which is a little bit concerning.
03:05 Speaker C
So with that in mind, how will that forward guidance really kind of cater more to the prevailing thought around fundamentals that we were discussing versus some of the the severe feelings that are rattling around in markets right now, which is something that certainly has been playing out even within some of the pullbacks. But yet earnings coming through and we’re still seeing, I think what fac said had looked at and continued quarterly growth in earnings profit at least at this juncture.
03:57 Speaker B
Yeah, I mean, we have to remember that at some point sentiment becomes reality, right? If sentiment sticks around for long enough, it will sort of beget whatever it is that you are concerned about. The time the question I think is how long it takes to get to that point and do we get a little bit more clarity on policy before we hit that that sort of tipping point. And I guess I could say I’m crossing my fingers and saying I hope so, but yeah, I mean, we’re all crossing our fingers, but I don’t actually know. The fundamentals right now to your point Brad are looking pretty solid and the story that I’m looking at right now is not necessarily these specific numbers, but the relationship to bring it back to to the Mag 7 between the Magnificent 7 and what I like to refer to as the S&P 493. It’s that 500 name index minus the Mag 7 and how they are performing relative to to one another. You know, the S&P 500 down, you know, maybe roughly 10% or so year to date. I don’t remember what the exact number is. The Mag 7 is down double that. The rest of the market’s not really down much at all. And when you look over to what’s going on in the earnings side of things, analysts at the moment are calling not just for the worst year quote unquote for Mag 7 earnings since 2022, they’re also calling for the best year for the S&P 493’s earnings over that same time period. And so that that proximity to earnings parity, the fact that earnings growth is set to look more or less the same for both of these components of the market, that’s what I think is a lot more interesting than the specific numbers themselves. So I expect to see these numbers get whittled down. There is so much uncertainty, confidence is not particularly good, but where the whittling actually happens is going to matter a whole lot. And as long as this dynamic of positive earnings growth across all components of the market plays out, then I think we still have a pretty wide opportunity set as equity investors.
