Dale Smothers Sees 8,000 SPX by End of 2026, MU Earnings Volatility Ahead

SPEAKER_1 (0:00)

But I do want to welcome in our next guest. Joining us now, Dale Smothers. Dale, great to see you, founder and CEO of RDS Wealth Management. We got our PCE report, better than expected inflation, not as bad as feared, at least according to this inflation gauge, and it's somewhat new reporting standards. There were some changes here. How are you looking at the data that we got and the market reaction?

Dale Smothers (0:23)

Yeah, the market reaction was steep, Marlee. Always good to be with you, of course. I love these conversations. The market reaction was a complete reversal of downward trend perhaps in the futures. We saw PC come back and it was handsomely rewarded with a bit higher in the futures because inflation is one of the biggest fears that we have right now. It's one of the biggest headwinds that we have for sure.

Oil clearly is driving inflation and until oil is subdued, and in our opinion, back into the 70s, maybe even high 60s, we continue to see this BA headwind. But earnings themselves are what is driving the market higher. Alex was just talking about investor days and excitement around AI and demand.

And that AI demand, that AI build out, and that AI margin expansion has really kind of set the tone for what we expect this next earnings season to also entail going into October.

For that reason, we believe the market continues higher and cooler PCE, cooler inflation is only a little bit of a spark of optimism that may propel us farther than 8,000 by the end of the year, which is our price target of the S&P 500

SPEAKER_1 (1:36)

I'm glad you mentioned that, Dale. I swear I don't send out where I plan to go in my interviews, but you always seem to know where I'm heading. And I was heading to that 8,000, that year end target. Now, you've told everybody to buckle up because you expect turbulence. But what has to go right here in terms of earnings growth and AI demand to overcome some of those macro headwinds that you mentioned yesterday as a net positive, but it's just one report. And as we keep hearing one report isn't enough to make a trend.

Dale Smothers (2:04)

No, it's not. And as a matter of fact, there's several reports that show that the trend is headed in the wrong direction. I do think that the Fed is going to be unfortunately forced to raise interest rates. I don't see they're continuing to be interest rates raised into 2027 though, because I think once oil is put to bed, we will see a reversal from the Fed.

But I'm going to put my crystal ball away here for a minute and just talk about what we know is taking place. And that is continued double digit earnings growth that drives the market higher by itself. A spark of optimism in the AI trade, a new contract here or there, a new forward guidance by some of these companies, like today Micron in its fourth quarter earnings going to likely give some guidance into what they see going into the next fiscal year for the next 12 months. That's something we need to be paying attention to because it will clearly kind of lay out this racetrack, if you will, of artificial intelligence. And the reason we need to buckle up, we've mentioned this multiple times, is that this racetrack is by no means a straight line and nor is it an oval. It's more like one of those road courses that you see.

And there are steep pin, we would maybe call them hairpin type turns, that if you're not careful, you're going too fast into those turns, you can find yourself close to the ditch. This is what we do for our clients every single day, is making sure we've given every dollar a job and the money that is supposed to be hunting in a growth environment, leaning into the leadership of artificial intelligence is a must, continued earnings, expansion. And this is to answer your question pointedly, what has to happen? We've got to see a broadening out in this market. It can't be narrow. We've seen a little bit of a narrow pull up here in September. Ironically, September has been fairly resilient. It's breaking historical trends. We love seeing that, but we've got to see more than just tech. Realistically, what's been led up in September is tech and health care. We've got to see an expansion into financials. We've got to continue to see the industrials profit from AI build out. And with that, I think we see the market again, a bit higher.