It's A New World Order For Markets | Cameron Dawson

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Cameron Dawson (0:56)

I think it's really, really, really vital to appreciate that the downtrend in yields that persisted for 40 years from 1982 to 2022 is over. It is dead, it is over.

Adam Taggart (1:20)

Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Taggart. Today, we've got a very special discussion lined up with Cameron Dawson. Cameron is one of the best market researchers out there.

She runs a firm, New Edge, is it New Edge Financial?

Cameron Dawson (1:38)

New Edge Wealth.

Adam Taggart (1:39)

New Edge Wealth. Thank you. And Cameron, it's been a while since you've been in the program. A lot has happened in the world.

Cost of capital has been rising quickly as these interest rates have been rising. We're still seeing some stubborn stuff with inflation. We've got kind of different crosswinds between the US. Treasury and the Federal Reserve.

We're still at all-time highs pretty much with the major indices. Yet, if you look under the hood, there's a lot of sectors that aren't performing very well. In this world, what are you telling clients, especially as you start to look to 2027? What are the themes you think are the ones that are most important to keep our eyes on? Which one do you think are going to drive the action the most next year?

Cameron Dawson (2:28)

Yeah, so much going on, and yet there's times when you look at the market, at least the equity market on a cap weighted basis and say, why don't you care about any of it? We've seen huge moves within interest rates, of course, oil prices being higher with geopolitical tensions. You've had shifts from expectations of a dovish Fed to start the year and now to a hawkish Fed. We've already had a hawk. It's expected we get more hawks.

As you mentioned, cost of capital is going up, which means that you're starting to see some cracks in things like credit, mostly lower quality borrowers. And of course, on the surface of the S&P 500, it's been so darn resilient, continues to be able to shake off all of these dynamics and still not trading below its 50-day moving average. If you had said, are we going to have a skyrocket higher in 10 and 30 year yields and have this S&P 500 not even crack its 50-day? I'd say, well, that's pretty wishful thinking. But that's exactly what happened through the month of September, defying odds of what was expected to be seasonal headwinds. And we all know the reasons why this market has been so resilient. It's because you've had strength within the top cohorts of the market, names like the Mag-7, of course, at the 34% weight in the index. That resilience has effectively masked the weakness under the surface, as you mentioned, of all these rotations, where anything that wasn't tech, AI, CapEx, Mag-7 related, really had a terrible September. Look at industrials, look at banks, look at all the consumer stocks. Now, what's interesting is to start October, some of that is snapping back. We're starting to see the everything else start to have a bit of a snap back. A lot of those areas got slightly oversold. Seasonality is now turned from being a headwind in September to now a tailwind in October. It's possible that at least over the course, as we move through this earning season, we could see some of the breadth return to this market. But it does very much raise the question about where do we go from here? If we're thinking about why this market has been resilient, I mentioned the strength at the top. Another way to conceptualize that is the fact that earnings have been so strong, which we know there's been a concentration to earnings as well. Look at this quarter for 3Q. You have semiconductors that are going to grow earnings by 130% is the consensus expectation. That really brings up the overall earnings number, but we're running at a pace of 35% growth for 2026 Really incredible. That's going to fall by more than half as we get into 27 Growth should fall to about 15% is what current consensus is. That raises the point that if earnings starts to slow down, which we do think is normal given things like law of large numbers, just really tough comps, that just means that there's less room to absorb some of these macro headwinds, which get reflected in valuations.