The Week: A Market With Mixed Signals, the Price of Surveillance, and a Collective Feeling of Abandonment

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George Hahn (1:39)

Welcome to the week from Prop G Media, where we break down what mattered and what it all means. I'm George Hahn and it's Friday, October 9th. Today, why the stock market and the bond market are telling opposite stories? Then, who gets to decide how much privacy we trade for safety? And finally, what happens when Americans stop believing anyone is coming to help?

Let's get into it.

The S&P 500 closed at a record on Tuesday. It's first since August. It got there with the 10-year treasury yield above 5.3 percent, the highest since 2002, and oil back over $100 a barrel. On Wednesday's Prof G Markets, John Mowry, Chief Investment Officer at NFJ Investment Group, told Ed Elson he wouldn't have predicted it.

John Mowry (2:34)

It really is remarkable. If you had told me at the start of the year that the 5-year, or excuse me, the 10-year bond yield was going to go to 5.25 or 3 percent, oil would be at 100 or higher for multiple consecutive days. I think that's kind of textbook. You would have expected the market to be lower. I think the reason that we've seen such resiliency is that we've got forward earnings at nearly 38 percent for the S&P.

And to contextualize that, the only time you've seen earnings growth at 30 percent or higher is coming out of recession. So coming out of COVID, coming out of the 2009, the GFC in 2008, that was the only other times you saw that. So the earnings have been incredibly resilient. And what's fascinating, Ed, is actually the market has gotten cheaper, even though it's hitting all-time highs as we sit here today.

George Hahn (3:31)

Much of that earnings growth traces back to AI spending. Ed asked whether it will last.

John Mowry (3:37)

So if we think about, are those earnings durable? There's a lot of people that look at the AI trade and they think, hey, is this a bubble? And I might take the other side of the equation.

I might take the side that maybe we're mistaking a bubble for a boom, because when I look at the durability of earnings, it's a cross sector. This is not one group. I think there's a misconception in the market that this is a narrow trade. And I keep hearing people say that only a handful of stocks are holding the market up. I would take the opposite side of that. Small caps are doing well this year. They're up double digits. Mid caps are up double digits. You've seen tremendous performance out of refiners, industrial machinery, material stocks.

There's a whole cohort. I think that the counter to that is, well, is that being driven by the CAPEX cycle, which is roughly $900 billion coming from the hyperscalers? And my answer is largely yes, you're seeing a lot of that come from that. But the counter is, would you rather there not be strong earnings coming out of kind of an investment capital cycle? I would rather have the setup we're in, which is where we have low valuations, strong earnings growth, and actually a backdrop that might get a lot more favorable should we see some alleviation in oil prices or bond yields as we look into the next 6 to 12 months.