Why This Market Refuses to Break (ft. Jason Ware)

Zaid Admani (0:00)

Welcome back to The Rundown, interview edition. Today, we are joined by Jason Ware, the Chief Investment Officer at Albion Financial Group. Jason is one of my favorite guests. He comes on every quarter, and it's great chopping it up with him, talking markets. In today's conversation, we looked back at Q3 and why surging treasury yields haven't derailed the stock market rally. Jason also shares his thoughts on the AI trade and what he expects from the Fed moving forward and a ton of other stuff. This was an awesome conversation. I think you guys will love it. So let's get into it.

All right, guys, today we are talking to Jason Ware, Chief Investment Officer at Albion Financial. Jason, welcome back to The Rundown. I think this is your fourth appearance on the podcast.

Jason Ware (0:43)

Yeah, it's good to be here. Happy autumn, happy fall. We're running headlong into Halloween here soon. So thanks for having me back.

Zaid Admani (0:50)

I love it, man. Q4 is the best. Well, before we talk about Q4, let's take a look back at Q3. I was looking back at your last appearance. You were on back in July. And I was looking at some of the charts back then. And when you were on, oil prices back then were $80 a barrel.

The 10-year was at 4.6%, the 10-year yield. And stocks were near all-time highs. This is three months ago. Now, Jason, oil is at over $100 a barrel. The 10-year is at 5.3% and higher, depending on when you're listening to this. And stocks are still near all-time highs.

So explain to me, like, how is the market, how has the stock market been so resilient despite the headwinds? Yep.

Jason Ware (1:36)

So I think the short answer is through it all, through all of that volatility, through rising energy prices, through a backup in yields, the US economy continues to grow, corporate profits are surging and recession risk remains low.

And so I think those are the factors that continue, those are the fundamental pillars that continue to prop up the stock market. The bull market is strong, again, resilient economy, we can unpack all of this. Corporate earnings have been incredible in Q2, and we're just going to start going into Q3 earnings here, actually starting next week. But Q2 earnings were up over 50% year over year. And what so, I mean, that headline number is impressive by itself, but when you consider the base effects, the last time we saw earnings growing at that pace was in 2021, coming off of a very low forced economic shutdown economy in 2020 And so you get those base effects early in a cycle. That's not super impressive, but to have 50% earnings growth off of a good year last year is really impressive. So I think it's earnings, it's economy, and it's game on.

Zaid Admani (2:40)

It just blows my mind that the earnings are growing so much even now, and there's just been no slowdown. But what scares me is that just with all these factors, is something going to break?

How high does the 10-year have to go before we see something on the edges break? I mean, how sustainable is this?

Jason Ware (3:03)

Yeah, it seems like the topic du jour, the idea that yields are going to hit a threshold where equities no longer make sense, and we see a correction or something worse on the stock market. And I certainly have sympathy for that view. But our approach is, we ask ourselves a couple of very simple questions. One, why are yields rising? Two, how quickly are they rising? And I think when we unpack why they're rising, we feel pretty comfortable with what we're seeing. Part of it, I know the big focus right now is like, oh, it's because inflation is higher. That's why yields are higher. I actually disagree with that. I think the two reasons that yields are higher is because, one, the economy has been stronger than people expected. We're running nominal GDP growth north of 6% right now. And Zaid, when you do a regression, a historical regression analysis post World War II, on where 10-year yields should be, when you have a 6% plus nominal economy, you're about 5, 5.5%.

And so in our mind, the resilience of the economy, the strength of the economy, to give you one data point to really underlie like what I'm talking about when I say economic strength, the most recent report from the Bureau of Economic Analysis on household spending in August showed that growth, spending growth was up 6.1% year over year. When we exited 2025, we were running at about 4%.