I’m bullish on macro and fundamentals, but cautious about valuations and sentiment. Optimism is priced in.
Reasons to be optimistic:
• Strong earnings.
(Although, when everyone expects a positive surprise, is it really a surprise?)
• The high-wage consumer remains strong, with low unemployment and a strong balance sheet.
• The Fed has an easing bias. Short rates are coming down.
• GDP growth expectations may have overreacted to liberation day and could normalize back up.
• AI spending (and productivity gains) are accelerating. You thought we were spending a lot on gen AI in 2024? Hold my beer.
• Fiscal spending could be stimulative due to bonus capex depreciation and lower taxes on tips, social security, and overtime.
• M&A and deregulation are accelerating.
Why not go overoptimistic about stocks?
With the elevated price-to-earnings ratio, high market concentration, and increased speculative trading, markets are vulnerable to two key macro risks:
1. Rising long rates (due to deficits or inflation).
2. Policy (trade, geopolitics)
