Earnings recovery begins for S&P 493
The discussion highlighted a healthy broadening of market participation as equal-weighted earnings begin a durable recovery after a three-year downturn.
The argument
The S&P 493 (excluding the Magnificent Seven) is showing positive earnings revisions, suggesting that the broader market is entering a full-employment recovery phase that is less dependent on a few mega-cap tech names.
The thesis, stress-tested
✓ What validates it
- ✓Continued upward earnings revisions for the S&P 493
- ✓Outperformance of equal-weighted indices relative to cap-weighted indices over the next two quarters
▸ Risks discussed
- ▸Economic slowdown disproportionately impacting smaller, rate-sensitive companies
- ▸Reversal of positive earnings revisions for non-tech sectors
Hear it yourself
"earnings was fake ish in the sense that it was driven by buybacks and dividends, and it wasn't real earnings. So you can measure it historically. Now we're starting to to complain, I would say, or you'd be concerned about CapEx. But CapEx is usually the better path. Right? So if you say CapEx relative to sales is on an upward trajectory, and that's let's call that a CapEx recovery, and you could call the opposite something that's not. You would rather, as an investor, from a stock market perspective, from an earnings perspective, from a GDP perspective, and from a job perspective, rather have a CapEx recovery."
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