Earnings revisions have been exceptionally strong, reaching unsustainable peaks, particularly in sectors like semiconductors. While this is causing a short-term rollover in momentum (the 'second derivative'), the underlying trend of forward earnings growth (the 'first derivative') remains positive.
The market is in a transition phase, moving out of overextended sectors like semiconductors that have seen peak revision breadth. Capital is expected to rotate into previously lagging areas that are now showing strength, such as consumer stocks, transportation, and regional banks.
Contrary to the conventional view, the speaker argues that headline inflation is a significant positive for stocks. It boosts nominal GDP, which directly translates to strong corporate revenue and earnings growth, so long as the Federal Reserve doesn't react by aggressively hiking rates.
A structural shift is occurring as investors move capital out of the bond market, which has been in a multi-year bear market, and into assets that offer protection against inflation. This includes equities, gold, and other real assets, representing a move away from the traditional 60/40 portfolio.
Keep pulling the thread on Mike Wilson.