Stock Talk - Retiring Soon? Here’s What the Market May Do in 2026 (Market Outlook: Part 2 - Earnings)

Starting point is 00:00:00 Investors, if you're within striking distance of retirement, we're already there. 2006 could be the most critical year of your portfolio in a decade. With S&P 500, potentially reaching 8,000, but also threatening a double-digit pullback along the way. The difference between capturing gains and watching them evaporate could determine whether you retire comfortably or work a few more years. Investors last week, we began mapping out exactly what O'Carvis clients and prospects need to know about the opportunities and landmines ahead. Our goal isn't to be precisely accurate, but to give you a clear-eyed view what our investment team expects in 2006, so you can protect what you've spent decades building while still participating in what could be a powerful full market run.

Starting point is 00:00:45 Last week, we covered seasonality and cycles and how they might be both a tailwind beginning in early 2006, but a headwin through most of the mid-year. Since last week, I recently discovered another amazing chart on recent Trump-president. the residential cycles that I'll share with you if you hang around until the end of this video. So on to this week's topic, the most bullish thing the Oak Harvest team can find for 2006, a very strong anticipated S&P 500 earnings and quarterly earnings growth rates. How strong? Let's talk about it.

Starting point is 00:01:18 Currently, bottoms of fact set earnings estimates for the fourth quarter of next year are expectations of about $82.5 exiting the year. Here's the fact set quarterly data. fourth quarter number would be up over 17% year-over-year from where we are right now in the fourth quarter of 2025. Remember investors over longer time frame stocks follow earnings. Here's a chart from FACET showing that strong trend over time. The good news is that a big number and likely attainable. Also, unlike market bottoms that anticipate recoveries, the market doesn't historically peak before earnings. It peaks coincidentally. Assuming no PE contraction in

Starting point is 00:01:57 2006, 17% growth rate on top of the current S&P 500 around 6850 would triangulate to much higher at some point in the second half of 2006. How much higher? Well, 17% above our current rate is near 8,000 at a peak in 2006. Sounds unachievable. We've been up plus teens for four years in a row a few times over history, including the 1995-2,000.com investment cycle. Interestingly, this path but also mirror the path we took along.com AI investment cycle post-long-term capital in October 1998 with stocks in sync since early April lows.

Starting point is 00:02:36 We'd also triangulate another cycle peak we've seen most recently. We'll discuss that one at the end of this video. Unfortunately, things our team look at say that even if we reach 7,800-8,000 level in early fourth quarter of next year, the market is unlikely to close the year there. But back to the good news.

Starting point is 00:02:55 A few factors that could make these EPS numbers achievable in 2026 include stronger than expected GDP growth on the back of elevated incentives for cap-X spending by large tech companies. Throw in a rebound in lower end and middle-end consumer spending in the middle of the year due to larger tax refunds many spenders will get from the tax bill. And those are positive tailwinds. Finally, carryover from a weakening dollar in a stable to lower oil price should be a tailwind for revenue and earnings in much of 2006.

Starting point is 00:03:24 investors, additionally, this earnings growth is not only driven by revenue growth, but also due to margin expansion driven by AI-driven productivity gains. The process of AI adoption is early, but larger companies in the S&P 500 are reporting more progress in AI implementation than smaller firms. AI-related labor productivity gains, which unfortunately might be bad for the labor markets in 2006, but good for corporate adoption should lead to higher potential productivity boosts. to build over time. Take a look at Goldman Sachs' 2020, forecast for sales, margins, and earnings growth in the S&P 500. The re-positive for corporate return-on-invested capital next year,

Starting point is 00:04:07 even with elevated AI-Cap-X for many large-cap tech names. And speaking of large-cap tech names, before you write off the top seven market cap stocks outperforming in 2006 in favor of the other 493, as many forecasting are, don't forget, the top seven stocks are slated to have 23% earnings growth next year, while the remaining 493 stocks clock in at about 11%. Of course, this much higher S&P 500 earnings target assumes no change in PE multiple. There hasn't been a change in PE multiple all of 2025 because long-term bonds have remained point-to-point pretty much at the same interest rate. Higher nominal long-term interest rates would hurt. PE multiples, particularly if they were induced by higher trending inflation. Lower rates on the back

Starting point is 00:04:54 of QE in the second half of 2006 will likely cause PE expansion and make these very high targets on the market very achievable. So in summary, investors' earnings should be a big, big tail win for stocks next year. Now, if you hung with me this far, here's a bonus chart on cycles. Unfortunately, this is a good news, bad news one. Much to my surprise looking back at the beginning of Trump 2.0, overlaid on Trump 1.0. Surprise, surprise, surprise, except for the minor April tariff detour down, we are following near the exact same path in both price and time, Trump 1.0 and 2.0.

Starting point is 00:05:30 Believe it or not, his first term in 2017 ended with nearly the exact same pattern in return we've seen this year, albeit with lower volatility. Here's the paths overlaid with data from Bluebird, much like we've shown for dot com in the late 90s. This is what the future might look like in 2006 should this pattern continue. Trump 1.0 had a big late January top, the large downside move. Back then, it was due to Valmageddon, and the move down was upwards of minus 12%, followed by another major new all-time high in October and a minus 20% drop into Christmas 2018.

Starting point is 00:06:06 Such a repeat next year would equate to roughly 7,200, 7,300 in the first quarter, followed by a fast downward movement of over 10% and higher into the fourth quarter of next year before another drop. Well, this makes sense. Well, investors, unfortunately, right now, yes, it would continue along the dot-com path we've been following for the last few years. This would make 2006 a bucking bull ride with much higher volatility than we've seen the last few years. The good news, our investment team has experience in this type of bucking bowl markets. Remember that elevated volatility also means elevated opportunity for longer-term investors. Historically, your biggest incremental returns come from investing when volatility is high, not low, markets are down, and others are either acting emotionally

Starting point is 00:06:53 or worse yet being forced to sell when they should really be pushing their chips into the center of the table and adding to their investments. So what does this mean to you and your family and your money? Our advice is to keep following our investment content on Old Carvis website and our YouTube channels and we'll be addressing many of these points and more and tune in to our live stream covering our 2006 market outlook on January 29th of 2006. Investors, whether you desire growth or income or a combination of both in your portfolio, the entire Oak Harvest team is here for you and our clients doing what we can to plan for you and your family's future, regardless of what stage you're at in your career or in your retirement. All content contained with an Oak Harvest podcast

Starting point is 00:07:37 expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell.

Starting point is 00:08:07 securities. Indexes such as the S&P 500 are not available for direct investment and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss and past performance is not indicative of future results.

Stock Talk - Retiring Soon? Here’s What the Market May Do in 2026 (Market Outlook: Part 2 - Earnings)

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