PodcastWTFinanceChris Galipeau

Everyone is Too Bearish as Earnings March Higher | Chris Galipeau

Galipeau argues that earnings strength has helped stocks absorb geopolitical shocks and broadened market leadership, even as earnings growth may slow and volatility rise. He sees persistent inflation and the risk of overly restrictive Fed policy as key concerns, but does not view a recession or a rate-driven break in earnings growth as his base case. He expects rates to remain rangebound and says investors should focus on earnings power, while watching for signs of weakening margins or disorderly Treasury auctions.

Corporate EarningsEquitiesMarket BreadthInflationInterest RatesRisk Management

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Key Takeaways

Galipeau says core PCE inflation has remained above the Fed’s target for five years and that price stability remains unmet; he also sees little political willingness to address U.S. debt, whose interest costs are now the largest expense line item. With two-year Treasury yields about 85 basis points above the federal funds rate, he expects a December hike and probably two more in 2027, while stressing that the path could change with incoming data.

Galipeau sees earnings power as the key equity variable and identifies a Fed-driven slowdown or rates high enough to break earnings growth as the main risk, though neither is his base case. He says rates are probably rangebound at 5%–5.5%; if they reach 6%–6.5%, he expects rough conditions for stocks and multiple compression.

Galipeau says earnings growth has broadened beyond hyperscalers and semiconductors, with technology, energy, and industrials among the strongest EPS growers, while reported S&P earnings rose 28%–30% year over year in Q1 and Q2. He expects growth to slow, potentially bringing more volatility, but distinguishes that from a peak in earnings power; calendar 2027 and 2028 S&P estimates are up 13%–14% sequentially.

GEO-POLITICS

Debt Politics — Galipeau says U.S. debt is a concern, but sees little political will to address it meaningfully; major spending programs are unlikely to change. He says interest on the national debt is now the largest expense line item.

“Now, at least in the US, as the debt load goes, there doesn't seem to be either polit or yeah, neither political party seems like they have the constitution, no…”—

ECONOMY

Persistent Inflation — Galipeau says core PCE inflation has been above the Fed’s target for five years, arguing that it is not transient and needs to be addressed. He says the Fed has met its full-employment mandate but not its price-stability mandate.

“But the reality is core inflation, the Fed likes to use PCE, the PCE expenditure data, which is what we use to track, has been above target for five years…”—

Two-Year Yield Signal — Galipeau says two-year Treasury yields have historically led Fed policy. With two-year yields about 85 basis points above the federal funds rate, he expects a December hike and probably two more in 2027, while emphasizing that the path could change as data arrive.

“And so if you're a student of the game, what you know is that two-year yields lead Fed policy every time. and they have through history…”—

MARKETS

Earnings Drive Stocks — Galipeau says geopolitical events, such as Iran-related developments or tariffs, have historically caused brief equity pullbacks when corporate profitability and earnings remain strong. He says that pattern played out this year: the S&P was up 14% year to date despite oil doubling, as earnings power exceeded expectations.

“Not really…”—

Broader Earnings Leadership — Galipeau says earnings growth has broadened across indexes and sectors, with competition within technology expanding participation beyond hyperscalers and semiconductor companies. Tech, energy, and industrials had the strongest EPS growth rates, while materials also showed strong growth. He says stock prices follow earnings over time.

“What we noticed though in the fall of 24 getting ready to formulate our outlook for 25 was that the earnings picture was getting much better…”—

Margin Resilience — Galipeau says recessions are the main threat to earnings power and margins. Because he does not think a recession is in the cards, he says betting against margins has been unwise unless they begin to peak and roll over.

“The issue the real issue with earnings power or margin margins in general is always recessions which you know we don't think's in the cards…”—

FORECASTS

Rate Scenario — Galipeau says rates are probably rangebound between 5% and 5.5%. If they reach 6%–6.5%, he expects rough conditions for stocks and multiple compression, though he says that higher-rate scenario is not his base case.

“I think rates are probably rangebound here. Five on the low side, five and a half on the high side…”—

Introduction

Galipeau describes a resilient U.S. economy, with growth above trend and strong corporate earnings, while cautioning that overly aggressive Fed rate hikes could slow activity.

Overview of the economy and markets?

He says geopolitical shocks have had limited lasting effect because corporate profitability remains strong, and earnings have helped the S&P rise despite higher yields and oil prices.

US Economy resilience

Galipeau argues that market leadership has broadened beyond the Magnificent Seven, as earnings strength has spread across smaller companies and more sectors.

Concentration

He rejects the assumption that operating margins must soon fall, saying margins have continued to rise and that recession—not high margins alone—is the key threat to earnings.

Company margins

He expects earnings growth to moderate from unusually high recent rates, but sees continued earnings expansion, reasonable valuations, and interest rates likely to remain rangebound.

Key data

Galipeau explains that higher real yields, rather than rising inflation expectations, have driven much of the increase in Treasury yields and says this is not inherently harmful to equities.

Real yields?

He sees U.S. debt as a long-term concern but says solid Treasury auction demand is reassuring; disorderly auctions and a sharp yield spike would be warning signs.

Deficit

He says persistent core inflation gives the Fed reason to tighten despite oil-price shocks, and discusses how Fed Chair Warsh may improve data use and respond to market signals.

FED policy

Galipeau favors technology, energy, and industrials, expects leadership to rotate with earnings, and says an overly restrictive Fed remains the main risk to the outlook.

Sectors Chris is watching

He says investors should look beyond the current year when assessing companies and argues that large-cap growth has historically held up better than value during economic slowdowns.

One message to takeaway?

His takeaway is to tune out market noise and focus on companies’ ability to grow earnings, while recognizing that Fed policy breaking economic momentum is the chief risk.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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