PodcastProf G MarketsJohn Mowrey

Why The S&P Just Hit A Record High — Despite Soaring Yields

The discussion links market resilience to strong earnings growth, broad gains beyond a narrow group of AI stocks, and roughly $900 billion in hyperscaler spending, even as higher yields weigh on valuations and small caps. Speakers also examine AI investment returns, mortgage-rate lock-in, and a frozen housing market, while one guest sees lower oil prices and weaker CPI as potential supports for markets. The outlooks remain conditional, including forecasts tied to earnings, oil prices, and the conflict in Iran.

EquitiesCorporate EarningsInterest RatesMarket BreadthArtificial IntelligenceTechnology Stocks

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Key Takeaways

The guest says AI spending is helping drive earnings growth, with roughly $900 billion in hyperscaler capital spending, but returns have not yet appeared among the largest spenders. Amazon's gains connected to its Anthropic investment illustrate the circular-financing concern because Anthropic also buys Amazon's chips; the guest says independent demand validation is needed, and warns that disappointing AI returns could reduce spending and earnings growth.

The guest attributes market resilience to both strong earnings and broader participation: S&P 500 forward earnings growth is nearly 38%, while small- and mid-cap stocks are up double digits and several industrial sectors have also performed strongly. The S&P trades at about 19 times forward earnings, below its five-year average, as higher rates weigh on valuations while earnings growth supports all-time highs.

The guest says higher oil prices and bond yields are pressuring small caps by raising operating costs, cost of capital, and refinancing burdens, even as small-cap earnings grow 27% after several years of little or no growth. He sees lower oil prices, weaker CPI, and continued earnings growth as potentially bullish for markets, while stressing that the outlook depends on those conditions holding.

GEO-POLITICS

Zoning Reform — A bipartisan law passed this summer gives localities an incentive to roll back zoning regulations. The guest says it addresses the challenge of making zoning decisions at the local level.

“This law was passed this summer with bipartisan support that is without the president's signature of course…”—

TECHNOLOGY

Circular AI Financing — Amazon's gains tied to its Anthropic investment illustrate circular financing: Anthropic also buys Amazon's chips. The guest says independent demand validation is needed, while acknowledging that some circular financing is part of the ecosystem.

“I mean let's take Amazon for example…”—

ECONOMY

CPI Outlook — The guest expects CPI to be lower a year from now because inflation measures the rate of change, which can slow even if prices do not fall. He says that could make it easier for the Fed to set interest rates.

“So even if oil prices stay elevated, Ed, the way that calculation works when this is kind of the cruel economics of how inflation works, it's not that things necessarily…”—

Mortgage Rate Lock-In — The average 30-year fixed mortgage rate reached 7.28%, its highest level since November 2023. The host says this has contributed to fewer home purchases and more renting. Homeowners with older, low-rate mortgages have little incentive to move when rates rise, reducing the supply and liquidity of homes for sale. The guest describes the 30-year fixed mortgage as a somewhat uniquely American feature subsidized by the government.

“The average 30-year fixed mortgage rate just hit 7.28%, the highest reading since November 2023.”—

MARKETS

Earnings and Valuation — The guest cites nearly 38% growth in S&P 500 forward earnings as a source of market resilience. Growth of 30% or more has otherwise occurred coming out of recessions, including after COVID and the 2008 global financial crisis. He says the S&P trades at about 19 times forward earnings, below its five-year average; higher interest rates are pushing the multiple down, while substantial earnings growth supports all-time highs.

“I think the reason that we have seen such resiliency is that we've got, you know, forward earnings at nearly 38% for the S&P…”—

Broad Market Strength — The guest argues that market and earnings strength extends beyond a narrow AI-led group. Small- and mid-cap stocks are up double digits, and refiners, industrial machinery, and materials have also performed strongly. This breadth challenges the view that only a handful of stocks are supporting the market.

“And I might take the other side of the equation…”—

Hyperscaler Spending — The guest says roughly $900 billion in hyperscaler capital spending is contributing to earnings growth. He favors the investment-capital-cycle setup, citing low valuations and strong earnings growth. The backdrop could become more favorable if oil prices or bond yields ease over the next 6 to 12 months.

“I think that the counter to that is well is that being driven by kind of the capex cycle which is you know roughly you know 900 billion coming from…”—

FORECASTS

Oil-Driven Rally — The guest argues that lower oil prices could quickly ease interest rates and drive a substantial market rally, with upside risk if investors are positioned for the wrong outcome. This is a conditional forecast, not a claim that oil prices will necessarily fall.

“You've got bond yields over five, 5.25 today, oil at 100. If you see oil prices move lower, interest rates should come off quickly and the market should rip…”—

Iran Conflict Upside — The guest argues that markets would be substantially higher if the conflict in Iran had been resolved. He says its prolonged duration is holding back potential gains.

“I mean, markets would be substantially higher if the conflict in Iran had been resolved…”—

Bullish Conditions — The guest says lower oil prices, weaker CPI, and sustained earnings growth would be bullish for markets. He qualifies that outlook on earnings growth continuing and on what the next couple of quarters show.

“So, my expectation is yes, oil prices come down, CPI gets a little bit weaker, and if earnings growth stays, we'll see what the next couple quarters produce…”—

Intro

Edson opens with a conditional market outlook: lower oil could ease interest rates and lift stocks, while an unresolved Iran conflict has held back gains.

Market Vitals

The market update notes rising equities, elevated Treasury yields and oil above $100, alongside Constellation Energy’s rally after a long-term nuclear power deal with Google.

Market Breakdown (ft. John Mowrey)

John Mowrey attributes market resilience to strong earnings growth and gains across sectors, while discussing hyperscaler spending, AI returns, risks to smaller companies, and how oil, inflation and yields could shape the outlook.

Ad Break

The Yahoo Finance Alphaspace advertisement describes portfolio tools and charting features, with Scott Galloway endorsing Yahoo Finance and a discounted Gold subscription offered to listeners.

Housing Market (ft. Robert Armstrong)

Robert Armstrong explains how low-rate, long-term mortgages discourage homeowners from moving, freezing housing transactions and limiting access for buyers; he also discusses housing’s economic role, supply constraints and the case for buying a home to live in rather than as an investment.

Ad Break

The mid-roll advertisements promote a GLP-1 weight-loss program and Vanta’s platform for automating security compliance and risk management.

Paramount/WBD

Edson argues that the Paramount-Warner Bros. Discovery merger concentrates major media assets under David Ellison, financed by his father, Gulf investors and debt, and links the deal to a broader rise in inherited power.

Credits

Edson closes the episode by thanking listeners and inviting them to subscribe to the Profy Markets YouTube channel.

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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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