Dow 50,000 is Cool, But How About an Emerging Markets Breakout?

Jeffrey Buchbinder (00:00):

Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here with my friend and colleague, Kristian Kerr. Kristian, thanks for joining. I guess Superbowl didn't really keep us up too late. It was a fairly quick and boring game, so you should be well rested. How are you?

Kristian Kerr (00:18):

I'm good. And luckily on the West Coast, the game gets over pretty early, so there isn't the same overhang you might get on the East Coast.

Jeffrey Buchbinder (00:28):

Yeah, that's a good point. So yeah, we were done by 10:30 and just in time to get the ice melt ready to try to I mean, we have skating rinks everywhere in Boston. It's really, it's tough to stay on top of it. So that's kind of what I did after the Superbowl is tried to clear some of the walking path up to my stairs in my house, fun times. But hopefully all of you enjoyed the Superbowl, even though it wasn't really that exciting of a game. Here's your agenda. It's February 9th, 2026. So Monday afternoon as we're recording this, of course, we just celebrated Dow 50,000 on Friday, and as we're recording this, we're holding that level. Of course, there's certainly a possibility we could dip back below it, but it was fun to hit that one for the first time.

Jeffrey Buchbinder (01:19):

And meanwhile, the S&P 500 is trying to break through 7,000. We're pretty close right now. We'll talk about the Japan election results and what that means for investors, next. The third item on the agenda, the Weekly Market Commentary, which is about emerging markets. We are warming up to certain emerging market equities. So we'll give you five reasons why, and then we'll wrap up with a week ahead. It wouldn't have been a very exciting week ahead except for the fact that the most important economic data points of last week were pushed forward to this week. So we've got jobs and CPI so we'll give you some thoughts on those as well. So starting with the market recap, I mean, the story last week, it was a very volatile and really violent rotation, last week.

Jeffrey Buchbinder (02:09):

I think the story beyond the Dow 50,000 was the AI disruption and the market's difficulty in kind of figuring out what this means. So Kristian, we saw, even though the S&P 500 was flat, thanks to that sharp rally on Friday the Dow was up two and a half percent, and the Russell 2 was up 2.2%. And then if you look at the sectors, you have, you know, the sectors where the Mag 7 are, which is tech, consumer, discretionary, and comm services had really rough weeks. And then you look at the rest of the sectors and everything was pretty good. So this just shouts rotation.

Kristian Kerr (02:57):

Yeah, I think rotation is the name of the game. And, you know, we had the Dow making you all time highs, the S&P 400. So mid caps making all time highs, the S&P equal weight making all time highs. You know, I think that what's interesting on the equal weight side is that we basically seen, we saw correlation fall to zero. So you've got two indexes with the exact same constituents, and they're not correlated to each other, which I think highlights just how violent this rotation has been. You know, if you've been a quant trader the last few days, it's been a very stressful time. But if you're looking at your 401k statement at the end of the week last week, you might, you know, hardly notice anything of material volatility happening.

Kristian Kerr (03:45):

Right? So it's been it's been interesting, you know, a lot of stuff going on under the hood. And it looks like we may have kind of, you know, I think the risk with that type of violence going on under the hood was that you could, you know, get some sort of VAR shock where you start seeing kind of investors start to kind of take down some risk. And it looks like we may have gotten through that with that, with that rally that we had last Friday. So we'll see if we're out of the woods in terms of in certain there being any kind of broader index implications clearly, you know, as of now, looks like we may have gotten through it, but yeah, my big point here would be that it was, you know, it was very, very volatile period last week.

Kristian Kerr (04:30):

You know, if you're looking at things like factors and some of these kind of sub-sectors, particularly software, which has been, you know, kind of the topic of the past couple weeks. But, you know, indexes have held very, very well because this rotation into kind of some of the more unloved parts of the market. And you know, we can see the S&P kind of get through that, that 7,000, 10, 20 level, and then I think it's going to be you know, sets up a potential for another leg higher here for the broader markets.

Jeffrey Buchbinder (05:05):

Yeah, Adam Turnquist has highlighted maybe 7250, 7300 as a technical target if we convincingly break 7,000. So that would certainly leave you in pretty good shape in terms of year-to-date returns. In terms of the software, I mean, software's as oversold as it pretty much has ever been, but this is a little bit different. It's not like tariffs where you just sort of turn them off and turn them on. It's going take a long time for the market to really figure out how much damage is going to be done to these business models from AI and, you know, Claude and all of these things that people are worried about. Right. It's not binary, it's not, well, the software industry will either go out of business or it will thrive. The market sometimes struggles to figure that out. The key takeaway for me is that it's going to be volatile, but decent chance that the selling's overdone.

Kristian Kerr (06:01):

Yeah, I mean, I think there's a few factors at play. You know, I think the near term, what we've been seeing is it's just a re-rating, right? Like coming into the start of the year, we were looking at, you know, revenue growing at 15% over the next two years. that's more than double the average S&P stock, right? So I think regardless of what's happening, you know, whether it's existential or not or whatever it is, there is kind of that re-rating of the whole sector that, that I think is playing a big part of it. But yeah, to your point, I think the whole idea this is, you know, a major existential threat might be a little bit ahead of itself. And I wouldn't be surprised to see a, you know, a fairly decent bounce materialized here. But you know, these are kind of the broader implications of AI and what it's going to mean. I think this is not going to be the first time that we go through something like this over the next few years.

Jeffrey Buchbinder (06:53):

Yeah, no doubt. The market also struggled with the additional capital expenditures that you know, Amazon and Alphabet and others have guided to. So, I mean, we went from maybe 520 billion in Hyperscaler CapEx to 650 in just a couple weeks, you know, consensus estimates, right? Those are huge numbers, and the market clearly last week expressed some concern about, again, about the returns that these companies are going to generate. So AI really has multiple layers to it in terms of its either ability to disrupt other industries or to you know, potentially generate the returns and the productivity that this economy needs and that these stocks need. So that'll be a story for quite a long time. The only other point I want to mention here in terms of sectors, while everybody watches tech consumer staples are as overbought as they've been since 2017, that this has been a tremendous run in staples.

Jeffrey Buchbinder (08:02):

And frankly, my bias would not be to chase that Staples are rated neutral by the LPL Strategic Tactical Asset Allocation Committee. That's probably about right. Just be a little bit careful, the defensive element of staples we don't think is going to be one of the winners this year. So I guess that's really all I'll say here. Let's keep moving. Bonds, commodities, currencies. So, Kristian, the bond market has actually done surprisingly well lately amid all the concerns. And the latest concern, I think is the following the Kevin Warsh name. I guess is the Japanese election, right? And worries about the Japanese bond market may be affecting our market. So what, what are your thoughts on the bond market here? Is tender yield stays comfortably in the four twos?

Kristian Kerr (08:59):

Yeah, you know, you got to squint right now when you're looking at bonds basically just, you know, 10 year yield just hovering around that two moving average. So, you know, I think a lot of the, a lot of the headlines people are picking up on not really translating into, into really much material price action. I will flag though, you know, Bloomberg report over the weekend that, that Chinese regulators have urged banks to begin limiting purchases of U.S. treasuries and instructed those banks with high exposure start paring down some treasury positions. So the move is kind of being framed as something more around diversification, you know, diversifying away from market risk rather than anything to do with, you know, geopolitical maneuvering or a fundamental loss of confidence in the U.S. I think importantly that directive doesn't apply to Chinese state holdings of treasuries, but, you know, that's something that, that happened over the weekend and, you know, I would've expected to see a little bit higher moves and yields from that.

Kristian Kerr (10:01):

And, you know, we did go up a little bit and, and it kind of come right back off, but you know, I think this week's going to be really about payrolls and CPI for the bond market. But you know, again, it's just been a very, you know, if you look at realized volatility in the bond market right now, you know, we're basically at multi-decade extremes. So to market, that's just not moving. Few ways you can look at that, you know, I always talk about volatility tends to be quite mean reverting. So when you go to periods of very, very low volatility, you can expect the not too distant future to get periods of higher volatility. You know, we'll see what the catalyst is for that. And, you know, it could be weeks, if not months away, where we start getting more higher vol in the bond market. But right now, you know, getting a lot of headlines thrown out at it and it's not really moving much. So I think it's going to take, you know, a catalyst of some importance to kind of break us out of this lull that we've been in.

Jeffrey Buchbinder (10:56):

Mm-Hmm <affirmative>. Yeah, I mean, potentially oil prices could be bullish for rates, right? We've had a lot of, it seems to be around anxiety around the Iran situation and whether or not the U.S. will take military action over there. The odds of that seem to be increasing more people seem to be thinking that's what's going to happen. Hard to know if oil's already reacted to that, already priced that in, but that could certainly move rates. And then I'll also highlight precious metals had a great week last week up 8%. Well, they're rallying over overnight too. It's, I mean, we saw some of the most volatility we've ever seen, highest volatility in silver ever. Pretty close to the highest volatility I think we've seen in gold in decades. And yet they've, they bounce back nicely. So I think that's worth noting. We continue to like the fundamentals in precious metals, even though the price action caused you to maybe buckle your seatbelt.

Kristian Kerr (12:01):

Yeah, I mean, we've gotten, there was a lot of speculative activity in the precious metals markets. We've highlighted that a that a few times. You know, look at some of the volumes that were going on in some of the gold and silver ETFs a lot of retail speculative interest. So, you know, I think what we're seeing there is what you'd expect after kind of a bit of a blow off top. Not saying that's the cycle high, but I think, you know, a lot of volatility both up and down is to be expected after you've had that. And I think the market's still trying to find, you know, its equilibrium point here after, after such high volatility. And I think it's probably going to be this way for a while you know, as we try to find footing here in the market. But you know, just the level of speculative interest in precious metals, I think was quite staggering. And I think this is going to be it's going to lead to just more chop as we kind of try to find some sort of middle ground to start kind of maybe basing to go back up or perhaps even, you know, turn lower and get a more material draw down. So I think we're, the next few weeks are going to be pretty critical.

Jeffrey Buchbinder (13:18):

Yeah, agreed. I mean, it's the type of volatility you'd expect maybe in crypto, but we got it in precious.

Kristian Kerr (13:24):

That's actually been more, right, the volatility more gold and silver have been higher than crypto so yeah, a hundred percent

Jeffrey Buchbinder (13:31):

Crazy. So here's the S&P 500 chart. I mean, we're still in this range between the well, I guess the, kinda the a hundred day and the 20 day the breadth though has been pretty good. So you see in the bottom panel here, the percentage of highs minus the percentage of lows over four weeks, a lot more highs. So your take on the S&P here, technically Kristian.

Kristian Kerr (13:57):

Yeah, I mean, my big question on the S&P is, can we break meaningfully to new highs without the participation of the generals? Right? You know, what I mean by that is, you know, the Mag 7 names, they've you know, with this rotation in the market, they've been lagging and you know, can the 493 kind of take some material higher or do we need that participation from the bigger names? And that's my big question. You know, I will say, you'll, we flagged earlier, you know, saw a lot of all time highs in other indexes that are kind of broader in their makeup. I do think what's interesting is that last week, I think like 1.3 trillion traded on average in terms of notional turnover daily in this U.S. stock market, which was a record. So from a notional amount. So, you know, you've got markets breaking out with high volume, good breath, you know, it's difficult to get too negative when you've got that going on. And again, you know, for me, we've been messing around with the 7,000 level in the S&P for a long time. You can make the argument that, you know, the longer we kind of bump up against it, you know, kind of likelihood of getting a break is pretty high. But again, I would like to see something along the lines of, you know, trading 7020, 7030, kind of getting some clear traction above that, that big psychological level to kind of signal that we are starting to sort of turn higher, more significantly here.

Jeffrey Buchbinder (15:25):

Yeah, amid all the excitement about 50,000 on the Dow, we haven't really been able to celebrate 7,000 on the S&P 500. I mean, it traded above it briefly, but certainly not a breakout by any stretch. So we'll keep watching that. But I mean, you got to be encouraged that we've held these levels. This pullback is not even 1%, it's nothing. So let's go to Japan. So big news over the weekend, landslide victory by Takaichi. It looks like she has a mandate to do pretty much whatever she wants, and we know part of what she wants is more spending. The Nikkei likes it.

Kristian Kerr (16:07):

Yeah, I mean, I think this election was, was very significant. You know, it was a bit of a gamble on her part, and it clearly paid off. You know, the LDP won a record two thirds majority. So this gives Takaichi, you know, pretty strong political momentum and the ability to move quickly on policy. You know, her two main priorities have been kind of fiscal stimulus to support growth. And the other ones have been strengthening national security. And I think markets going to be watching now to see which agenda she pushes first. You know, a cut to the consumption tax on food would I think support domestic growth and likely be good for stocks, maybe bad for the yen and JGBs, while I think a stronger focus on national security would probably be more supportive for the yen and JGBs and maybe be seen a little bit as negative about the equity market.

Kristian Kerr (17:05):

I think another, another big event is going to be the replacement of a BOJ member in March. I think if the new appointee kind of is more of the ideology you know, favors reflation that would signal kind of this idea of a high pressure economy limit rate, hike options, and probably weigh on the yen and JVs maybe you know, be positive for the equity market. But look, you know, on Monday the Nikkei jumped over 4%, was actually up 6% at one point in today. So very, very kind of strong start out the gates given, given what we saw politically you know, we saw JGB slip a bit. FX has stayed relatively stable. You know, I think investors there are kind of a little bit worried about intervention.

Kristian Kerr (17:57):

So, you know one day 4% response is great. You know, I would've thought that yen would've sold off more than it did. So I think, a lot of the times these things we want to, we want to look at the day after and say, okay, that's how the market responded. I think we're going to, you know, as we get more clarity on the path that she's going to pursue then we'll really have a better idea. But for now, you know, clearly equity markets are going to be liking this because of the, you know, the fiscal stimulus impact and the fact that she doesn't really have to play politics too much anymore. You know, the initial coalition they had was kind of cobbled together, and now she has kind of a mandate.

Kristian Kerr (18:42):

So, you know, I think in the near term will be positive for the Japanese equity market. But I think it's ultimately going to come down to what happens with the yen and JBS. If you start seeing them kind of moving down together you know, that that would be a clear sign that the markets are starting to question kind of the patch she's taking so good things for now, but I think, you know, watch the currency, watch the bond market for the real tell.

Jeffrey Buchbinder (19:10):

Yeah, it feels a lot like our market, right? We're doing a lot of spending. We need to watch our yields, right? You could argue, and I think Scott Bessent has that yields matter more than the stock market. The stock market will follow yields. Yeah. Obviously they have an inflation problem. We still have a little bit of an inflation problem. Situations are similar. I guess the other piece of this is that U.S. Japan relations are pretty good right now, it seems. So we're probably certainly better than like what we're seeing in a lot of Europe. Even India, China would seem to be get along with, okay, now, but I don't think anybody would argue that we have a better relationship with China than we do with Japan. So and their economy is pretty well positioned, I think for this economic environment. Looks, looks like a pretty market. I think, I mean, you tell me, I'd prefer investing in Japan right now than Europe. What do you think?

Kristian Kerr (20:12):

I would disagree with that, but I really would like to start seeing the yen start strengthening with the Nikkei going up. Like that would be a strong sign. I mean, and we haven't been getting that really. So, you know, I think once you start seeing that then kind of the market starts to shift away from this idea of debasement to more reflation. So I think that's what you want to start seeing. And you know, a lot's going to depend. it's a tricky line that, that she's got to kind of walk here to where, you know, she can do what she wants to do, but not make a mistake where you kind of get the bond market and the currency markets. Sure. Starting to, starting to question her. So, yeah. I mean, I think you want to see to get really, really excited about Japanese equities. You want to see kind of the it moving up and the yen moving up as well. Mm-Hmm.

Jeffrey Buchbinder (21:05):

Yeah, we're still neutral developed international, but certainly it's been working. So continuing on the discussion of non-U.S. equities we'll go to emerging markets. This is the topic of our Weekly Market Commentary this week, which you can find on LPL.com. We've got five reasons why we have warmed up to emerging market equities. And well start with the dollar we touched on a little bit earlier, but the dollar Kristian, you've made this point a number of times is really on the cusp of a technical breakdown of this uptrend. If this dollar uptrend is going to break, what do you think is going to cause it?

Kristian Kerr (21:48):

Yeah, I think there's a few things. I mean, one I would say, and I've talked about this before, there's this whole idea of, of U.S. Exceptionalism, you know, I think that's misnamed quite frankly because it's not about everyone comes in and they're going to continue to be buying the U.S. market. It's you know, the deepest capital markets in the world. But what I think could help drive this is a bios of the U.S., right? Like, that's really what I think it's about. You know, last year when we saw the you know, the first half of last year was the worst start of the year for the dollar since 1970s. And that was primarily driven by this by the fact that a lot of the positions being held in the U.S., Whether it be in stocks or bonds, were held on an unhedged basis.

Kristian Kerr (22:38):

So, you know, we were in a period where the dollar was going up, U.S. markets were going up, and international investors started to say, hey, maybe I don't need to hedge this either, right? And, and for much of the past, you know, 10, 15 years, whenever there's any sort of risk off, the dollar would go up. So you're getting kind of a, you're getting that benefit too. So that kind of led this idea that, you know, just take down our hedge ratios a bit and you start to see that that hasn't really been happening or working anymore so much. You know, the dollar isn't necessarily the, you know, the immediate beneficiary of any sort of risk off as we saw kind of during the April tariff episode. So I think kind of that changing dynamic right there, I think you sort of see international investors hedge a bit more when you, when you, when you hedge your currency, that puts pressure on spot rates.

Kristian Kerr (23:29):

So, you know, I think this incremental increased to hedging is going to weigh, I think, you know, buying less of U.S. and starting to buy a little bit more of these foreign markets. And we've talked about it. When the U.S. is so big, a little bit of money flowing out of there into places like emerging markets, it's kind of elephant through a keyhole kind of effect where you know, these markets are a lot less liquid, so it doesn't take a lot of money to move them significantly. So I think kind of that combination of things probably is what sees the you know, the dollar kind of break these thresholds if it's going to, you know, I'm one of these guys that like this, you know, I can anticipate, but you need to see it actually happen. But I think that the idea of buying less U.S. and buying out in the rest of the world probably is what puts the pressure that sees the dollar start to, to enter a you know, a more defined cyclical bear market.

Jeffrey Buchbinder (24:26):

And historically, EM has benefited more from a weaker dollar than developed international. So, you know, there's more to our EM warming than the dollar. But certainly if that's all you'd look at and you want to play a weaker dollar, we would choose EM over EFA, which is the developed international equity benchmark. So let's go to reason number two and it's earnings. So EM, earnings have outperformed the rest of the world this year. 17 percents current consensus for 2025, and that outperformance of EM earnings growth is expected to continue in 2026. You can see here 29% is current consensus. That is a boom in earnings growth right now. The U.S. is expected to maybe grow earnings about half that. Now those estimates are probably too high, but if EM can grow earnings faster than the U.S. and EM has cheaper valuations, which I'll get to in a minute, that's a formula for a multi-year run. So what do you think Kristian can EM actually deliver? And you'll probably give me a little segue to my next couple of reasons why you're answering that question, <laugh>, how has it been learning so fast?

Kristian Kerr (25:46):

Yeah, I think the AI story, right, being a big component of the EM and I also think the what's what we're starting to see in commodities. You know, we're also pretty positive on commodities right now. And I think, you know, given a large amount of EM is commodity related, you know, the higher we start to see things like copper you know, some of these industrial metals kind of one, once they start to sustain some of these levels, then guess what? Like the earnings have to start changing to reflect that, right? Of these companies that are engaged in those businesses. So yeah, I think it's a powerful part of the story that, that I think it all kind of dovetails what we've been talking about, you know, for the last 10, 15 years. You know, the whole idea of Tina, right? There's an alternative to the U.S. and I think you're starting to see there's alternatives and you're starting to see pretty, some pretty exciting stories outside of the U.S. as well. And I think that's going to benefit emerging markets and their earnings streams here in the next few years.

Jeffrey Buchbinder (26:49):

Yeah, big time. So you, hit on it Kristian, AI and more broadly just Asia tech is really the reason why EM, earnings growth expectations are so optimistic and there's a good chance that they come through, which is a change, right? Hey, this time is different. I said it's not like the 15 years where EM earnings didn't grow at all anymore. There's a real opportunity here for EM, earnings to support outperformance, especially starting from lower valuations. So this just shows you the sector weights. People might be surprised by this that the tech weight and the MSCI emerging market index is pretty much in line with the S&P 30%. Now techs underperformed a little bit in the U.S. so that has brought that percentage down, I think from a recent peak of around 34.

Jeffrey Buchbinder (27:46):

But still that 30% weight in EM is huge. It's coming from companies like Taiwan Semi, companies like Samsung, right? We know that those companies are certainly benefiting from wave of AI investment all over the world. And then, you know, you mentioned commodities. Kristian, there's a little bit of materials excess here, we'll call it, where the materials weighed, I think is around eight in EM, and it's only about two points in the U.S. So yeah, EM is a bit of a commodities play too, but tech is really the standout that is where the EM bread will be buttered, so to speak. And so where does all that EM tech come from? It's coming from Asia, in fact China, Taiwan, Korea, India those top four countries are so large that no other country is even 5% of the EM index. The fifth country is Brazil, the weight is below 5%. So this is not just a tech heavy index, it's an Asia heavy index. We talk about all the time that really what, what China does is so important for EM, but this index is broader than that now, in fact, that China weight's come down quite a bit as these other markets in Asia have done better. So goes Asia, so goes the EM.

Kristian Kerr (29:16):

Yeah. What are your thoughts? I mean, I would argue China plus Taiwan, though, not to get in political trouble here, but it's kind of China. Be careful.

Jeffrey Buchbinder (29:28):

Public podcast here.

Kristian Kerr (29:29):

Yeah, exactly. <Laugh>. But no, you know, I mean, it's true. I mean, it's very dominated by that. So you have to kind of have a very strong view, I think, on Asia to be you know, to be heavily invested in EM right now, just the nature of the indexes. You know, and I guess maybe one of the risks here is that I don't think that the Chinese want they don't want a surging stock market. They just want one that kind of steadily moves higher. You know, over the last few weeks they've kind of done things that to maybe tamper down some of the excess speculation. I think they want to market higher, but the so-called national team that kind of triggered the bottom in Asian equities or in Chinese equities last year.

Kristian Kerr (30:24):

So you just got to be aware that in this market they are very active in kind of massaging the market to do what they want. Because That's just the nature when you have a controlled economy like theirs. So that's kind of part of what comes with EM investing, especially one where, you know, China makes up the, the majority of that index. But, you know, I think it's been also it was less than two years people were saying China was uninvestible, right? And what's going on with AI there? You know, you can make the case that it's basically Silicon Valley too. So there's a lot of dynamic growth happening in China as well. So, you know, I think that it's becoming an important part of investment portfolios and continue to be for the receivable future.

Jeffrey Buchbinder (31:13):

Yeah, I'm as much of a long-term investor as anybody, but I think you got to keep your China bets on a short leash because you never know. I mean, the China Taiwan risk is real, and we know that relations between the U.S. and China are fragile. So for now the outlook looks pretty good, as we just said, we're warming up to EM. But we're, we're not putting our heads in the sand here. We know there's clearly risk. The technicals are bullish here too. So not only do you have the absolute level of the MSCI EM index breaking through the 2021 highs, which is really pretty on the chart. These big bases that eventually break out are very positive technical signals. But you also have the relative strength chart, so MSCI EM index versus the S&P 500 is breaking out of this downward sloping channel. So that is a positive technical development as well. So all else equal, Kristian, these charts tell me EMs, the buy, what do you think?

Kristian Kerr (32:25):

Yeah, you know, we broke out on the MSCI, very similar to what we did kind of that breakout in 21, failed after doing something similar. So I think we're at a really important spot now that we've broken out of this level. I would love to see us kind of pull back and hold it. So kind of old resistance turns into support. Like that would be kind of the you know, the old school technician perfect kind of setup for this. Because ee have gone, you know, quite a ways in a short amount of time. But if we were able to pull back into that old breakout level and hold it and then turn back up, yeah, I think that's where you get really excited about this move, because It'll confirm the breakout and I think you know, a lot of people might feel might have a little scar tissue from the 21 episode. So seeing something like that would think you know, alleviate some of those concerns.

Jeffrey Buchbinder (33:25):

Yeah, absolutely. I mean, the EM have been cheap for a long, long time, but this time might be different because you have the fundamental and technical support behind you. Yeah, right? I mean, maybe you had the technical support in 2021, but you didn't necessarily have the fundamentals at that point in time. So it's you know, a lot of things coming together to make this really interesting.

Kristian Kerr (33:50):

Well, you also didn't have the dollar, right.

Jeffrey Buchbinder (33:54):

Yeah, good point.

Kristian Kerr (33:55):

Yeah, so, you know, we, I guess the dollar technically peaked in 22. But that really happened really fast. But yeah, and we've been in a cyclical bull market in the dollar since, you know, 2011. So I think that's been the big, you know, not to keep harping on that, but I think that is a really big part of the story as to whether we've got a more material move or not, a lot hinges on getting that dollar weakness as your tailwind, then it, you know, these things tend to tend to work out pretty well. Even the last big dollar bear market was 02, 08, right? And what was that time in emerging markets, right? So it's if you can get that dollar break down through 96, I think a lot of these stories really start to marry well together.

Jeffrey Buchbinder (34:38):

Yeah, you certainly had fundamental support back then similar to now, but a different type of fundamental support, we'll call it with, you know, the rise of China. And so the commodities boom, so technically is reason four. Reason five is valuations. We didn't put a valuation chart in here, but I'll just say that now EMs are about a 40% discount to the S&P 500. So still very attractively valued. And if we do get that superior earnings growth next year or over the next year it's reasonable to think that that valuation gap will narrow. I also think it's interesting that in 2010, the discount EM versus S&P was only about 10 to 15%. So you got no earnings growth and you got a lot of cheapening for 14, 15 years, right? This is very, very different.

Kristian Kerr (35:42):

A hundred percent. The other point I make there is that I've been pretty positive on Brazil for a year, right? And this time last year, Brazil is trading at like a 10 cape. We had a 50% rally in the market there, and we're like low teens cape, right? I mean things have been so cheap for so long. They, you know, I think they can still have huge moves and they're still, you know, on a five, 10 year horizon that they're at levels that just make a lot of sense from a valuation basis as well. So I think that's another interesting part of this story. Mm-Hmm

Jeffrey Buchbinder (36:18):

<Affirmative>. Yeah, the cyclically adjusted PE, right? Robert Schiller's PE the Cape, right? Uses longer term earnings and you know, I guess that with EM not growing earnings for 15 years, maybe it doesn't matter, right? But clearly it's changing now and that those types of readings I think are going to get quite a bit cheaper if that earnings growth comes through. So good point there, Kristian. Let's wrap up with a quick preview of the week ahead, which is the job support, the CPI, they were delayed because of the partial government shutdown. We've been in this position before, not too long ago, but the good news is it was a very quick resolution and we're going to get these two reports this week in addition to retail sales. So your thoughts on this data or just where the economy is?

Kristian Kerr (37:13):

Yeah, on the payrolls, I would say be on the lookout for some potential volatility around the headline, because there has been a methodology change with respect to the birth depth model in the calculation. So I think there is some other scope for there being a bit of a surprise there one way or another. So that's kind of what I'm, what I'm focused on payrolls. And then you know, if you look at kind of option market pricing around the CPI, it's almost like a non-event that always makes me a little bit nervous when markets are so sure number's not going to matter, that's when you kind of get the surprise from it. So that's my only concern going in the CPIs that it seems like the market doesn't think it's very important. So, you know, in terms of this week, I think those would be the big movers, especially for the bond market.

Jeffrey Buchbinder (38:10):

Yeah. For CPI, I'm interested in seeing what happens with owner's equivalent rent, right? That's not actual rents, it's a theoretical number on what a house would generate in rent. There's a big lag we started to see rents come down a year ago, really, and that takes a long time for lower rents to filter through into the OER. So we also are pretty much done with tariffs filtering into the inflation data here. So that's encouraging as well. So regardless, this isn't a comment on this number, but I think that there's the potential for us to start seeing lower inflation numbers over the next several months as we cool off on the housing piece. And certainly tariffs don't do any more. They didn't have much of an impact anyway, but they certainly won't have more impact than they've had recently.

Jeffrey Buchbinder (39:09):

So those are the two big data points, but retail sales is always worth paying attention to. For the economy, we'll just have to see if the wealth effect continues to carry strong consumer spending, because as the job market slows and we have a cumulative impact of inflation and higher rates from the past couple of years, the lower part of the k is having a little bit of a tougher time. So retail sales will certainly be interesting to watch as well. And then lastly, we get about 75 S&P 500 companies reporting earnings this week. It's, not any Mag 7 names, but there are some decent sized names. So we'll be watching that. We're on track for about 13% earnings growth at this stage. So that number will probably inch a little bit higher. That's pretty much what we expected, but what's more interesting to me is that estimates haven't dropped at all.

Jeffrey Buchbinder (40:06):

The headline, you know, high level, S&P 500 forward estimates next four quarters are up 0.1% since earning season started. So that is really impressive. And I've already seen one you know, respected Wall Street firm raise their earnings estimates after seeing that we may do that as well. We're in the kind of high single digit camp, but it looks more and more likely that in 2026, starting off on this high solid base, that we'll get something maybe into the double digits on earnings growth. So pretty good earnings quarter at least based on the numbers. But of course, the debate about AI disruption will continue. So that's your quick preview of the week ahead. I think we'll go ahead and wrap there. So thanks Kristen for joining. Thank you to all of you for listening to another position of LPL Market Signals. Have a wonderful week and we'll speak to you next time. Take care, everybody. See you later.