Why Are Treasury Yields Falling?

Jeff Buchbinder (00:00):

Hello everyone and welcome to LPL Markets Signals. Jeff Buchbinder here with my friend and colleague Lawrence Gillum. And Lawrence, I am glad you're here with me this week because it's Fed week actually, it's more than Fed week. It's ECB week and BOJ week, isn't it?

Lawrence Gillum (00:18):

That's right. Not a lot of economic data perhaps, but there are some pretty important meetings this week on the central bank front.

Jeff Buchbinder (00:26):

Unfortunately, we don't have economic data. We don't necessarily need it so much to gauge where the economy's going, but we do want it because we want this government shutdown to end. And at this point, we haven't really seen the door open very much, although I guess this federal employee union that just asked for this to end is maybe a small step forward. And they obviously are putting a little bit of pressure on Democrats to go ahead and move forward with that continuing resolution that the Republicans have proposed. So we'll see what happens. Obviously, the market doesn't care because we are at all-time highs. So that's the first item on our agenda. Not only are we at all-time highs for the S&P, which is what we focus on but we're also at all-time highs for the Dow, the Nasdaq, and the Russell 2000, a clean sweep.

Jeff Buchbinder (01:25):

Really, really strong market, not just in terms of the index levels, but you have breadth here with small caps working and in certainly more than tech working, although that is working for sure. Next, we'll bring you in Lawrence here to talk about why the Treasury yield yields are dropping. I particularly focus on the 10-year, so I know you'll talk about that, but also speak more broadly on the bond market. Next, the third on our agenda, taking stock of some key risks. This is in honor of the holiday at the end of the week. So with Halloween, we decided it made sense to look at some things that make us a little bit nervous, maybe not necessarily scared, maybe not spooked, but certainly some risks that we think are relevant and worth at least put in the back of our minds.

Jeff Buchbinder (02:18):

And then finally, we'll preview the week ahead. And of course, this is where you come in, Lawrence, with your take on the Fed and what we're going to hear from Powell and Company. We've got Trump-Xi meeting in South Korea, which is Thursday, day before Halloween. Set up to that has been very positive. And then it's a huge week of earnings. So we, I didn't put any earnings charts in here, but I'll give you a quick take on what we've seen thus far. So we'll start with the market recap and boy, another strong week. We had the S&P up 1.9%. It was very risk on because you had the Nasdaq up 2.3 and the Russell 2000 small cap index up, index up 2.5. We know small caps like rate cuts and certainly, I got to think part of that move last week was in anticipation of the Fed this week.

Jeff Buchbinder (03:22):

It was tech led, really. The I mean the tech earnings have barely started coming through. We've got IBM, we've got Intel, but not a ton else. And so the move in tech was really more about the continued enthusiasm for AI. So that was the leader. Energy not far behind. Crude oil rallied on the Russian sanctions, and then industrials next. Industrials I would attribute more to earnings than anything else. We had some good earnings in that sector. RTX, the defense name, 3M, Honeywell and some others. So I think it's fair to say that earnings for industrials have gotten off of a good start. And then as is normal, when the market rallies, you saw the defensive sectors underperform. So we see utilities and staples were the only sectors down. Healthcare is defensive, but it actually had a pretty solid week. Healthcare has been a little more offensive lately, I would say, so I think I'll leave that there. The year to date return for the S&P 500, now 17% really, really strong. Certainly Asian markets like the progress on U.S.-China trade. So turn it over to you Lawrence here for bonds, yields have been cooperating.

Lawrence Gillum (04:49):

They have and with spreads as tight as they are in most of these markets, a lot of that performance is dependent upon falling Treasury yields. And that's what we've seen recently, the Ag bond index, the aggregate bond index up about 20 basis points over the past week. Up 7.4% this year-to-date period led by mortgages and investment grade corporates both up 20 basis points and 30 basis points, respectively, last week as well. So it's been a, I don't know if I want to call it a quietly good year for fixed income because we've talked about this a lot, but certainly the equity markets are overshadowing what's going on in the fixed income markets. And some of the commodities are overshadowing what's going on in the fixed income markets. But it's been a good year. We've probably pulled forward some returns from next year, given the fall in rates that we've seen.

Lawrence Gillum (05:37):

But you know, I'll take a positive year, especially after that 2022 period where markets were down you know, 13%, worst year ever. Importantly, too is that if you look at a five-year return for the mortgage-backed security index and the investment-grade corporate index those were positive again. So after, again, that 2022 period those markets have been able to dig out of the hole that they were in to generate some positive performance over the past five years. So nonetheless, good market. Real quickly, the muni market is another area that we've liked a lot particularly over the last couple months. Over the past three-month period, muni's up 5.1% generally outperforming everything else on that I'll call it a scorecard. Everything else on that market return section there. So, good couple months for munis after lagging to start the year. But it is good to see that market participating after the slow start.

Jeff Buchbinder (06:40):

Yeah, certainly the bond market liked the CPI report last week, so that is part of that tailwind. The gold market has not liked the CPI or progress on a U.S.-China trade framework because gold suffered its worst loss in several months. I think it was up nine straight weeks before last week and got hammered, down almost 8%. As we all know, gold is, or has been overbought, right? Just had a really strong rally. So it needed a cool down. So most of it is probably just positioning related because of how far it's come in a short period of time. But there's also a little bit of, hey, maybe the trade situation settles down. We'll see about geopolitics Russia, Ukraine. But generally speaking, I think the macro risk has come down a little bit over the last several days. And that has certainly reduced demand for gold as well. The dollar really hasn't gotten out of its range. That's probably a good thing. Up 0.3% week over week. Continue to watch those key technical levels in the 96 to 97 range. We're a little bit under 99 right now. So the bounce that many were looking for, including ourselves, has kind of happened, but it really has lacked velocity.

Jeff Buchbinder (08:16):

All right, let's move on to the bond market update. Lawrence, what's driving the drop in Treasury yields? You have three slides here. And then when we get to what might spook markets for our next section, you're going to have a couple more bond charts to talk about. So let's start with this one. This is where you break the moving rates into several different components.

Lawrence Gillum (08:40):

That's right. Yep. So if you think about Treasury yields in general, and in general here is the key word, it tends to be made up of inflation expectations and growth expectations. You can parse out those expectations and come up with a reason why some of these Treasury yields are falling. And in this case, the 10-year Treasury yield was falling, this is as of 9/30/2025. So at the end, or I guess at the very beginning of the government shutdown, since then, yields were closer down, closer to around 22 basis points earlier this month a couple weeks ago. And that was really because of a fall in both inflation expectations and growth expectations. Now, you can say that on the growth side, maybe it's because of the lack of hard data which may have potentially conflicted with the ongoing narrative of the economy slowing.

Lawrence Gillum (09:33):

But nonetheless, the absence of this economic data has helped bring Treasury yields down. So we're down about 12 basis points now. There's a little rounding issue here, but down 12 basis points from the start of the government shutdown. Again, generally split between a fall in inflation and growth expectations. What's also interesting is that again, I mentioned earlier that in general Treasury yields are a function of growth and inflation expectations. But you also have this thing called a term premium, which we've talked about a lot. And that's just that additional compensation to own longer maturity Treasury securities. The term premium, which has fallen a little bit as well. And you could argue that because of the supply and demand dynamics within the Treasury market have improved marginally, right? There's still a lot of debt outstanding, and there's still going to be a lot of debt coming to market over the next few years.

Lawrence Gillum (10:25):

But because of the potential for the Federal Reserve to end its quantitative tightening program, which we'll talk more about in just a second, which would mean that there's going to be another potential buyer of Treasury securities. But then you also have the ongoing and call it more reliable tariff revenue, which is reducing the amount of Treasury issuance out there too. So on the margin, you know, the term premium has come down a little bit because those supply demand dynamics have improved a little bit. But we will talk more about kind of what's next, but I think we probably at the tail end of any sort of fall in Treasury yields, given what's priced in.

Jeff Buchbinder (11:03):

And that's consistent with our four to four and a half.

Lawrence Gillum (11:06):

That's right,

Jeff Buchbinder (11:07):

For year end for the 10-year yield.

Lawrence Gillum (11:10):

So the other thing that I think is pretty interesting right now, and I was watching Bloomberg this morning and they were talking about inflation expectations and how it's probably a bit underpricing the risks of inflation. So what we're showing here is these are your market implied inflation expectations. This is your breakeven inflation rates. To come up with that you take the difference between a nominal Treasury yield and a TIPS yield. That difference is that breakeven inflation rate. And you can see that despite all the concerns, all the headline narratives about the potential for inflationary pressures to increase, markets are not really pricing that in, right? We just talked about how inflation expectations were falling a little bit. But even if you look at the five-year forward inflation expectations, the five-year forward inflation expectations, which looks at the time period from 2030 to 2025 or even that 10-year time horizon, we're still around two point something, two point low something.

Lawrence Gillum (12:12):

So markets really are not overly concerned about a resurgence in inflation. So, you know, whether that happens or not. I would say that this is a risk to markets within the fixed income markets, if there is a concern about inflation, we would likely see these inflation expectations move higher, which would push long-term Treasury yields higher as well. But right now, markets aren't overly concerned, which is a good thing for the Fed this week, right? So they can probably cut rates this week and not disrupt markets. They can probably cut again in December and not disrupt markets. But I think that there's going to be a bigger conversation after that into 2026. If inflation kind of moves higher as our chief economist thinks it will over the next couple months,

Jeff Buchbinder (12:59):

Yeah, there's still probably some tariff pass through to come even if we get, you know, good news on where China tariffs are going, even if we get deals from Brazil or India or South Korea, and there's some others that are still yet to come. We've got a little bit of back and forth going on with Canada right now. So it's not, we're not going to wave the all clear, I think, I think we all agree that there's still a little bit of pressure to work through the system here. You also got to consider that retailers who sell goods, they sold a lot of the goods that were imported pre-tariff. In fact, some of that's probably still happening. So once you sell all your goods that were brought into this country with pre-tariffs then you have the tariff effect of bringing in more goods, that takes a number of months to flow through. And we're probably just now hitting that point where they're really coming through. So stay tuned. More little bit more inflation probably coming as I put on my Jeff Roach, chief economist hat. Alright, so Lawrence, we're obviously going to get a rate cut, that's as much of a lock as it could ever be, but it's not just rates that we are watching for this week. We can also get some balance sheet quantitative tightening updates, I suspect, right?

Lawrence Gillum (14:28):

That's right. Yep. So, just as a reminder, the Federal Reserve is trying to shrink its balance sheet from this overly bloated $9 trillion balance sheet that took place after the run-up in COVID purchases. They've made some progress. They've reduced about 2 trillion or so off of that balance sheet. And the goal of quantitative tightening is to effectively remove excess liquidity from the financial system. The way that they do that, and we won't get into like the T bars from accounting 101 or anything like that, but for every asset you have, you need to have a corresponding liability. So as their asset purchases have come down, or their asset side of the balance sheet has come down, you need to a corresponding drop on the liability side. That has come primarily from a reduction in the Fed's overnight reverse repo program.

Lawrence Gillum (15:18):

We've been told that once that number gets close to zero, we're around 2.4 billion now. But once that number gets close to zero, we could start to see some disruptions in the short-term funding markets, which we've seen. And that generally leads to a conversation to potentially stop quantitative tightening, that effectively when you start to see those disruptions in the short-term funding markets that probably means that they're you know, they're at the place where they want to be in terms of reducing excess liquidity or potentially gone too far like they did back in 2019. So we are expecting quantitative tightening to come to an end, unlikely going to end this week. But I do think they're going to set the stage for the end of quantitative tightening sometime this year, if not the first part of next year. The takeaway though is that after reducing its balance sheet, the Fed will then kind of maintain the current size of its balance sheet. But as reserves grow, then their balance sheet will continue to grow as well which means that the Fed is going to be ultimately a buyer of Treasury securities again which should help that supply demand imbalance on a go forward basis.

Jeff Buchbinder (16:32):

Yeah, this stuff, it seems kind of wonky and in the weeds, but it actually seems to be affecting the equity market, you know, the liquidity in the market from basically, I guess short-term reserves at the Fed or in the system. It's kind of related to the take up of these what, you know, the overnight repo program, right? There's, this stuff actually matters more than I had previously thought. So we're not necessarily going to make a stock market call on it. But it's certainly something that you have to factor in and it looks like the liquidity situation is going to get perhaps a touch better with the end of QT.

Lawrence Gillum (17:20):

Yep. So the, I mean, the takeaway is that you really shouldn't care about the short-term funding markets at all, right? They should be quiet, they should be a lot of volatility. But when the last time the Fed did this, they took their balance sheet runoff a little too far. And we saw back in 2019 repo rates spike to 10% because there was just a lot of demand for short-term money. So we haven't seen that kind of disruption yet in these markets, but we have seen additional volatility which may mean again, that you know, the period of draining liquidity out of the economy could be ending soon.

Jeff Buchbinder (17:58):

Very good. All right, let's transition to our risks and don't go to sleep, Lawrence, I'm going to bring you back in here for some of these risks even though the first few I will take. So a little bit of a Halloween theme. What could spook markets, five risks. This was a team effort. So this one is Jeff Roach's on the economy, job growth heading to stall speed. So clearly we have had a slowdown in job growth. In fact, we actually got that one June negative payroll print. The so the good news here is that we're going to get stimulus in 2026, and that's going to help support the job market. And we just don't think the conditions are in place for recession anytime soon. So hiring should continue, moderate pace, but hiring should still continue. Probably get a little bit of an uptick in the unemployment rate.

Jeff Buchbinder (18:57):

AI's not really having much of an impact just yet. It's having some maybe, but not really noticeable at this level. So we think we're going to continue to see these positive prints and that should convince the market that recession is still not imminent while we wait to get out of this little bit of a sticky inflation period that we just talked about. And while we wait for the stimulus to come through, more so in 2026 from the One Big Beautiful Bill Act. So still, nonetheless, this is something to worry about because as we all know, consumer spending is a very large percentage of the economy. It's almost 70% of the GDP calculation. And so if you have a slowdown in the labor market in job growth, you do have to worry a little bit about consumer spending. So it's doing fine, hanging in there.

Jeff Buchbinder (19:50):

A lot of people are calling it k-shaped, where the lower income is doing a little bit worse, the upper income, doing a little bit better, still talking about the trajectory, not the absolute level. And so that makes it a little bit of a concern too. You don't want that gap to get to get too wide. So watching that closely, but think we're probably still going to continue to get these 50 to 100,000 job gain kind of months when the government opens up and they start reporting job numbers again. Alright, so that's number one. Number two is the one I did, stock valuations nearing late 1990s dot com boom peak. We look at trailing earnings for this valuation comparison because we wanted a long time series. And you can actually, we actually have data going back almost to World War II on trailing PEs.

Jeff Buchbinder (20:44):

I just showed you post-1980 for this look. But the point I want to make here is that we are really close to that 30ish PE level that we hit in the late 90s or right after the turn of the century. Right now we're about 28. So the difference though, that I would highlight here and why we're not particularly worried about this, well, first of all, valuations are not good timing tools. So if you use technical analysis, or if you do, you know, dig into the fundamentals and draw the comparison between now and then, this is a very different environment, right? At some point, the market will be disappointed about AI. We don't know when, we don't know how big that disappointment's going to be, but at some point it happens with every cycle, people get a little ahead of themselves and the enthusiasm gets a little overdone.

Jeff Buchbinder (21:35):

That time is not. Now we have very high-quality companies with very strong balance sheets. The strongest balance sheets that we've ever seen driving the spending on AI. That spending is still growing quite rapidly, and that translates into earnings. And of course, earnings drive stock prices. So I think that's the most important point to consider here that makes this environment different than the 2000s or late 90s. There you had a lot of these business models that weren't backed by profits. They weren't, they were backed by eyeballs and page views. Unfortunately, Lawrence we're both old enough to remember those days. So much sturdier foundation of earnings in this environment. Next one, we'll call it spook number three, potentially, is margin balances. I actually can explain this one away by just citing the fact that the stock market's gone up about the same amount as the margin balances, right?

Jeff Buchbinder (22:39):

Customers have. That's leverage, right? But if the market cap of the portfolios is going, or the value of the portfolios is going up, then that has, that's more collateral effectively to back the margins, goes up over time. So that's these top two lines, the S&P 500 in turquoise kind of, or aqua whatever. And then the darker blue line is just margin account balances, in aggregate. These are the trillions. And so you see here, these lines are just pretty much on top of each other. The, actually, the S&P's caught up <laugh> to margin balances based on this timeframe. So this is not something to worry too much about. However, if you add in the fact that there's a lot of zero days to expiration options activity, and a lot of leveraged ETFs and private credit is booming, more in your world, Lawrence, there is more leverage than there would normally be at this stage of a bull market.

Jeff Buchbinder (23:42):

So is it a reason for us to go underweight equities here? No, we don't think it is. So we're still neutral, but this makes us kind of raise our antenna up and think about the downside after this, potentially after this bull market ends. We don't know when that will be, but there could be a little bit more downside, a little bit more volatility when there is a catalyst for a downside move. So we'll call it leverage. A little bit of a concern. The ramp up in the last few months has been just as big as it was in the late 90s. Alright, risk number four, you get risk number four and five, Lawrence. You touched on this already, but there's risk to the Fed both on the upside and the downside in terms of rates.

Lawrence Gillum (24:31):

Yep. So yeah, so I put in our piece that right now there's kind of a, given market pricing, there's probably a, I'll call it a one-sided risk in terms of higher yields because of I think the Fed is again, damned if they do, damned if they don't. If the Fed does. So what we're showing here is the implied fed funds rate towards the end of 2026, so 2026. So what markets expect the fed funds rate to be at the end of 2026? Current pricing suggests that the fed funds rate by the end of next year will be below 3%. Which is a pretty dovish response here lately. So the first risk is if the Fed does cut aggressively down to that 3%, or we're below that 3% threshold with inflationary pressure still running hot, right?

Lawrence Gillum (25:26):

So we know that the Fed has a 2% target. It hasn't seen that 2% target in a long time. And looks like even according to their own analysis, we're not going to get back down to that 2% target by the end of next year. So if the Fed does cut aggressively, as markets are suggesting, that could give the appearance that the Fed is no longer concerned about that 2% target, there's this ongoing narrative right now that 3% is the new 2% target. So I think if they do cut aggressively, that kind of gives credence to that narrative that you know, that they're willing to accept higher inflationary pressures, at least in the near term. That would push backend yields higher, right? So if you're expecting a, you know, a 3% inflation rate you probably want to get compensated for owning a lot of duration in your portfolio.

Lawrence Gillum (26:16):

You know, 1% real rate for a 10-year Treasury yield with 3% inflation isn't very attractive. So I think that would push interest rates on the back end of the curve higher. So that's part of that risk. The other risk is if the Fed doesn't cut to 3%, we're likely to see the back end of the curve move higher as well because right now markets are expecting them to do that. So if they don't get down to that sub 3% fed funds rate by next year, again, the long end of the curve looks poised to sell off here as well. So bottom line is, you know, we talked about why rates are falling growth and inflation expectations, better supply demand dynamics but given current pricing, I think we are probably towards the end of that fall in rates we have that four to 4.5% yearend target for the 10-year, I think that sticks given current market pricing and given our expectations the economy will re-accelerate sometime next year as well. So market pricing seems to be a little bit too far, too fast. So, our view is that rates are likely headed a little bit higher over the next couple months and quarters.

Jeff Buchbinder (27:27):

Yeah. And that if you think that the long bond is going to sell off, you don't want to take too much duration, right? Or so keep the average maturity of your bond portfolios, at least at or below the market.

Lawrence Gillum (27:39):

That's right.

Jeff Buchbinder (27:41):

Yeah. That continues to be our view. That's been our view for a while. Certainly most of this year, or certainly all of this year I should say. Yeah. Maybe there'll be an opportunity to buy the long bond, but we don't think that time is now. So thanks for that, Lawrence. So this next one is technical in nature. Speaking of the long bond, this is from Adam Turnquist, our technician, and he cites this support level for the 30-year, which I think is like in the 4.35 to 4.40 range where he's drawn these lines. If we break down Lawrence, I mean this, I mean, could get ugly, you could have 4% or lower based on the just my technical read of this chart.

Lawrence Gillum (28:23):

Yeah. And it was, yeah, it was interesting that he came up with this we didn't obviously talk about this before, but I mean, I think it's interesting because we kind of came to the same conclusion that it's almost like be careful what you wish for in terms of lower rates because if you get these lower rates essentially means that the economy is weakening more than what we expect it to do because you're likely going to get additional rate cuts priced into the market which would only come about if the economy is seen as potentially contracting. So it is one of those things where yields have come down a lot, probably, you know, maybe too much, too far, too fast. So our view is that, you know, maybe we get a bounce here on the support. But otherwise, if long end of the curve falls pretty dramatically from current levels, it's because the economy is showing signs of a deepening, softening than what we expect.

Jeff Buchbinder (29:21):

Yeah, I mean, we'll probably see this economy slow down into the mid 1% range coming off of these really strong quarters that we just put up recently in terms of well Q2 and then expected Q3 very strong. But Q4 you're probably going to see something sub two. And then that's probably going to continue maybe for another quarter or two before we potentially see that re-acceleration that you just referenced, Lawrence, where the stimulus comes in stimulus, you probably heard this from me before, One Big Beautiful Bill. 0.9% of GDP coming in in 2026. That is a lot of stimulus. Thankfully we have the tariff revenue coming in to offset that and keep the deficit as a percent of GDP stable, we think. Because otherwise you'd have a real big problem and more rate risk. So thanks for that Lawrence. Let's end with a preview of the busy week ahead, with of course the Fed. We just talked about Trump-Xi meeting and then this barrage of earnings. So why don't you start on anything else you want to highlight on the Fed or the other central banks and then I'll comment on the China situation and then the earnings situation.

Lawrence Gillum (30:46):

Yeah, so it is a big week for central banks, as we talked about at the beginning. We do have the Fed, they're going to cut rates by 25 basis points. It'll be interesting to see if there's any sort of dissents. There's, you know, some folks on the committee that want to be more aggressive in rate cuts. So that'd be interesting to watch. But the other thing to watch is the potential announcement that quantitative tightening is going to end as expected. ECB is also meeting this week. There's zero chance of anything happening according to markets right now. So that wouldn't it, they'll meet and they'll have a, you know, their statement, but it's unlikely that rates are going to change for the Eurozone. Bank of Japan is interesting. There's been some political turmoil over there, I guess is, I don't think that's too strong of a word, but there has been some changes at the top of Japan's you know government over there.

Lawrence Gillum (31:51):

And they've become almost Abenomics part two, if you will. So something that we're there's a lot of concern about maybe the central bank potentially not being as aggressive in raising rates as they would've been otherwise. And markets had priced in roughly two cuts by this time, I'm sorry, two rate hikes from the Bank of Japan by this time a couple months ago. Now there's only about a 10% probability of a rate hike. So the rate hike conversation in Japan has softened a lot because of the new prime minister over there. So again, probably nothing's going to happen with the Bank of Japan, but it'll be interesting to watch to see how that plays out over the course of this year and into next year, because they still do have an inflation problem over there. And markets, I think, eventually will price in the probability of higher rates. But we're not there yet. So big Central Bank Week, but I think a lot of the fireworks, a lot of the market moving stuff is going to be here in the U.S.

Jeff Buchbinder (33:00):

Yeah, the Bank of Japan situation is interesting because it can weaken the yen if they push out hikes. And I mean, that creates more inflation in Japan because they're a big importer, right? So weaker currency for them means more inflation. And then we saw, you know, I guess more than a year ago, but we saw that yen carry trade unwind can be painful for U.S. markets. So we have to watch the Japanese market maybe a little closer than you might think. The President Trump-Xi meeting in Korea this week is the big event of the week, but the setup has been so positive I'm not sure how much market moving news we're going to get, because, you know, Bessent's already talked about that a hundred percent incremental tariff off the table. We know that China's agreeing to buy more soybeans.

Jeff Buchbinder (33:56):

Actually that we, I mean, I think that the TikTok situation is even going to be resolved potentially at this meeting. The rare earths, I guess, export restrictions from China are going to be delayed a year, it seems. And I'm not sure how much we're going to relax our export controls for our tech products, but certainly we're going to remove the tariff threat and potentially even take down the Fentanyl tariff, which is 20% incremental. That's not a prediction, but it's possible. Either way, it looks like we're going to be in the forties for the China tariff rate at most. And then hopefully soon we can get a tariff break on Brazil, on India, I guess Switzerland. There's some other countries that are probably higher than they're going to end up. And this is just creating, it's kind of continuing to unwind the liberation day high tariffs, which we've expected to happen for a long time.

Jeff Buchbinder (35:01):

But now that the market is actually seeing this happen, we've expected tensions to cool in China, but now that it's actually happening and it looks like we're actually going to get a framework, market is breathing a big sigh of relief. And that is certainly why, one of the reasons why we were up late last week and is one of the reasons why we're up here on Monday as we recorded this on October 27. So the other thing this week that's big is earnings. We got 175 S&P 500 companies reporting. And not only that, but you get five of the Mag Seven. I tried to name the five Mag Sevens off the top of my head this morning and I left one off. So <laugh>, I've had some practice now. It's going to be Alphabet, Apple. I'm putting a lot of pressure on myself now. Lawrence, Apple Alphabet, Microsoft, Meta, and we're not getting NVIDIA. We already got Tesla. Which one did I leave off? Microsoft, Meta, Alphabet, Apple. Tesla's already gone. NVIDIA coming. I did it again.

Lawrence Gillum (36:19):

You did <laugh>

Jeff Buchbinder (36:20):

And you're not saving me.

Lawrence Gillum (36:21):

I don't, I can't. I know Oracle's not one of them, right? But that's oh,

Jeff Buchbinder (36:26):

Oracle's Oracle is not

Lawrence Gillum (36:28):

It's one of the hyperscalers.

Jeff Buchbinder (36:30):

Not one of them. Oh, Amazon. Amazon's reporting this week too. Oh, there you go. I saved myself. I mean, you can't really count on the fixed income guy to know the Mag Seven off the top of his head. Amazon is the last one. So that is a huge, huge chunk of S&P 500 earnings growth. In fact, when all the numbers are in, we think we're probably going to see 70% of S&P 500 earnings growth come from the Mag Seven. That is a huge piece. Actually, you don't even need Tesla, it's six companies. So I can't overstate how important those results are. And frankly, our bias at LPL Research is that the capital expenditures guidance rises a little bit again. We didn't expect it to rise last quarter and it did. Maybe we've learned our lesson. I'm not going to say that it's going to come.

Jeff Buchbinder (37:27):

It's going to be cut this quarter and I don't think that's coming next quarter either. So should be another good quarter for the Mag Seven because even though the spending is circular, it's going from one Mag Seven to the other. These are still very, very big numbers and these are still actual earnings being reported. So should be a good quarter. The Mag Seven leading the way, if you just look at the tech sector broadly, so you lose some Mag Seven names if you just look at tech. But earnings growth for tech up 22% based on current estimates. Financials are close. We had a good quarter for the big banks, but that's it. Nobody else is close. So we're really getting a lot of strong earnings out of the tech sector. Estimates have inched a bit higher so far as companies have reported this month, but it's really marginal, still that's a victory.

Jeff Buchbinder (38:24):

Anytime estimates stay where they are or rise, that tells you there's underlying earnings strength more than usual. And we're absolutely seeing that, it's early, but we're absolutely seeing that there's more underlying earnings power than people expected there to be. And then as you look to 2026, I mentioned the stimulus, that's going to lift earnings, the AI spending is still growing and it will still grow in 2026. So there's a real possibility that we get a string of double digit earnings gains, not just the ones we just saw in this quarter, Q3, but Q4 and throughout 2026. That is very, I won't say likely, but that is a very realistic scenario and of course that can help support the equity markets. So I'll end there on earnings, just buckle up <laugh>, because it is a big, big week with some really big and really important names. So I think that's it, I guess the Trump, I mentioned some of the key elements of the China negotiations, so we'll just wait for that and see what happens. But that is going to be a big focus of the week too. So, so thanks so much Lawrence for joining on another LPL Market Signals. Thanks to all of you for listening and or watching. Greatly appreciate it. Have a wonderful week. Take care and we'll see you next time.