Strong profit margins and earnings will sustain S&P bull run, says Wolfe Research's Chris Senyek

Welcome back to the exchange. Stocks are higher as we kick off the back half. And my next guest just raised his S&P price target for the year end to seven, 5700, putting him among some of the Street's biggest bulls. So what's got him so positive? Well, a September cut, strong earnings and economic growth between 2 and 2 1/2 percent next year. And joining me now is Chris Senak. He's chief investment strategist at Wolfe Research. Chris, why the delay? Why the delay? Late to the party. It's 50. Just Just go ahead and make it 6000 at this point. Yeah, we'll take it one step at a time. If we weren't entering a weaker seasonally point of time, I, I, I think you might be close to that. But you know, the earnings outlook is really strong and it's continues to be this bifurcated economy between services sector doing well and the good sector taking a breather. We saw that with the ISM report on manufacturing early this morning, and we will look at where margins have come in for the S&P 500 companies year to date. They've surprised to the upside in our earnings model and we think they'll continue to as GDP remains very resilient. The consumer hangs in there. AI continues to be a very dominant theme. And given the weight of Big tech in S&P earnings, it's 21% now of earnings, 31% of the market cap. We have a high degree of conviction that companies, at least in the tech side, are going to continue to beat numbers over the coming quarters here. And if we take a 21 times EPS number to our 270 number next year, we arrive at 5700. Got it. So I mean, it is reassuring what you just said. We're talking about earnings growth. We're talking about higher profit margins. Sounds good. I mean, yes, it sounds like the valuations are structurally higher now than they were in the past. But does anything worry you out there in terms of it being a bubble? No, I don't think we're in a bubble yet. I think the spending is real. If you look at the earnings versus the fundamentals for companies such as in NVIDIA or Microsoft or Meta or Alphabet, they've tracked it very closely. And, and that's why I continue to think that, you know, as long as earnings continue to surprise, the upside revisions continue to trend positive, there's probably even more upside to our numbers as the year progresses. What are you worried about this summer? People talk about seasonals and there's the election kind of looming. What do you think could play out? Last year we saw an oil price spike. We saw rates pressure. So we, we've been through it before, that's for sure. Well, certainly there's unexpected twists and turns with respect to election. I don't, I don't think we know all the details from that yet. I'm worried about the US government debt situation. I don't think those issues have gone away. Deficits continue to rise, spending continues to rise. Bond yields are up recently, perhaps is odds that risen for for a Trump win. And none of the issues have gone away. In fact, if you think about last fall, when you know, the government kind of kicked the can down the road in terms of the, the issues with the debt ceiling and everything else, you know, issuance is up a lot and these issues haven't gone away. So I'm, I'm worried about a rate shock more than more than an oil shock. And as we go in those two, the rate shock in the Trump re election seem connected. Every time his odds improve, the yield curve steepens. And a lot of people think that's because there's concern about the long end because of the tax cut continuation or what have you. Yeah, indeed. I mean, I think if you look at what happened in the 2016 election cycle and even in the 2020 blue wave, bond yields in 2016 went up almost 75 basis points in a matter of months, right? And I think a salary dynamic could occur this time around. And even when you had the blue wave in 2020, they went up 40 or 50 basis points. And so I think both parties will continue to spend money. There's going to be a reconciliation bill next year in any case to extend part or all of the Trump tax cuts, and they'll likely be other spending that'll be thrown on top. It's just too much of A temptation. Did not spend by either part. Yeah. All right. So then I guess the other question to ask about Trump's re election. And you point out there could be some big impacts from a corporate tax point of view. What exactly do you think those are? How could they flow back to the market? Yeah, there's some expiring provisions on the individual side, certainly with, you know, all the individual cuts that occurred expiring then the next year. So they have to extend part of all of those and that could impact, you know, spending patterns, particularly the high end, because a lot of the spending that we've seen over the last couple years is because of the wealth effect, right? So if if capitals tax certainly be a big deal. And then on the corporate provisions, there's some smaller nuance if you not, if you will, if not, wonky provisions, foreign derived intangible income, the minimum global tax that are set to rise 3 to 400 basis points at the end of next year. That could cause companies, you know, if those aren't going to be extended for whatever reason to maybe pull back on spending or a little more cautious on what they do with their cash because their tax bills are going to go up. Yeah, that's a great point. All right, for now, Chris, we'll leave it there. Thanks for your time, 5700, off we go. Thank you.