Expect some rotation during earnings season, says Morgan Stanley's Chris Toomey

You know, for people like Ed Yardeni who whom I cited earlier say it's not just a multiple expansion market anymore, it's an earnings driven in part as well like you, you, you, you have to give earnings some credit somewhere. Totally. So I mean, we'll take last year, right? So if you look at the market, you had the Magnificent 7 or the top ten companies, they generated over 40% in earnings growth, but the stocks were up over 100%. So you had almost 50% in PE expansion. The rest of the of the market was basically flat to negative, right. This year, it's this same continued response where the majority of the return on equity is coming from these ten stocks and the rest of the market is being left behind. And I don't think that's healthy. And I think at some point you're going to start to see breakage. I think the key concept here is we're in this Goldilocks situation. We're in a situation where economic growth is good enough and inflation is coming down well enough that the Fed's in a position where they don't have to raise rates, which is providing some good things. You've just made the bull case. Why are you underweight equities? Because what's going to happen is, is that bifurcation is only going to get worse. So those 80% are going to continue to suffer within the economy and the rest of the stock market is going to continue to. I don't think it's that's correct honestly to suggest that 80% of consumers are in as much trouble as you would portend them to be 80%. So if you look at I think the economy would be printing what it's printing if 80% of the 70% of the consumption that happens in this country is in in in that dire of straits. Now, I obviously understand that there are a lot of people as part of that, you know, consumer cohort who have been dealing with these levels of inflation which has made their livings miserable to try and keep up. But to suggest that 80% of the consumer is in that bad a shape, I feel like is not exactly correct. So if you, if you look at our consumer studies, what you'll see is the bottom 20% is the one that's really suffering. But what you'll see within that top four is the fact that consumption is coming down OK and things are slowing. And what's happening is, is because that top 20% is over 40% of consumption, they themselves are lifting the economy as well as the fact that if you look at the fiscal stimulus that's going on in the economy right now, typically we have about a 2 1/2 to 4% deficit. Right now we're at about 10%. So we're actually pumping liquidity into the system right at a time where rates are at 5%, right, and we're having to issue more and more treasuries. So next year, our anticipation is that they're going to increase issuance by over 35% at this level. So that deficit is only going to get worse. So my point is rising rates are going to create a problem within the economy. Now the good news is I think if we do start to see the market sell off right, because we are extended, we could see a 5 or 10% pull back. And I think if we had a 5% pull back not that long ago, no, we had, we had a 4% pull back. We had a 5% pull back in October. The thing is, is that typically we have about a 1% move up or down in the market 20% of the time. We're probably training around 5%. We typically have a 5% pull back three times a year and we're in a situation where we haven't had one since October. So we are due is my point. And The thing is, is that I think once you start to see kind of the tech situation come down, there are going to be opportunities in some of these. If I think it's when, I don't necessarily think it's FI, think we will see a pullback, maybe not right now we're going into the end of the quarter. So you're getting a lot of rebalancing with regards to indexes. You're seeing a lot of window dressing with regards to active managers that are increasing their exposure to certain stocks. So they look good in their marketing procedure. But I think come earnings season, you can start to see some rotation. It's going to be interesting. It's not that far away either.