Iran has been threatening many ships through the Strait and has thus slowed traffic to a trickle of what it used to be. Now I guess the US is going to blockade the Iranian ports? Apparently it’s not completely clear who is going to help with this operation.
Meanwhile the cease fire talks in Pakistan didn’t go much of anywhere, so it’s the same old same old, at least for now.
According to Mike Wilson, Morgan Stanley’s chief equity strategist, one should not assume that this oil crisis will be anything like the 1970s or 1990s. One of the major reasons for this is the earnings strength that is currently underpinning the financial markets.
In fact, he said:
This is how earnings look this year.
One of the most bullish strategists on the street, Ed Yardeni, has been arguing the S&P will reach 10,000 by the end of the decade. In case you’re doing the math, that’s a ~45% increase in a bit over 3.5 years. But how can that be? I was on a call with him a couple weeks ago and here is his earnings model.
You can see he is only projecting $310 for earning in 2026, while Mike Wilson is showing consensus earnings north of $336. Ed Yardeni is already 7.7% behind on his estimates. Given the current war situation, he feels comfortable holding that for now.
But if you look at his estimates for 2030, you see $500 per share. At 10,000 points that’s only a 20x multiple on forward earnings or 22x for trailing earnings. Here’s where we are today.
So, Ed is calling for multiples to be slightly smaller than they are today, with both the market and earnings up roughly 50% over the next 3.5 years.
Of course, the price of energy has roiled many other parts of our economy and the world economy. Here’s a look at the latest CPI numbers.
Monthly inflation hasn’t been this high since 2022. It will likely stay high until after the war is over and supply returns more towards normal. Many experts feel a return won’t happen for months, stay tuned on that issue.
Lastly, our model has gone from Risk-off to Risk-on back to Risk-off all in a span of roughly a month. We held off making the change to Risk-on mainly because of the geopolitical risks and a chance that we might get whipsawed. I guess we were right on that. We are still looking for better markets and better geopolitical environments going forward. We’re just not quite to that point yet.
As always, we will continue to work diligently to preserve and grow your wealth and as always act in your best interests with the information we have at the time. I hope you have a good week. If you have any questions or comments about this or any other topic. We will certainly be happy to have a conversation.