“There used to be a time when 1% GDP growth was knocking on the door of a recession. Now people call 1% growth resilient, and are pricing in a 24 times S&P multiple on 1% growth. I hope 1% goes to 2-3% rather than to zero-minus, but I think a lot will depend on how we absorb these tariffs.”
⬆️So said Peter Boockvar on Talking Markets yesterday - The CIO of Bleakley Financial Group and author of The Boock Report joined us for a characteristically candid discussion yesterday, ahead of what’s set to be a pretty news-y week for markets.
The AI Tech Trade “Has Gotten a Second Wind”
With more record highs intraday for the S&P and NASDAQ, Peter said that the “AI tech trade has gotten a second wind” and that’s “really what’s been driving a bulk of this move.”
He said that while the small cap index, the mid cap index, and the transportation index have had “nice rallies,” they’re remaining “well off the highs.”
Elsewhere he pointed out froth in some stocks like Opendoor (“I think the meme stock crowd got into that one,”) and said the market is kind of “shrugging off challenging news.”
“The party is on, and the party can continue for the rest of the summer,” he said. "But investors should acknowledge that we’ve reached past midnight with this party and can keep going at 2 or 3 am.”
What Could Stop the Music?
“The rise in long-term interest rates, not just in the US but around the world,” Peter said. “We’re seeing higher interest rates in Japan, Germany, France, and the UK…”
“The 10-year back above 4.5% - a 10-year that goes to 4.75% or 5%, which I think it will, [but] I don’t know when.”
Thirdly, Peter said, he thinks there’s “this amazing complacency [about] the impact of tariffs… It just doesn’t seem like enough people are doing the math: If tariffs settle around 10%, that’s $330 billion tax on $3.3 trillion of imported goods. If it’s 15%, that’s a half a trillion dollar tax. Exporters will eat some of that maybe, but with the weakness in the US dollar, that burden is back on the US importer, so it’s going to be mostly businesses and households that eat that - and I don’t know if people are really understanding that concept… Call me old school, but I love free markets and low taxes.”
Expectations for Earnings Season
“We’re setting ourselves up for a pretty interesting earnings season over the next couple of weeks,” Peter said. “So far, the beat rate in earnings is about 75%, which is what it always is. That is really [the] baseline - it’s anything above that or below that that will determine whether earnings season is good or not.”
“But I think in the aggregate, when GDP is only 1% in the US and growth globally is somewhat muted,” it’s hard to generate robust earnings because you can’t separate earnings from underlying activity.”
→ With Tesla (earnings on Wednesday), Peter says while “the stock is obviously still trading at a pretty lofty multiple” on hopes of Optimus and the robot business, earnings are driven by their auto business so we’ll want to know how consumers are responding to the end of a lot of the tax credits and incentives that was a big driver of their growth.
→ With Google (Alphabet) reporting later today, Peter says he’ll want to “hear about their fundamental business with respect to the competitive challenges they’ve experienced with ChatGPT and other LLM models, but also what they have to say about the ad business - because at the end of the day, a lot of their business is generated by advertising.”
About That GDP Growth (And Inflation)…
Peter pointed out that in the first half of 2024, GDP growth annualized to 2.3%; while in the first half of 2025, we’re annualizing at 1%.
“So that is a cut in half in the growth rate of the US economy,” Peter said.
And on the inflation side, “in just May from June, we saw what has typically ben annualized inflation growth rates in anything related to housing - appliances, window coverings, floor coverings, clocks, lamps, toy prices were up 1.8% in June from May… Sporting goods were up more than 1% from May to June, the price of tires was up 9 10ths from May to June; Apparel was up 4 10ths from May to June… so we got tariff goods price inflation.”
There was “obviously an offset on the services side,” Peter said, “And I think services prices will further decelerate in the back half of the year.” However, (and it’s a big however), Peter said “extend this out to next year, [and] we’re sowing the seeds for reacceleration in services inflation because rental growth is going to start picking up steam again in the back half of next year as the current excessive supply gets absorbed, and we are now building much less new multifamily apartments.
💡“Any deceleration in overall inflation is going to be temporary, and I believe that inflation volatility is something that is going to be around for the next couple of years.”
Peter On…
Mag 7
“I’m confident that the Mag 7 trade is over in terms of its homogenous, dominant contribution to the market. That group has splintered. You still have the winners of Meta, Microsoft, NVIDIA, but now you have the losers of Apple, Google, and Tesla, with Amazon (sort of). We’ll see how they report earnings and where that plays out, but as a group it’s splintered up.”
Small-Mid Cap Stocks
“Small/mid-cap stocks may finally carry some weight here… while they have had a nice rally off the lows, they’re still below where they were in November, December of last year.”
The Tariff War
“I do believe the tariff war that we started lit a fire under a lot of different economic regions… We lit a fire under Europe to realize that they can’t rely on us… I wouldn’t be surprised if the euro continued to rally here. It lit a fire under Canada to realize that we can’t keep relying on selling our oil and natural gas to the US, we need to start greenlighting LNG terminals in British Columbia so we can start shipping stuff to Asia.”
European Equities
Peter remains positive on European equities: “They’ve had a nice run here, so it’s not like there’s the same low-hanging fruit, but we own a bunch of stocks that are domiciled in Europe that to me are still very cheap. And if you get that currency kicker of a stronger euro in addition, that helps that return as well. So yeah, I think Europe’s attractive - we’re finding individual names like Nestle, Veolia, BP and Shell and Tesco in the UK… So there are ways of playing Europe with boring businesses.”
The Hang Seng
“I know some people, they'll never invest in China or in Hong Kong. But that market has outperformed the S&P 500 since December 2023. And it still only trades like 12 times earnings. So there’s plenty of cheap stuff around the world, even with the rally that we've seen over the past year and even year and a half.”
Japan
“We're long Japan. We've been long Japan for a bunch of years now… it's still a very attractive market. Japan itself as an economy obviously faces its own challenges with its shrinking population, but a lot of phenomenal Japanese companies are benefiting from global growth, particularly in the Asian region where half the world lives. So we remain bullish.”
The Fed
Peter thinks Jerome Powell “will absolutely hang on to his job… I think everyone knows how much of a mess it would be if he [didn’t], even Trump… Trump is not the first president to pressure a Fed chair. We’ve seen this movie many times.”
And Finally… Be Careful of Your Surroundings
“Just as we tell our children when they’re younger [to be] careful of their surroundings when they go out, as investors we always have to be careful of our investing surroundings,” Peter said. “We’ve reached a moment of truth in the stock market… you get into froth, the Citi Panic/Euphoria index is getting further into the euphoria area… But does that matter tomorrow or does that matter in 6 months? I have no idea.”
Enjoy,
Maggie
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan.
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