The market may be entering a new phase.

The S&P 500 just posted its strongest second-quarter return during a midterm election year in nearly 80 years, despite war headlines, geopolitical uncertainty, and periods of $100+ oil.

Even more interesting? Over the past 12 months, the S&P is up roughly 18%, with virtually no multiple expansion. This rally hasn’t been driven by investors simply paying higher valuations, it’s been driven by stronger corporate earnings.

With earnings season kicking off next week, that’s exactly what we’ll be watching.

Watch Elizabeth’s latest Fox Business interview with Charles Payne as they discuss why market leadership is broadening beyond the Magnificent Seven and what it could mean for investors.

 

Transcript:

What’s your market outlook?

Charles: My next guest says that the bull market is not, it’s evolving, rather. It’s not ending. All right. Let’s bring in Evans May Wealth managing partner Elizabeth Evans. And Elizabeth, you know, let’s talk about your market outlook for a moment. And it’s this evolution that you’re describing here.

Elizabeth: Well good afternoon, Charles. The bull market is evolving. It’s not ending. And we’re really moving from an AI-only rally to a broader earnings-driven expansion. And that, as your prior guest just alluded to, is very healthy.

Earnings have been what has driven this market higher over the last 12 months. And a cooling labor market that is cooling but not collapsing gives the Fed the flexibility to be patient.

How are earnings more important right now than the Federal Reserve?

Charles: So, and you know, the thing at the top that’s intriguing to me is that earnings are more important right now than the Federal Reserve.

Elizabeth: Absolutely. So, we kick off earnings season on Tuesday. For second quarter, earnings growth is expected to be +22%. So, that’s the highest level we’ve seen since March of 2021. So, the bar is high.

And we’re seeing analysts continue to revise higher going into the print. But let’s not forget last quarter, expectations were 12% and we closed the quarter +27%. So, even amidst war headlines, oil hitting $100, and a lot of geopolitical concern, we just saw the S&P 500 post its best second quarter amid a midterm election year in nearly 80 years.

Charles: No, it was absolutely amazing and so funny because sometimes it comes in so good. That becomes a gripe, right? Oh well, it can’t stay that great, right? Of course, those are usually the people who underestimate it in the first place.

Stock Picks:

Why do you like Taiwan Semiconductor and how long do you think the demand will last?

Charles: Let’s talk about making some money here. You like Taiwan Semiconductor and you have a lot of reasons: surging demand, picks and shovels, competitive moat, I mean really competitive moat. There are there are questions, though, about the surging demand and how long it will last. That’s really the big parlor game on Wall Street. How long do you think it’ll last?

Elizabeth: I think if last year we thought we were in the third inning of AI, we are, based on everything we saw with hyperscaler and capex spend this past quarter, we’re in the second inning or early innings. So, for investors who are under own semis or don’t own TSM, this 10% pullback we’ve seen is a buying opportunity. Whether it’s Nvidia, AMD, Apple or any of the hyperscalers making their own chips.

Charles: Right.

Elizabeth: TSM is manufacturing those. And so, you’re not having to pick the AI winner, but rather the company that manufactures for most of them.

Charles: Hence the picks and shovels, right? And again, a wonderful, beautiful chart.

Interactive Brokers: When you say the earnings are high quality, what does that mean vis à vis the rivals?

Charles: You also like Interactive Brokers. You know, they get a lot of props for really the way they operate their shop. And accounts are growing, high-quality earnings, technical buy signal. When you say the earnings are quality, high quality, what does that mean vis à vis maybe the rivals?

Elizabeth: Yeah. So, Interactive Brokers I think of as a less sexy Robinhood for more sophisticated investors.

So, they’re growing customer accounts 25% a year versus traditional brokerage at 7%. A lot of that is coming outside of the U.S., where international penetration is extremely low and their earnings growth is expected to be +25% over the next five years. So, that’s one to look at.

Dick’s Sporting Goods: why do you like it?

Charles: And we got to talk about this. You like Dick’s here. Listen, they’ve executed so well in the last ten years. We’ve seen so many companies, Modell’s and Sports Authority. All of them go out of business, not Dick’s. They’ve made a couple of acquisitions. It looks like they may have trouble digesting it.

Crude oil. How important is it that, you know, this latest spike comes back down, that crude comes down, and maybe that, because the stock has really been sideways for a while, which is uncharacteristic of the stock.

Elizabeth: Yes. They’re one of the few retailers that are expanding margins, expanding their footprint. And in a market where everything seems expensive, they’re trading at 17 times forward earnings. So, they are the House of Sports. The Foot Locker acquisition expands their total addressable market to 300 billion. And they continue to strengthen with brands like Nike. So, I do think that there’s a lot of opportunity here.

Pays a 2% dividend. And depending on where you look on the street, price targets are 2,025% higher from where we are today.

Charles: All right. I always love optimism, but it’s based on a lot of research. Elizabeth, thank you so much. Appreciate it.

Elizabeth: Thank you, Charles.

Charles: See you soon.