The Case For S&P 10,000 by 2027 | Erik YWR on Global Economic Boom, Why Soaring Earnings Support High Equity Valuations, and Oil + China
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
Eric from YWR (Your Weekend Reading) joins Jack Farley to make a compelling case that investors are far too bearish on the current market environment. (00:38) Eric argues that we're in the midst of a "massive boom" with GDP forecasts being revised upward globally across every region - Japan, Europe, the US, and the Middle East. (02:00) He believes the S&P could reach 10,000 by 2027, with corporate earnings growing at double-digit levels and multiple tailwinds supporting the bull market. (07:00) The discussion covers everything from AI capital expenditures and banking sector recovery to emerging market opportunities and potential risks like $200 oil. (34:00)
- Main theme: Institutional investors are positioned too bearishly while a global economic boom continues to unfold with multiple structural tailwinds supporting higher asset prices through 2030
Speakers
Erik YWR
Erik is a global investor and author of the Your Weekend Reading Substack, a publication focused on non-consensus investment views and data analysis. He has extensive experience as a buy-side global banks analyst and has worked at hedge funds, giving him deep institutional knowledge of financial markets and banking systems worldwide.
Jack Farley
Jack is the host of Monetary Matters podcast and recently interviewed a Federal Reserve governor about interest rate policy. He focuses on monetary policy, markets, and economic trends, bringing institutional-level analysis to his audience.
Key Takeaways
Don't Fight the Persistent Bull Market
Eric emphasizes that institutional fund managers are making a critical error by constantly expecting a 1999-style crash. (02:19) The market has been grinding higher alongside consistent earnings growth, with the S&P averaging over 7% EPS growth annually for 25 years. He argues that with 10% earnings growth this year and 13% expected next year, the market can mathematically support much higher valuations. The key insight is that professional investors are "always waiting" for the correction rather than participating in the ongoing expansion, creating an opportunity for those willing to stay long.
Banking System Recovery Could Fuel the Next Growth Phase
The global banking sector represents a massive untapped growth engine that hasn't participated in the current boom yet. (05:19) Since the Global Financial Crisis, banks have been deleveraging and building capital reserves under strict regulatory requirements. Tier 1 capital ratios increased from 4% to 10-12% for major banks, forcing them to deleverage while central banks tried to stimulate growth. Now with higher interest rates restoring profitability and regulators shifting toward encouraging growth, banks have excess capital ready to deploy. European and Japanese banks have been buying back shares, but Eric anticipates they'll soon shift to aggressive lending, providing another leg of economic expansion.
Emerging Markets Are Positioned for a Multi-Year Rally
Dollar weakness could trigger a powerful emerging market boom reminiscent of past commodity super-cycles. (23:18) Central banks in countries like Egypt (25% rates), Nigeria (20% rates), and Brazil (12% rates) have been forced to maintain extremely high interest rates to defend their currencies against dollar strength. Any sustained dollar weakening would allow these countries to cut rates dramatically, unleashing highly energy and commodity-intensive growth. Eric notes that emerging market indices are already up substantially this year - South Korea up 80%, Brazil up 40-50%, China up 30% - but valuations remain much cheaper than US markets.
China Mirrors US 2010 Setup with Massive Upside Potential
China today presents a compelling parallel to the US in 2010 - coming off a financial crisis with low valuations, low interest rates, and aggressive fiscal stimulus. (26:55) Chinese fiscal stimulus is running at 9% of GDP, interest rates are just 1.7%, and the average PE ratio is 13-14 times earnings. Eric argues that Chinese domestic savings are so substantial that they can drive their own bull market regardless of foreign participation. The government has shifted from promoting real estate to actively supporting equity markets, creating a structural tailwind for Chinese stocks.
Energy Could Be the Ultimate Market Disruptor
While current energy prices pose no threat to the bull market, Eric identifies oil as the potential "bubble popper" if prices surge to $150-200. (34:54) He draws parallels to previous market tops in 1999 (oil doubled from $14 to $30) and 2007 (oil hit $140) where rising rates combined with energy price spikes ended bull markets. Currently, India is reaching the same GDP per capita threshold ($3,000) that China hit in 2004, potentially triggering another billion-person energy consumption surge. Meanwhile, oil discoveries are at all-time lows, project development times are at all-time highs, and the industry has been told to expect zero demand growth - setting up for potential supply shortages.
Statistics & Facts
- Tier 1 capital requirements for banks increased from 4% pre-GFC to 10-12% for globally significant banks post-crisis, forcing massive deleveraging. (13:35) This regulatory shift explains why central bank stimulus was less effective - the biggest money multiplier (banks) was deleveraging throughout the zero-rate period.
- The S&P 500 has averaged over 7% EPS growth annually for the past 25 years and is expected to deliver 10% growth this year and 13% next year. (04:02) This consistent earnings trajectory supports Eric's argument that current 20x valuations could mathematically expand to 30x without being expensive.
- India has reached $3,000 GDP per capita, the same threshold China hit in 2004 before its massive commodity consumption boom began. (38:02) This suggests another 1.3 billion people could be entering energy-intensive growth phase, potentially driving the next commodity super-cycle.
