Piper Sandler's Michael Kantrowitz: As long as employment & GDP look ok, earnings should improve

Market Overview - The S&P 500 is currently on track for a third consecutive day of decline, despite being close to record levels [1] Earnings and Economic Indicators - Expectations are for improving earnings per share (EPS) breadth to take over after three years of price-to-earnings (PE) expansion, which is seen as a positive development [2] - The market experienced a decline in 2022 primarily due to multiple compression caused by inflation, but has since recovered slightly above 2021 levels [2] - There is minimal macro risk currently priced in, with little concern regarding tariffs, interest rate tightening, inflation, or recession [3] Economic Conditions - As long as employment and GDP remain stable, earnings are expected to improve, with signs of broader market participation beyond just large-cap stocks [4] - Leading indicators suggest a favorable economic backdrop, with stable to slightly lower interest rates and approximately 95 rate cuts globally in recent quarters [5] - Oil prices are low, housing data is stabilizing, and PMIs are showing stability or improvement [6] Sector Performance - There is a notable increase in earnings estimates for small-cap and mid-cap stocks for the first time in three years, alongside a positive response from housing stocks due to lower rates [7] - Manufacturing and transportation sectors, which have lagged, are expected to catch up as economic conditions improve [7] Market Sentiment - The current economic environment is described as a "Goldilocks" scenario, where conditions are just right for gradual rate cuts by the Federal Reserve [8] - There is cautious optimism about a broadening market, with recent trends indicating a strong broadening of earnings estimates across various market caps [10] - The Fed funds rate is currently 125 basis points lower than it was two and a half years ago, with expectations for further reductions by year-end [11]