Pettit: Sentiment is really high and any news could spark profit taking

Market Sentiment and Economic Outlook - Market sentiment is high, making it susceptible to news that could trigger profit-taking or normalization of positions [1] - Q3 earnings season will be crucial for market direction [2] - While rate cuts are generally seen as positive, their impact depends on whether they are accompanied by strong earnings or aggressive economic softening [3] - Short-term market movements may be influenced by inflation and the Federal Reserve's trajectory, but earnings are the primary long-term driver [4] Earnings Pressure and Valuation - Valuations are putting pressure on companies to deliver strong earnings [4] - The market needs excess growth beyond what the economy can deliver to push higher [4] - Earnings need to be at the highest levels since the tech bubble and post-pandemic build [5] - Focus is on Q3 earnings reports and company commentary [5] Equifax as a Pick - Equifax is presented as an inflection story, where lower rates are expected to drive earnings [6] - Analyst expectations for Equifax's earnings are well above consensus for fiscal years 2026 and 2027, driven by lower mortgage rates [6] - Equifax is expected to improve its return on equity (ROE) by improving margins and increasing efficiency [7] Mortgage Rates and Housing Market - The thesis is impacted by mortgage rates moving to the upside [7] - Mortgage rates closer to 6% could spur demand for refinancing and new home activity [8] - Housing is underbuilt in the United States, providing tailwinds beyond short-term rate fluctuations [8]