Just over a half an hour now till the opening bell on Wall Street. Joining us now on the markets, Matt Powers, president, managing partner of P Advisory Group. You don't think things are cheap either, uh Matt, you do point out that you know the big caps and the uh you know the seven that lead the way and there's 493 other ones.Um do do you think we're overvalued like David Ter. >> Yeah, good morning Joe. Thanks for happy Friday.Um, yeah. I mean, valuations are clearly stretched. They're high. They're frothy ...

Market Outlook & Earnings - The market's current rally is partly fueled by expectations of a Federal Reserve rate cut, potentially around 50 basis points [1][3][4] - Q1 and Q2 earnings have exceeded expectations, driving the market to new highs [2] - The market is counting on earnings continuing to make new highs [2] - Technology and communication services account for 40% of the S&P 500 market capitalization and 28% of earnings [7] - Analyst consensus expectations show small caps are showing signs of life [11] Valuation & Potential - The valuation multiple is around 22, which is considered acceptable [3] - A potential "melt-up" scenario could see the price-to-earnings ratio rise to 25, reminiscent of 1999 [5] - If the Fed surprises with a 50 basis point cut, the S&P target could be revised upwards to 7,000 [4][5] - The "impressive 493" (companies outside the Magnificent Seven) also had good earnings and are expected to contribute to market growth [8][9] Risks & Uncertainties - A debt crisis scare, potentially triggered by the government having to refund $500 billion to $1 trillion due to overturned tariffs, could derail a year-end rally [15]

Economic Resilience and Inflation - The economy has shown more resilience than expected, with companies reporting stable conditions during the second quarter [2] - Anticipation of the Federal Reserve's actions in September is noted, with a focus on small-cap performance [3] Small-Cap Market Performance - Small caps have outperformed by approximately 400 to 500 basis points since April 8, largely unrecognized in the broader market [4] - Relative valuations for small caps remain cheaper compared to large caps, with small caps yet to reach new highs since November 2021 [5] Earnings Outlook - Small cap earnings turned positive in the second quarter after two years of negative performance, which is crucial for continued outperformance [6] - Expectations are that small cap earnings may outperform large cap earnings in the third quarter [6] Impact of Interest Rates - A lower interest rate environment would benefit small cap companies, particularly those with variable debt [7] - The anticipation of lower rates is already being factored into the small cap market [7] Capital Expenditure Cycle - The recent legislation allowing 100% depreciation on capital expenditures may signal the start of a capex cycle that benefits small cap companies [8] Focus on Industrial Sector - The focus is on economically sensitive areas, particularly industrials, which are expected to benefit from reshoring and re-industrialization in the U.S. [10][11] Historical Context of Small Caps - The Russell 2000's representation as a percentage of the Russell 3000 was 4.2% at the end of the second quarter, a level not seen since the 1980s [12] AI and Market Broadening - The AI narrative is shifting towards beneficiaries of AI, which may drive broader market participation beyond large caps [14]

Market Trends & Sentiment - Tech sector performance is bifurcated, with Alphabet and Apple leading while the rest of the complex lags, indicating potential dispersion in investor sentiment [1][3][4] - Energy and materials sectors have been leading recently, though their impact is limited due to the large size of the tech sector, suggesting a healthy rotation [3] - Large-cap stocks are favored over small-cap stocks [4] Economic Outlook & Jobs Report - The worst of the economy was likely a couple of months prior, coinciding with tariff uncertainties [12] - A jobs report significantly above or below the estimated 75,000 by 10,000 could trigger a market move [11][12] - A much better than expected jobs report might reduce expectations for future Federal Reserve rate cuts [13] - The Federal Reserve is still expected to cut rates in the coming weeks, but potentially not as many times as anticipated over the next 16 months [13] Market Performance & Seasonality - S&P typically pulls back about 2% on average in September based on the last decade's data, indicating seasonality [6] - After the S&P has been up over 25% over 100 days, the average return after one month is 1%, and after three months is approximately 6% [6] - Historically, three months after a similar market condition, the market has been higher 11 out of 11 times, and a year later, up an average of 13% [7] - The strength seen off the lows is inconsistent with a bear market [8] Bond Market & Credit Conditions - The 30-year yield is up around 5%, the highest in a long time, with long-term yields breaking out [9] - Credit markets are showing virtually no signs of stress, with no warnings in high yield or junk bonds, and credit spreads not broadening out [9][10]

Your next guest says a new record could be coming. Tim Orbanowitz is chief investment strategist at Innovator Capital Management. Tim, good to have you on set. >> Great to be with you, Brian. >> Man, we've been waiting for the small cap breakout for a long time. Hasn't It's happened a little bit, but we're still not at a record high. Should we be bullish? >> I think there are catalysts, Brian. And and if you look at this and take a step back, we we've had this valuation gap, small caps to large caps, for a ...

really steering the index the way it is. Other indexes. >> Okay.Mike Santoli thank you. We'll see you later this hour. Let's broaden our market conversation though and bring in Truist Wealth Co-Chief investment officer Keith Lerner and Hennion and Walsh asset manager, Management president and CIO Kevin Moen.Great to have you both here. Kevin, you're on set. I'm going to kick this conversation off with you.We've had a torrid run since the April lows. What do you like here. Do you stick with tech. Do you look ...

If anyone's watching the show and those two stocks have an outsized impact on your portfolio, I encourage you to diversify. I look at small caps in the US trading at the the cheapest valuation relative to large cap caps since 2000, since June of 2000. And if you look at the 25 years since then, small caps have actually outperformed large caps even with Microsoft and Apple and Meta and everyone else driving them higher.Valuation is not a perfect timing tool. Um, but it does tend to work longer term. And righ ...