Talking Markets with Sevens' Report Tom Essaye
43:22 Share

This episode is brought to you by OutSystems, the AI-powered application generation platform that combines the speed of Gen AI with the power and completeness of the market-leading low-code platform. Visit OutSystems.com to learn more. This is Barron's Live. Each week, we bring you live conversations from our newsrooms about what's moving the market right now.

On this podcast, we take you inside those conversations, the stories, the ideas and the stocks to watch so you can invest smarter. Now, let's dial in. Hello, everyone, and welcome to Barron's Live, our weekly webcast and podcast. I'm Lauren Rublin, senior managing editor at Barron's. Thanks for joining us today to learn more about the markets and stocks in the news.

My guests are Barron's Deputy Editor Ben Levison and Thomas Say, founder and president of Sevens Report. Ben and I are big fans. Welcome, Tom and Ben. It is a beautiful October day here in the New York area, but not so beautiful in the markets. That said, I am glad to have you both on Barron's Live. Thanks, Lauren. Thank you, Lauren. And thank you, Ben. It's a pleasure to be here.

A pleasure to have you, Tom. So since this is your first time on Barron's Live and listeners might not be as familiar with Sevens or the Sevens Report as we are, I thought I'd start by asking you to give us a brief description of the company and your newsletter.

Sure. So Seven's report is the flagship publication of my macroeconomic research firm. And what we do is we provide plain English daily macroeconomic analysis to financial advisors and individual investors.

And what makes us a little bit different, as hopefully you guys know as being on a distribution list, is that we really try and provide plain English analysis of stocks, bonds, commodities, currencies, geopolitics, and any Fed behavior. So we really try and provide sort of a one-stop shop at the start of each trading day that's written in plain English for advisors and investors.

And Ben and I get the report. And as I said, we do enjoy it. So on to the markets now. Tom, we usually like to start with a couple of questions for our outside guest. And I'm going to start with one for you. You told me last week that this market is all about growth. Everything else is noise. And I'm afraid that many of us, not Ben, but certainly me, spend way too much time focused on the noise. So tell us what you mean by your statement that,

the market is all about growth and specifically what you focus on and what you do your best to ignore. Absolutely. So the number one message we're trying to convey in the sevens report is for investors to really stay focused on economic growth. And the reason I say that is because

If growth can't hold up, then we have to talk about this rally potentially ending in a very uncomfortable way. And for those of us that have been in the markets for a long time, at least since the start of this century, we've seen that happen a few times and it's very painful. And if you think about investing, those are really the types of markets we want to avoid. So with the Fed cutting rates,

We now know that if growth rolls over, they will not be able to cut fast enough to prevent any sort of a slowdown. So to use the analogy, the die have been cast to a point. Now the Fed is cutting and now we must see if growth holds up.

Everything that's going on around growth. So how many cuts are they going to have in 2024? What's going to happen with the election? Is the Chinese stimulus going to be enough? All of those are sort of ancillary issues. But the main issue is growth, because if growth rolls over, now we have to talk about that being a rally killing event. And those are the big events we want everyone to be able to avoid.

So my question now is, how do you assess growth in this market? And how much longer do you think things can keep growing, whether it's earnings or demand for AI, or the price of stocks and their valuation?

Sure. So I think first, you know, it's right to acknowledge that this economy has been much more resilient than most people would have expected. And that includes me, full disclosure. But just because something hasn't happened yet, it doesn't mean it won't happen. So we have to be vigilant about

when we're looking at growth. And in our publication, we look at a very select few number of growth metrics because there's so much economic data. I mean, talk about noise.

Like every day, there's another report. We're talking about it in various financial publications. It's very hard for people to understand what really matters, what's really important. So what I wanted to do is I wanted to identify a couple indicators that we pay attention to here internally, and that investors can also follow along at home quite easily that really give us a sort of good picture on growth, and most importantly, will help us understand

avoid any sort of a substantial downturn. And those five indicators are jobless claims, excuse me, four indicators, weekly jobless claims, which come out every Thursday, the unemployment rate, which comes out in the monthly jobs report, that'll be next week,

And then two indicators that usually come out at the end of the first week of each month. It's called the ISM manufacturing PMI and the ISM services PMI. Those are four of the indicators that we watch to give us sort of a good picture on the state of growth. So what happens if there's dissonance among them? If some look stronger, some look weaker?

- Sure, I think that first of all, looking at each of them, people sort of following along at home, if you look at weekly jobless claims, just to give people some levels, 'cause I like always to give people some sort of benchmarks to look at. Right now there are around 240,000 weekly jobless claims, and that number is probably a bit noisy. I know we keep coming back to that word, but it is a bit of a noisy environment because of what happened with the hurricanes and people filing unemployment. Let's say their place of employment was flooded or some such.

If that number consistently moves above 260,000, I think that's one signal that, okay, we need to get a little bit worried about growth. Not crazy worried, but let's just really pay attention. The unemployment rate similarly is sitting around 4.1%, 4.1%, 4.2%.

If that moves well above 4.5%, so say 4.6, 4.7, 4.8, that's another signal that the labor market is starting to weaken. Those are the types of things you really want to look for as an individual investor to say, oh boy, we're sort of taking a big turn in the other direction. The final two indicators, the ISM manufacturing PMI and the ISM services PMIs.

They work off of a 50 benchmark. So above 50, that means those sectors of the economy, manufacturing and services, are expanding. Below 50, they're contracting. It is extremely rare that both of those indicators will drop below 50 for a multi-month period of time. Now, twice so far this year, we've seen both of them drop below 50, but it's only been for one month, and then the ISM services jumps back above.

When those two metrics drop below 50 for a few months, say two or three months consistently,

it almost always results in an economic downturn and a stock market decline. And so that's just something very, you know, it's not super frequent, but we do want to pay attention to it. And right now, these metrics are saying the economy is okay. And I think that's hopefully what most people are experiencing in their sort of personal economy. Not great, but okay. What do you look for to determine that the market is okay?

Well, valuations certainly matter, right? But valuations can be tricky because you can't look at them by themselves. High valuations never make a market decline and cheap valuations never make a market rally. There has to be an event that causes investors to then seize on that opportunity. Right now, the market has priced in a lot of good news. I think we're trading nearly at 22 times forward earnings, which...

That's pretty much the ceiling of what are reasonable valuations.

But at the same time, those gains have been underwritten by positive events. Right now in the markets, we have a positive cocktail. We have growth that's solid, but not overheating. The Fed is cutting interest rates. How quickly? We will all find out. Earnings are strong. There are geopolitical and political risks, but none of them have materialized to the point where they would change the economy. So right now the market is expensive, but it's mostly fundamentally justified.

What makes me nervous is all of a sudden the fundamentals start to waver a bit, yet that market is still expensive. That's when you know you're vulnerable to what we call air pockets. And I'm sure we've all been through a real air pocket. And air pockets in the market where you see a quick, you know, five, six, seven percent drop in a few days are in many ways just as uncomfortable as those air pockets we've all experienced in the sky.

how do you deal with a mini mini air pocket like today's is it just part of the noise absolutely i mean we all know the market can't go up every day even though we've become quite spoiled this year haven't we but this is just part of the noise you know this is this is a bit you know we're seeing a dip yields are up if you ask me to say tom why is the market down today let's say product is the 10-year yield just hit the highest level since late july right higher yields pressure market valuations

But this isn't something something bad hasn't happened today. It's just the market can't go up every single day. How unfortunate. Indeed. All right. One more question for you, Tom, then we'll go on to Ben and then we'll come back and talk about those yields and a few other investment topics. But one thing that has created a great deal of noise lately is the coming election on November 5th.

How do you think investors should be thinking about this? Everybody's trying to handicap on Wall Street which stocks are good for a Trump presidency, which are good for a Harris term, what it all means for the economy. How do you think investors should be thinking about it?

So I think that there are a couple of different ways we can look at it. So in the very short term, I'm somewhat surprised by how aggressively the market has priced in a likely Trump victory. And I'm just saying that because it's the reality and the listeners can go Google. There are numerous articles out there, impartial, that will say the market has in the past couple of weeks priced in a likely Trump victory. The election is extremely close.

And as most people may or may not know, it's only going to come down to really seven states that will decide the presidency. Pennsylvania and Wisconsin probably being two of the most important, along with North Carolina and Georgia.

And it's really a toss up in most of the states. So first of all, when investors look at the election, you can, you know, the national polls are not really what you want to focus on. You want to focus on those Pennsylvania polls, North Carolina, Georgia, Wisconsin, Michigan, Arizona, Nevada, and Minnesota. Those are really what are going to determine the election. And it's really very close. So I think in the short term, the market is a bit susceptible to

to the election because it has so aggressively priced in a Trump presidency. Beyond the election, I don't think that right now investors need to worry too much that it's going to have a substantially negative impact on the markets. And the reason I say that is because it seems unlikely that either party will have a substantial majority across the various parts of our government. So

Even if one party is able to capture the White House and control of both chambers of Congress, it's going to be a razor thin margin. And as we know from history, when that happens, usually it's very difficult to get any substantially different, game-changing legislation across the finish line. So

I think it's reasonable to look for volatility in and around the election. But unless we get a major surprise and one of the parties gets a much larger majority than we think, it should not be a medium or longer term concern for investors. And we also know from market history that regardless of who is president and who controls the government, the stock market does tend to

to do well irregardless and so it's certainly not a reason to panic either good to know so who's going to win the election stock market you know so I I think that that as you as you look at various sectors and things like that I think that that some of the biggest winners

coming out of the election could be some of our lower volatility and some of our more higher quality sectors and factors. And that really emanates from my belief that while growth is good,

i don't i i worry that investors are a bit too complacent on economic growth and that's that's sort of if you ask me to to list the number one things i worry about that's probably at the top not necessarily the growth will be terrible or we're going to hit a recession i'm not saying that but what i'm saying is that the market is priced in essentially no chance of even

a sort of steeper than expected slowdown. I think that's a big vulnerability. And I think that the sectors that can address that will sort of win the proverbial stock market election. Thank you, Roy. This episode is brought to you by OutSystems, the AI-powered application generation platform for enterprises. Unlike simple Gen AI code suggestors, OutSystems lets you generate modern, governable enterprise apps in minutes, then automates the whole DevSecOps lifecycle from a prompt.

The generative software cycle is here. Learn more at OutSystems.com. I want to talk to Ben now about corporate earnings. We've got 71 S&P 500 companies that have reported earnings to date for the third quarter.

Tell me, Ben, how are things going? Is it looking like a good quarter? Yeah, it's been a great earnings season so far. I mean, not a lot of companies have reported, but 83% have beat expectations. And big ones too. Yeah, we have a lot of big ones to come, but the banks were great.

And 83% have topped their expectations, which is actually above the recent average of 79%, which is over the past four quarters. So, so far that's been very good. And sales have been very good too. 63.4% are beating on sales. And that is above the 62%, both long-term average and over the past four quarters.

So the numbers are very solid. Earnings right now are pacing for 4% growth, but I think that that could actually end up quite a bit higher. What they do with that is they take the current level of beats and then they do the expectations going forward. And if the other companies continue to beat, that number should be a lot better. I've seen some people, I think at the start of earnings season, earnings are supposed to come in at around 3.5% during the quarter. And I've seen some people say it's going to be closer to 7% for the quarter.

So the numbers are really doing well. And what's also interesting is that Savita Subramanian over at Bank of America, they use a natural language process to look at the tone in corporate earnings in those calls that they do.

And they've actually found that the corporate leaders are a lot more optimistic right now. So they've been decelerating. They've been getting less optimistic for the past four quarters and have started to get more optimism. And in the past, that has signaled that earnings are actually starting to get better, are starting to reaccelerate. So, so far, so good. That sounds a lot like Tom's growth forecast. But Tom, you didn't mention much about earnings. What is your take on the earnings outlook?

Well, I think that Ben did a great job summarizing the reality that so far earnings are quite positive. Now, looking at earnings, it's important or what we try to do is we try and look at sort of what the different sectors and industry groups are saying because they have different takes on the economy. For instance,

Last week, the banks were the language out of the banks and the earnings were very positive. Right. But as you look at that, that really shouldn't be that surprising because especially from a macroeconomic standpoint, the economy is certainly solid enough that the banks shouldn't be seeing any pressure. Right. We don't have high unemployment. Certainly, I think it's reasonable that consumers are maybe tightening their belts a little bit, but not to the point where they need to worry about missing credit card payments or

or mortgage payments. And meanwhile, if they are increasing those credit card balances because they're perhaps under a little bit of financial stress, that's good for the banks and the credit card issuers.

But at the same time, if you look at some of the consumer companies, I was surprised last week that there was some consistent negative commentary from some of the higher end consumer companies. So if you look at your Louis Vuitton was one of the big ones, which has been one of the biggest or sorry, the chairman there has been one of the richest people in the world. They have done very well.

But all of a sudden, you're starting to see weakness in the very top end of the luxury market. You're also seeing weakness on the very low end of the consumer spectrum. So think about your dollar stores and things like that.

That to me can be a sign that sort of years of high prices and now wages sort of flattening out are starting to spread throughout the economy. That doesn't mean a recession is imminent by any stretch of the imagination. But again, if we're being vigilant on growth,

then these are the type of signals that we here at Sevens Report, I know you guys as well, watch for sort of signals because you want to get ahead of it before it's the headline. Because by the time it's the headline, the market will have already traded off. So these are some of the signals we see. So, so far, so good. But there are some things in there that I'm a little bit cautious that I'm watching. Let's put it that way.

Fair enough. All right, let's talk about some companies reporting this week. Ben, it's a big week for the auto industry. We're going to hear from GM on Tuesday and Tesla on Wednesday. And we all know that Elon Musk makes a lot more noise than Mary Barra, especially now. But on Wall Street, we're interested in both companies' results. So let's start with GM. What's the issues? What are some of the issues there? And what will you be focusing on when the company reports?

Yeah, unfortunately, Elon Musk makes the wrong kind of headlines sometimes. I wish he would focus on Tesla. But yeah, I mean, what's interesting to me looking at these two automakers coming in to earnings is that GM has had a much better year and also much better three months. The stock has gained 1.8% in the last three months, 37% this year. Earnings are supposed to increase to $2.38 from $2.28 yesterday.

Doesn't mean things are great. The automakers, there's been a lot of nasty headlines coming out of Stellantis, which caused its stock to fall on some of the other European. And some of the European automakers have had some bad headlines as well.

But there does seem to be something that GM's does seem to be doing something that the others are not. One is that it has, you know, it's kept it's kept from getting too many cars out there. It's cut back a little bit on EV spending. It's also buying back a lot of stock.

And so, you know, the big issue that people are afraid of right now is pricing, how much pressure is on pricing for automobiles. There's going to be a little bit of it. But Deutsche Bank actually thinks it could be a little better than expected. And if you look at the stock, it's really been kind of range bound for the last three months.

bouncing around it hit its 200 day moving average back in august it's bounced back up above both that at moving average and the 50 day it's trading up near its 52 week high um if the numbers are good it could actually maybe break out of this range and uh head higher so we'll have to see it should be interesting what's the price earnings ratio on gm these days oh about 4.9

It's one of the cheapest stocks in the market. It is dirt cheap. Even after it's up 37%. Yep, it hasn't done it. I mean, you almost have to do with these stocks. I mean, you can't compare them to the market or to even other stocks. What you really, I think, need to do is look at their ranges.

on PE and what you see with GM is that it's actually, I'm gonna pull up a five-year chart, but on the one-year basis, it's actually at, it's around as high as it gets on the one-year PE over the past year.

But it actually was it's been a lot higher in the past five years. It's actually as high as almost 13 back during the pandemic and even more recently as 2023 is actually at 6.5. So there is some room on the PE to expand. Ford is actually well off its high on the PE for the year, which is just a way of saying that GM is doing a better job right now for investors.

Interesting. We'll keep watching it. Let's talk about Tesla. The company reports on Wednesday that stock is not up for the year. No, it's had a tough time. You know, the stock is down 11 percent this year. It actually got close to flat and then it had that robo taxi day, which investors found to be a little disappointing, lacking in details.

So the stock is down 7.7% in the past three months. That's pretty much all for RoboTaxi Day. I think it fell around 8% after that event and has been pretty much just sitting here waiting for earnings. What people really just want to see is that Tesla can start growing again. They've had a tough time with people buying their cars. They're still selling a lot of them, but the growth isn't there anymore.

And so I think investors want to hear what growth is going to look like. And the one thing that they didn't get at the robo taxi day that I think everybody wants to hear clues about is that new lower priced car that's supposed to arrive next year, because that's really what is going to drive the performance of the stock. It's really going to be this excitement over the fact that here's another level of

for growth, that you're going to have a cheaper model that's really going to get people to go buy Teslas in big numbers again. And I think that's what people are going to listen to just as well as just to see that there's some new growth coming through in their traditional models.

Has anybody modeled what the growth of those cheaper cars could mean for the stock in terms of upside? I think it's, you know, if you look at the stock now, it's trading at, you know, it's up, I think at its highs was around $400 and it's now down around $218.

I think what you could see is that and the stock, again, has been very range bound for really the past a little over a year. And I think that's what's going to be finally the thing to drive the stock higher again is going to be the reveal of that cheaper vehicle and more.

And if it does look like it could be that next driver of growth, you could easily see the stock make a run for that $400 again, which would almost be a double. But I think we still have to see that that car is going to exist and that it won't be a Cybertruck. No, good point.

All right. Let's talk about Boeing. The company reports on Wednesday and Greg Yip, who's one of my favorite writers in the Wall Street Journal, has called the problems at Boeing and at Intel, for that matter, a national emergency. There's certainly been an emergency for shareholders. The stock is down about 41 percent this year and it's down a lot more than that since it peaked in 2019.

So what are we going to learn about Boeing's progress or lack thereof in addressing its various missteps from the company reports this week? I mean, I just... Has an earnings report ever mattered less for a company than this one? I mean, what...

What needs to happen is pretty obvious at this point. They have to resolve the strike. That's the first thing. Then they're going to have to sell more stock because they keep not being able to ship out planes. And when you can't ship out the planes, you're not getting paid and their debt keeps growing. The third thing that happens is that once the workers are back in there and they...

Boeing really has to double down on quality and culture. You know, Al and I have talked about this, Al Root, who covers Boeing and GE and Tesla and all kinds of other stuff for Barron's, have been talking about just how, you know, both GE and Boeing, you know, GE had a massive culture problem, but that it exhibited itself in the finances. It was really a financial problem.

Boeing doesn't have a financial problem despite this big debt. It's going to sell stock, but it's not going to have an issue just staying solvent. The big issue for them is they got to get back to making good stuff.

GE never really had that issue. And so that's going to be the key for them. Can they make, can they get back to making a lot of planes and can they do it in a way so that the doors, you know, the door doesn't blow off in midair? Because even though that happened only once, it scares people and it keeps the FAA on top of it. So the new CEO is going to have a lot of work cut out for him. And I think that's what people are listening for is just

what is Boeing going to do to fix all these problems that it has? This is going to be studied for years, if not decades. It is amazing what happened to this company. Right. Very sad and very disturbing. All right. Let's have a look at Verizon. The stock is up only 17% this year, which still is not bad. Pays a big dividend and a company reports on Tuesday. What will we learn? There's

There's actually been a lot of optimism around Verizon as well as AT&T. Both these stocks have had a tough time, especially relative to T-Mobile. T-Mobile didn't really have any of this legacy stuff that...

AT&T and Verizon do. But some of that legacy stuff is now people are talking about in a more positive way. And there's talk that perhaps, and there's an article from Barron's Adam Clark that looked at the possibility that Verizon and AT&T could play some catch up with T-Mobile. Finally, T-Mobile's moment is

has kind of passed. I think what everyone just wants to see is that the wireless business is doing okay. They're gonna wanna see that the iPhone is actually driving some new customers.

and that that's going to help them drive earnings. And, you know, they the stock is still relatively cheap. It does have that dividend that it does keep getting raised a little bit. And the the excitement, I guess, behind that, not really excitement. But if you look at like Raymond James, I actually think there's possibility of of multiple expansion there. This is another one of those stocks that is just not expensive. It trades right now at nine point three times.

And that if the business turns around, if you start to see the pickup because of the iPhone, if the landline business, or sorry, it's not even landlines anymore, but it's like the internet and the fiber business does well, that would be great news for them. So I think that's what everyone will be watching for.

I know it's a popular stock with our readers for sure. Yes, because of that dividend. I wanted to talk for a moment about a company that really has not been doing well, and that's UPS. The company reports on Thursday the stock is down this year and an analyst actually moved it to underweight.

which you don't see very often. Tell us what's ailing UPS and any possible way out of these problems. Well, the NLs who downgraded it was over at Barclays. And, you know, what they worry about is, remember, there was a strike at UPS. They raised wages quite a bit. And, you know, the fact that they are unionized makes them a little less competitive, perhaps, on wages than FedEx.

which has a different business model. FedEx doesn't have a great time either though. They had a release a few weeks back that wasn't all that good and that weighs on UPS as well. But part of it is just the, I think still working out the hangover of like the pandemic where everybody shopped like crazy. And then it's also dealing with the competition coming from places like Amazon and from FedEx that they're struggling with.

it's one of those where it's hard to see a catalyst um there's one analyst i was reading today who was saying that uh you know they they're hoping the stock can actually get back above the 200 day if that happens that would be great news the 200-day moving average is around 141 right now while the stock trades at around 131 um and also that if there's bad news that it can hold its lows from before which you know around 125-ish

And if they can keep holding these lows, then maybe it builds a base that it can rally out of. One thing it does have going for it, or a couple of things actually, is that it is cheap, cheapish. It's about 15 and a half times earnings. It was actually up around 18 as recently as March. And so there's room for multiple expansion if the company can show that some of these problems that it's had are behind it.

It's an interesting situation for sure. So, Tom, I wanted to go back and ask you about the bond market, and then we'll go to some listener questions. You mentioned that the yield on the 10-year is up today. How are you thinking about bonds as an investor and as an analyst?

So I'm bullish on long-term bonds. And again, this goes back to that sort of core belief that, and it's my experience certainly painting it, having gone through the slowdowns of 2000 and 2007. I'm not saying it's the same thing, but I think that longer-term bonds are attractive here. I think that we went through a sort of bond bear market coming out of the pandemic and now it's over. And that yields are going to generally sort of trend lower over the longer term.

I think that there's one of the things we're going to see a lot at the end of this year, regardless of who wins the election, we're going to see a lot at the end of this year. And then next year is discussion about the sort of fiscal state of the United States and whether or not our ballooning debt and deficits are going to create some sort of substantial selling of treasuries as people begin to worry about

about sort of the fiscal health of the United States. And I think that obviously the fiscal trajectory of the United States is not sustainable and regardless of who wins the election or who is in control, that must be addressed at some point.

However, I don't think that it's as big of a risk to the bond market as your readers may read in the coming months. And here's why. And there's a little bit of a unique view on this. And sometimes I get some feedback on it, but hear me out. So, you know, the world does not, global markets don't exist in absolutes. They exist in the relative. And what I mean by that is capital has to go somewhere.

And if you think about the global ocean of money running around, much of that money needs liquid, safe investments that pay a decent return and that also have the strong rule of law to know what the rules are in that investment.

And if you think of the world of capital in that term, there is nowhere that rivals the United States Treasury market. And it's not even close. It's the largest, most liquid bond market in the world.

the United States has the strongest rule of law for investors of any of the major economies. And if you combine that with the fact that none of the rivals in that rule of law standpoint, so think about your EU countries,

UK, their bond markets are a fraction of the size of the United States. So I think that that reality, that capital must go somewhere and there is no real rival to the US attractiveness still at this point,

that I think that worries about the bond market in the short term are overdone. Now, in the long term, please don't interpret me as saying, oh, you know, the deficits and the debt don't matter. At some point they will, of course, but I think at some point may be further down the road than some of the naysayers may believe. We've certainly focused on it at Barron's and you are right, it has not mattered yet.

So interesting analysis. All right, let's go to some listener questions. I'm going to start with Sarah today, who notes that there had been a number of reports recently that state that the return prospects for U.S. stocks in the next 10 years are low at about 3% given stocks' current valuations. Tom, what's your take on that?

I wouldn't put much stock in it, Sarah. And here's why. Right. We can't use the past. The past does not sort of accurately predict the future. Stocks at the end of the day are a function of earnings. Right. And then some sort of growth multiple assigned to that. And I don't see anything that's happened in the last decade.

a couple years that would make me think that structurally earnings are not going to grow as much as they have historically which is you know depending on which one you use somewhere in the high single digits

or that the market will trade structurally at a lower multiple than we're used to. So I think that it's fair to say the market may have front run some gains being up 24%. But if you look over a 10-year period, really when you begin to worry about the sort of longer term return of stocks, you have to have a credible case that either earnings are not going to grow or that the market multiple is going to be lower than it otherwise should be.

Those things can happen in a recession, certainly, and we've seen that in the 2000s. But I don't see any evidence right now that tells me that that's coming down the pike. So I wouldn't be too worried about that. I think a base case for everybody should be that stocks, you know, they're not going to put up 24% a year like the S&P 500 is right now or 23%. But your historical averages, I think, are still reasonable. All right. We have a question from

Wayne, who wants to know about your thoughts about foreign stock markets. We haven't talked about the international markets yet. We haven't. Great question, Wayne. So I think that foreign stocks are attractive. I think if you find yourself being okay with more volatility, I think what's happening in China is really something investors should take a look at. The stimulus measures they've announced over the past couple of weeks, really since about mid to late September,

are extreme. Now, it's important that when you look at these that you separate the Chinese economy, which still has some significant structural problems that they're going to have to deal with and that they're only sort of starting to address, and then the value of Chinese stocks.

essentially and I'm going to keep it a little bit simple but essentially what the PBOC did was they said okay um large banks uh we're you can lend money from us to buy Chinese stocks could you imagine if the Federal Reserve went to you know somewhere like JP Morgan it was like hey you can give us U.S treasury treasuries we'll give you money as long as you put it in the stock market

That is literally what they've done with some of these swap lines. And the point of me using that example is this. The PBOC, the People's Bank of China, wants the stock market to go up there. President Xi wants the stock market to go up there because they want to create a wealth effect for the Chinese populace that hopefully will restart the economy. Whether or not that works, I don't know.

But what I do know is when a global central bank wants their domestic stock market to go up, they usually accomplish that goal. So I think that China is definitely worth taking a look at. FXI, which is the largest Chinese ETF, is probably one of the easiest ways where everybody has to do, of course, their own research.

And then I also think that Europe is attractive from a diversification standpoint. One of the things that's happened with such extreme U.S. outperformance over the past couple of years is that many investors have become overweight U.S. unless you've been actively rebalancing. Take a look at your portfolios. See if you hardly have any foreign exposure. Foreign markets outperformed the U.S. last quarter. It can happen again, especially if we get into some sort of a budget battle next year politically.

That was a good question and a good answer. We had a question from Michael about the outlook for precious metals. Is that something you take a look at too? Absolutely. So I said, when I created Seven's Report, I wanted a one-stop shop that talked about equities and commodities, currencies, bonds, and sort of told the story of how they're all interacting with each other. And certainly it's been a good year for precious metals

And I really don't see any reason that it can't continue. What makes gold go higher? It's a sustainably higher inflation. It's easing financial conditions. It's geopolitical uncertainty.

We still have all those factors. So while gold will be extremely volatile and silver trades with the gold, it just does it in a more volatile manner. I think that the trend in gold can continue higher. And I think that that is an attractive place for people to invest capital, as long as you have to know it's a wild ride with the precious metals, even if you're doing a GLD trade.

or a GDX, which is the miners, which essentially follows gold, but only in a more volatile nature. Just be ready for some volatility and be okay with it. It's been quite a ride this year, that's for sure. So Ben, I just wanted to close by asking you, we had a question from James about a possible merger of Humana and Cigna. It was in the news this morning. It's been rumored before. Any thoughts about that?

You know, the analysts think it makes sense. The market, of course, doesn't seem to like it. And actually, what's interesting is that Humana was up earlier on the news and is now down.

And so I think, you know, right now it's not being taken all that seriously. But maybe it is by saying that this space is such a mess at this point that, you know, I think in some ways you almost have to wait to see, you know,

how it's going to play out by the space, I mean the Medicare and Medicaid space. You know that it's so difficult and Humana in particular has gotten hurt by it. But last week, all these stocks that are in similar businesses were hit as well. This is a tough area to invest in right now. Signal is one of the last to be holding up, but it looks like it might actually be breaking down a little bit.

So it'll be interesting to keep an eye on. But I'm sure that Humana investors would love to see a takeout because the stock has gotten beat up so much. But right now, the market is not looking very optimistic about it. There are also regulatory issues and concerns with an incoming administration. A lot of questions. We talked about the possibility of a Humana Cigna deal in the healthcare roundtable that ran a couple of weeks ago. So I encourage everyone

listeners to go back and take a look at that. But again, what Ben said all makes sense to me, Ben. Anyway, we are out of time today, regrettably. I want to thank you, Tom, and thank you, Ben, for a great call. And I wish we had time to continue. Thanks for joining me on Barron's Live. Thank you. And next week on Barron's Live, Ben and I will be talking with Dean Mackey,

And he is the chief economist at Point72, the investment firm run by Steve Cohen. The Fed meets in November. It will actually issue its next rate decision just two days after the election. Dean will fill us in on what he's expecting and a whole lot more. I want to thank our listeners for joining us today, and I hope you'll be back for next week's call as well. Stay well, everyone, and have a good week. This episode is brought to you by OutSystems.

the AI-powered application generation platform for enterprises. Unlike simple Gen AI code suggestors, OutSystems lets you generate modern, governable enterprise apps in minutes, then automates the whole DevSecOps lifecycle. From a prompt. The generative software cycle is here. Learn more at OutSystems.com.