0:05 spk_0
Welcome to Stocks in Translation, Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jerry Blicky, your host, and with me is Yahoo Finance senior reporter, Brooke De Palma, who’s here to connect the dots and to be that bridge between Wall Street and Main Street.Today, we’re gonna be talking about the AI trade as we look ahead to 2026, which leads us to our word of the day, productivity. It is the holy grail for central bankers that lets you juice growth without runaway inflation. And it’s all thanks to our little chatbot friends. And chip maker Micron has been ripping. On today’s market show and tell, we’re gonna translate the ride using one word that explains why it can feel like a roller coaster, beta.And this episode is brought to you by the number $309.22. That is the estimate for next year’s S&P 500 earnings per share, which would be a record. We’re gonna tell you why rising corporate profits have helped justify soaring stock prices. And today, we are welcoming Hardika Singh. Before she joined the market intelligence team at Tom Lee’s Funstrat, she covered financial markets as a reporter at The Wall Street Journal. And nowadays, she’s producing macro and stock market research for.Fun strets, client notes, and also their strategy work. So, uh, Hardika, it’s great to see you here. Before we dig in, any surprises from 2025?
1:30 spk_1
I’ll take the easy one, tariffs and Liberation Day. I was actually off at that time. I was on my way to Cancun. It’s your fault, places, yeah, and I was, my husband and I, we took this trip and we were like, we’re not gonna look at our phones. We’re just gonna be completely detached. Second I land, I’m seeing all these headlines and I’mLoki having a panic attack of sorts. I’m like, oh my gosh, what’s gonna happen to the stock market?And then what was funnier was that Tom Lee, who, you know, is typically has a more bullish outlook because he’s so long term, he was still bullish on the stock market, um, and he said that, you know, stocks fell so much so fast, so I think that they could recover, and at the time I didn’t really see it, to be honest, but later on he ended up being right.
2:15 spk_0
for Tom Lee and the Bulls. Yeah,
2:17 spk_2
seriously, what a year it’s been though, but I do want to get to our word of the day.And that word of the day is productivity. Now it’s pretty simple. Think of it as a ratio output over input. It’s how much we produce in goods and services, the output over the amount of hours worked, the input. The more we increase output relative to input, well, productivity increases, and central bankers just love this. And here’s why. It means the economy is growing without inflationary pressure is getting too.High, and that’s because we’re all able to do more work throughout the day, thanks to our AI pals. That’s the big picture here. Deka, what are some specifics that Fed Chair Jerome Powell is looking at when it comes to this productivity gains?
2:59 spk_1
So the most important thing and the biggest takeaway for me at the last Fed meeting was that for the first time ever, Chair Powell said that people who use AI are likely more.Productive. At the September meeting, what he said was, yeah, it’s probably making people more productive, but it wasn’t a, you know, clear cut answer. But now we’re hearing that even he, as a central bank chair, is noticing the transformational power of AI, and the biggest example of that comes in through the dot plot. So if we look at the dot plot that was released at the last meeting, we see that they actually upped.Expectations for where GDP is going to go next year, it’s at 2.3% for 2026, and in September meeting, the expectation was 1.8%. So it’s a huge jump, right? It’s a huge jump. And what’s even more surprising about this jump is that they lowered their inflation expectations. So next year they expect inflation to be at 2.4% something compared to 2.6% of the September meeting, and theOnly way, or like one of the biggest populist theories that these dynamic forces can exist together, is that productivity is improving, which is so crazy to think about, because GDP is just basically consumer spending, and if people are spending more, it can push up the demand for prices, it push up the demand, and it can lead to higher prices, but at the same time, the Fed doesn’t really see that happening, so it means that they’re probably gonna expect AI to lead to higher productivity.
4:28 spk_0
You know, I’m gonna rewind here a little bit, and this is way before both of your time. But in the late 90s, we saw something very similar evolve to Alan Greenspan. He was the chair of the Fed, uh, the market whisperer, you couldn’t understand anything he was saying, but he did say that productivity was increasing. In fact, it was. And so, uh, just back to my original statement, or Brooke, as you were breaking it down, the chance for inflation, although it still exists, is a lot lower. And that’s why the central bankers.Love this. So, you know, I know that Chair Powell, he wasn’t all in on productivity just yet. He was kind of hedging his bets. But, you know, if this continues, what, how does this play out in 2026?
5:06 spk_1
I think, well, first of all, product productivity itself is really hard to measure other than this formula. There’s all these intellectual arguments about what’s the best way to measure it and whether AI is actually showing up in these numbers, and it’sStill unclear, even though he did give a really clear signal, and I think for next year, what remains key is for companies to actually start demonstrating it. What we have seen in earnings calls and plans outlined for next year is that companies aren’t really looking to hire more people, they’re looking to do more with less. They’re looking to be more lean, more efficient. So I think for 2026, the companies that can tout the biggest revenue per employee number will be the biggest.outperformers. I think that’s the story, and sure, it’s easier as a tech company to have higher revenue per employee, but then you think about all these industries where you do need more people to do the manual labor, and for them it will be a little harder. So how do they come in, use AI to their benefit, and improve their revenue per employee stats?
6:05 spk_2
And I thinkthe one thing that really isn’t clear with Fed Chair Jerome Powell is the impact that AI directly has on the labor market. He referenced.His other companies, like, you know, he, we’re maybe not word for word, but Walmart sort of saying that this is going to have an impact on jobs. So when you think about what Fed Chair Jerome Powell, the sort of the indifference that he has on what exactly this impact will be, and then the statements that we’re getting from these companies, what’s your team’s outlook on the impact that AI will have on the labor market next year?
6:33 spk_1
The hope is what the market wants to see is productivity increase and the labor market to continue to.You know, improve, of course, but lead to jobs that are in sectors other than healthcare and social assistance. This job market this year, there’s been really not all that much to be excited about. Sure, we haven’t, you know, just tanked completely, but we’re surviving. We’re not thriving in this job market. So I think the health and social assistance sectors, they can continue to do whatever it is they’re doing so far, but we still need to see other industries.Participate in a meaningful manner like construction, manufacturing, uh, these are the typical sectors that, you know, drive economic growth, at least, um, like conventionally, you know, they’re supposed to, so we need to see that for next year, I think the biggest thing is whether these companies can continue to grow in a sustainable manner without needing more employees or without, um, and if they do shed more employees.Can they still continue to grow their profit? We have seen Walmart and Amazon do a really good job at that Nvidia too, um, but others not so much. So I think, I think that’s the trend that’s gonna define nextyear.
7:44 spk_0
Excellent. And you know, as hard as it as it is to measure productivity, I have no doubt that AI is gonna help us do that a little bit better. It’s time now for market show and tell, where we are drilling into the concept of beta, and we’re gonna use memory chip maker Micron as an example.Which the share price of which has more than tripled this year, so huge run for Micron. And if you’re on the Yahoo Finance app or website and click into the statistics page of Micron, you’re gonna find a stat called beta, and a number that’s about 1.55. So this means that the stock has tended to swing about 55% more than the broader market, and we measured that over 5 years with monthly data. So it’s not a surprise that Micron stock has moved much more than the S&P 500 this year.But bigger swings also mean bigger risks, and the gains, while they seem quick, the pullbacks can come fast and hard. So I know you’re looking at Micron from a fundamental point of view and just, uh, make the case, uh, why has the stock moved so much and then what do we expect for nextyear?
8:43 spk_1
So Micron’s business is basically making, uh, memory chips,
8:47 spk_0
RAM,
8:48 spk_1
yeah, DRAM. That’s right. Uh, so we did have to look it up earlier in the year, but it was an interesting stock, um.But what they specialize in and why they’re benefiting so much in AI is basically because they stack those DRAMs to make high bandwidth memory, which is super useful for AI data centers, and as we all know, data centers, we just can’t get enough of them at this moment. Uh, we need more and more, and Micron really fills this niche market gap where they can supply that HBM and there’s the strangest part about all this.This is that there’s not that many companies that are making these DRAMs or HPMs. There’s SK Hex, there’s Samsung, but they’re South Korean, so they’re very, you can’t really directly invest in them. You have to buy ADRs, but Micron is really like one of the big players, and that’s why they’ve benefited so much this year because they help fill thatniche market,
9:41 spk_0
and it’s driving up prices of consumer gadgets too, because we need D-RAM in a lot of our devices. Yes,
9:47 spk_1
so my husband, who’s a game.He’s been complaining that ram prices are through the roof now because Micron actually in early December made the announcement that they’re no longer going to make it for consumer segment, because the demand for AI is just so high right now, they, they can’t fill it up. So through 2026, they’re actually completely booked out, they said, for the most part, which is just crazy to think about, um, but yeah, Micron is ripping higher because of that, and I am not.Necessarily a fan of this move, I will say, because if you pin it against the prices for, you know, memory chips, you can see the move exactly relates to that. So it leaves the leaves the company’s share price very vulnerable, very exposed, unraveling in particular, yes, yes, and as we saw back in um early pandemic, when you make too much of these things, then you’re just stuck with all this inventory.Great. Yeah,
10:43 spk_2
and then you think we’ll have a backlog of inventory, even though the CEO has said explicitly on the call that there’s just so muchdemand.
10:49 spk_1
Yeah, I don’t think we’ll have it this time. I do think this move can last for a little bit longer, but I do think that it’s, it’s very vulnerable to becoming unraveled if we do develop new technology or another player comes in and says, hey, actually I can help supply this, so the prices come down, and then Micron share price is probably also gonna come down with it. So it’s, it’sIt’s not a sustainable move in my opinion, but that doesn’t mean that it can’t keep happening for a little bit longer. Uh, isn’t the saying that like markets can remain irrational longer
11:18 spk_0
than you and I can remain solvent, and that’s kind of what happens sometimes again, dot com. All right
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guys, we do need to take a quick short break, but coming up we’re talking about what will likely be record profits in the US and a runway showdown between the two Kevins in their battle to become Fed chief. As always, it all comes down to the accessories. Stay tuned.This episode is brought to you by the number $309.22. That’s the estimate from Facts that for the next year’s S&P 500 earnings per share, and it would easily be the highest on record. And this matters because a lot of people are getting nervous as some valuation gauges are putting the market around the expensive levels we saw during the dotcom era.And if earnings are hitting records, maybe record stock prices are, well, justified, or so the thinking goes. So Edika, tell us how you’re seeing these companies’ earnings versus the stock price right now. Is it justified?
12:18 spk_1
100%, uh, and they can easily go even higher. I think it’s at least for next year, that’s what our view is, um.I would say that with valuations, a lot of people are really worried about, you know, them being too high, close to perilous levels from the dot com bubble, but I just don’t think that’s an argument that’s solid and grounded in reality to not own stocks for next year. So we commonly hear people talk about forward, uh, price to sales ratio, forward price to earnings, capsular
12:48 spk_0
ratio are just multiple ways toActually multiple. So I mean that’s what it comes down to. So we’re trying to gauge the expensiveness or cheapness of the market. Happens to be expensive right now, but it can stay that way for a longtime.
13:00 spk_1
Yeah, yeah, exactly. So price to earnings ratio on a forward basis for the S&P 500, it’s at 2050. So if they’re at $2050 right now, what that basically means is that you’re paying $2050 to buy one unit of earnings, and the reason.Why people don’t like them getting to higher levels is because that means you’re paying more to get the same stock, and everybody likes to get a good deal, right? So we’re, we’re uncomfortable, notably because of that. I don’t think that’s a good argument though, because of two data points. Number one, we actually did an analysis going back to 2015, where we looked at the most expensive stocks, and out of 10 of the top 10 mostThe 10 of the top most expensive stocks, 7 of them outperformed the S&P 500 over the next 5 years. So it’s not
13:49 spk_0
necessary isn’t always bad. Yeah,
13:51 spk_1
exactly. Price is what you pay, value is what you get, uh,
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Warren Buffett
13:56 spk_1
said that, yeah, exactly. So it’s, it’s not really a good argument. And then second point, if you hadPaid attention to valuations, then you would have completely missed out, yeah, on the past 3 years long bull run, and as we’re seeing this year might end up being another 20% gain.
14:14 spk_0
So, yeah, let’s, let’s focus in on that because I remember a year ago I was sitting here, we were talking to a bunch of people, and they were all saying, well, you know, when you have two back to back years of 20%.Gains, well, then the third year you tend not to do as well. But here we are. I think we’re, we’re gonna be up 16, 17%. Full disclosure, we got two more days trading days in the year and you know, maybe we hit that 20% mark, but we’re getting closer. So it’s unusual, maybe, and I don’t think it’s happened since the late 90s, but uh what are your thoughts on
14:43 spk_2
this on 1/4 annual year of gains?
14:45 spk_0
Yeah, a big gain, double digit,
14:47 spk_1
really extraordinary, right? Uh, but it’s actually not that extraordinary. We found out.Out. So since 1928, there’s been 12 instances where across global equity markets, they’ve notched 3 years of 20% plus gains, and out of that, 5 times, there’s been 1/4 year of gains. So S&P 5002 could have that. Of course, history is not meant to be a guide, uh, history is not meant to like dictate our future performance, it can help guide us in the direction of where stocks could go, and how I’m really looking at.This is as not completely discounting what could happen in the 4th year, you know, fundamentals look great, going back to earnings, next year, analysts expect that we’re gonna have a record number of earnings, and they always overestimate it by a little. That’s, that’s one of their reputations. Uh, but even if we cut it by what they typically overestimated by, it’s still gonna be a record year of earnings. It’s very, very good to see stocks rise when earnings are growing.Too, because it supports that rise. So I think, I think it can still be another good year, and in the past three years, I think the median gain across those global equity indexes was 170%, and the S&P is only at 75 something. So there’s, there’s room to grow. Maybe we’ll have like another 75% gain next year, but, you know, I, I’m, I’m joking.
16:13 spk_2
I will say too, we’re hearing from so many different, uh, you know, firms, Goldman Sachs, well.Wells Fargo, even Edgar Denny, uh, you know, a well-known, uh, uh, on this, a well-known, uh, person on the on the street, yeah, very bullish calls about what 2026 could look like. And so it really supports what you’re saying. Edgar Denny calling out for 7700 by the end of 2026. That’ll probably about a 20, 10% gain there. So definitely lots of bullishness that supports what you’re saying too. Yeah,
16:38 spk_0
youknow, it’s funny when the people say, well, over the last 80 years, the S&P 500 has averaged 8 to 10%, butIt’s almost never 8 to 10%. It’s usually a lot higher or a lot lower. And so when you hear all these uh statistics, especially averages, medians, take it with a grain of salt. The, I think the bottom line is that we have a bullish potential for next year and expectations are probably reasonable, as I think, um, uh, we’ve been discussing here. So, let’s talk, let’s keep it on the markets. What, how, what are you thinking about the markets that we haven’t hit on so far?
17:10 spk_1
The biggest thing I would say is um,Gold.
17:15 spk_0
Oh, gold, metals. Let’s talk about it.
17:17 spk_1
Yeah, silver,
17:18 spk_0
copper, 65, 70%. Silver’s up 170%.
17:22 spk_1
It wasnot on my bingo card for this year at all that gold was gonna have such a skyrocketing year and silver too. Where did, where did silver come out of, by
17:30 spk_0
the way? Like, well, I mean, it’s the AI trade, so there’s, it’s an industrial metal, but I think you’re right in that you have to have a perfect storm of not only industrial use, but also speculation, and we saw that, I think when you see gold kind of captured.The imaginations of people. People buy the ETFs. They buy the coins, and it’s all this virtuous cycle, and the miners and the, the biggest purchasers of gold are the central banks, but that’s kind of the steady backdrop, and I think it’s the retail buyers that just are the marginals. But, um, does Funstrat have any big expectations for gold or Bitcoin next year because Bitcoin hasn’t done as well.
18:06 spk_1
Yeah, uh, I wish I could talk about Bitcoin, but that’s,
18:08 spk_0
that’s for Tom. Yeah,
18:10 spk_1
that’s for Tom. But gold, it’s just been, it feels.So weird to see gold do as well as it has, while at the same time you’re seeing tech stocks just going higher and higher in the AI trade. Maybe it’s part of this defensive play that people are worried if AI trade falters, at least I’ll still have my gold holdings and whatnot. But at the same time, it’s like, who are these people that are buying all this gold, and it’s unclear, it’s central banks, sure, but what’s happening right now for central banks to continue to amp up their activity that, cause I think they started increasing their purchases.23,
18:44 spk_0
I mean, so China, China and, um, other country Russia have been de-dollarizing since 2015, but you’re right, over the last three years it’s been like 1000 plus tons per year, tons. I mean that’s a huge number. So
18:56 spk_1
what arethey saying that we are?
18:58 spk_0
Well, I think they’re looking at all the conflict around the world and saying, well, we don’t know what’s gonna happen. Maybe we’ll just double down on gold.
19:04 spk_2
And Ithink also too that the extraordinary run that silver and metal, these other fresh smells have also seen. I read this crazy stat today, guys, that copper, I mean, obviously seeing.Lower supply, then leading to more demand, increasing prices there. But you think about it with solely data centers as many on the street are focusing on. But think about how much copper is in the everyday Americans’ home, and this stat that I’ve read is the average single family house uses 439 pounds of copper in your wires, in your appliances. And so I mean, what are the implications there? How much is it gonna cost us to redo our house, guys? I’m nervous about that
19:36 spk_0
one could become the new reserve currency here. We do have to get, uh, to our final segment of the day. It’s a market.Its take on a classic Hollywood gab show staple, who wore it better. And today it’s all about the battle to become the next Fed chair. It’s Kevin versus Kevin. That is Kevin Warsh versus Kevin Hassett. On the left runway, saunters Kevin Warsh in pure Wall Street tailoring, clean lines, sharp shoulders, and a little balance sheet trimming energy, because he’s a former Fed governor with an M&A background, and in the past, he has been a vocal critic of quantitative easing and also the bloated Fed balance sheet.Then on the right, in walks Kevin Hassett, an economist who’s not too shy to bring his own spreadsheet, decked out in tweed, a growth lapel pin, and also a pocket calculator, a trained economist who’s been a big voice on productivity and an architect of the 2017 tax cuts. So Hardika, the question for you is, who do you think eventually wears that Fed share this May when Jay Powell gives up the top spot at the Fed?
20:38 spk_1
So I’m gonna have to.
20:39 spk_0
Don’t say Kevin. Don’t say
20:41 spk_2
Kevin. Don’t say Kevin,
20:43 spk_1
Kevin, which Kevin, OK, um, so I think the market’s probably gonna like Hassett more. I do think Borsch also has, could also be a good fit. So that’s my, that’s my cop out answer. But Hassett, I think the market would like him because he isn’t looking to redevelop or revamp what the Fed does and what the Fed’s activities are, whereas Borsch, as you said, is so.About QE and going away from QE, which obviously could have huge implications for Wall Street. Um, I do think that Walsh does have a point when he says the Fed’s balance sheet has become bloated. They’re becoming bigger and bigger. Whenever they stepped in to, you know, calm the markets after a financial crisis, they kind of never stepped away, even though the financial crisis a
21:27 spk_0
big way, not a big ratchet up, not so much ratchet down. Yeah,
21:30 spk_1
so it, it’s a valid point, but I, I do think Hassett would be a better fit for.Wall Street, I,
21:35 spk_2
I think also too what’s interesting is that both of these gentlemen have said that they plan to maintain the Fed’s independence. What’s your take on both these gentlemen and, and the ability for them both to do that?
21:47 spk_1
This is going to sound funny, but I think at the end of the day they’re both Kevin, so whichever one goes in, it’s OK, because Trump has made it clear, you know, the president has laid out the Trump rule saying that if they disagree with him on where interest rates are supposed to go, they will never be the Fed chair.If that’s the outline, then whoever does come in will likely be dovish, and market’s gonna understand that. So I think the risk that comes then is what happens to long term rates, because while the Fed has control over the short term rates, the long term rates not so much. So the Fed’s probably gonna need to step in if long term rates go up even more and start doing more QE, which then puts them in this cycle, or
22:25 spk_0
Operation Twist, which is kind of crazy again.
22:27 spk_1
Yeah, that would be crazy too, but you know, long term rates.That’s where most of us feel the impact of higher, higher interest rates, you know, they affect mortgages, they affect your student loans and whatnot. So I think, I think it’s a tough spot, but I, I do think that at the end of the day, whichever one comes in, it’s likely going to be a dovish Fed chair.
22:45 spk_0
Yeah, and you know, I think you rewind the clock, there’s always a little bit of hesitancy when we get a new Fed share. Sometimes the market stumbles a little bit, but in the end, uh, you know, I got to think that most of the Fed shares throughout.History have leaned a little bit dobbish, so that’s my take on things. Well, we, it’s been an absolute pleasure hosting you here, Hardika at uh Stocks and Translation, and just to review some of the things we were learning earlier, productivity, the holy grail for central bankers, you can get that economic growth without the inflationary pressures, but that’s all on the backs of workers who are doing more, and hopefully those workers have a good chatchi PT or Cloud account that they can base that on.Um, and then, you know, we’re also talking about the earnings for the season. We’re gonna have in a couple of weeks, we’re gonna get JP Morgan and the big bank earnings. We’re gonna see exactly how that shakes out. But there are big expectations for 2026 like there is every year. And I think we start off.A little, uh, wobbly, but in the end, we usually kind of find our footing. So, we have officially wound things down here at Stocks in Translation, but make sure to check out all our other episodes of our video podcast on the Yahoo Finance site and mobile app. We will see you next time on Stocks in Translation.