Chiavarone: Reacceleration is the word of the day

Key Concepts:

• Earnings Season Beat Rates
• Full Year Estimates (Current and Next Year)
• Economic Slowdown (Past vs. Present)
• Re-acceleration
• Early Cyclical Market Behavior
• Interest Rate Sensitive Names
• Small Caps

Earnings Season Performance:

• Federated Hermes' expectations for the earnings season have been met.
• The market is being surprised to the upside by the earnings results.
• Beat rates are broad and significant, with companies beating expectations by approximately 8%.
• Full-year estimates for both the current year and the next year are rising, which is unusual for this time of year. This supports the idea that the economy is recovering from a soft patch.

Economic Data and Slowdown Concerns:

• Chevron argues against the concern that recent economic data indicates an impending slowdown.
• He believes the slowdown already occurred, particularly around "Liberation Day," causing the economy to essentially halt for a month or two.
• Recent jobs numbers, even after revisions, are considered "old news" reflecting a past situation.
• The current trend indicates an "acceleration" out of the slowdown.
• The speaker cites the increase in jobs numbers from 14,000-19,000 in prior months to 73,000 this month as evidence.
• ADP data, earnings reports, and consumer confidence also support the pattern of re-acceleration.

Re-acceleration and Market Behavior:

• The "word of the day" is "re-acceleration," reflecting the view that the economy is emerging from a soft patch.
• The equity market is behaving in an "early cyclical way."
• Examples of early cyclical behavior include the movement of home builders, auto names, and interest rate-sensitive names.
• Small caps, which are an overweight position for Federated Hermes, have kept pace since the April bottom.

Conclusion:

Chevron from Federated Hermes believes that the economy is re-accelerating after a soft patch. This is supported by earnings data, jobs numbers, and consumer confidence. The equity market is reflecting this re-acceleration through the performance of early cyclical sectors and small-cap stocks. He suggests that the market is acting in an early cyclical way.