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for Wednesday, July 1st. It's BrewMarkets Daily and I'm Ann Berry. Once to come, Confetti settles the ticker, hits the exchange and the news cycle moves on. What actually happens after an IPO and specifically what happens to those IPO day investors? Well, in May, I welcomed Mona Mahajan to the show. She's a principal at Hedward Jones and leads their investment strategy team. With over $2 trillion in assets under the firm's care. Mona has a unique vantage point on what happens when investors buy in on IPO day and how those stocks tend to perform over time rather than relative to the broader market. She also shares her insights into how political cycles move markets. Very timely as we ramp up to this year's midterm elections. So let's listen back to my conversation with Mona Mahajan, head of investment strategy at Edward Jones. I'm Archmanning.
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I'm Madison Skinner.
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A
I'm Eva Jovic.
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C
I'm Decoria Moore.
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Think you have what it takes? Talk to us, Mona, please, because you've got a massive amount of capital. Give us the size of capital that you are effectively touching.
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C
Yeah, absolutely. Look, Edward Jones, $2.5 trillion in assets under care, as we like to call it. 9 million clients and 20,000 plus financial advisors across North America. And we have a client in every county in America now. So it's fantastic.
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That is fantastic coverage and what a vantage point from which to see not only how the markets are moving, but where people are deploying their capital in response to that. So talk to us about earnings season. Yeah, right. We're in the thick of it. 90% plus of the S&P 500 is now reported. What's your perspective on the trends we're seeing?
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Yeah, earnings season Q1 has been, in two words, absolutely phenomenal. So we started out the the quarter thinking 13% year on year growth. We're looking at 27% annual growth rate for Q1 earnings for the full year. We're also looking at 20% plus now. So really when you ask the question or when you think about why are stocks moving in a straight line higher even with some of the uncertainty, the oil prices, it really is being underpinned by some of these earning trends. And I will say briefly, what we're seeing is the strength in earnings is coming from two areas. The upside surprises are tech and communication services and, and on the other hand energy and materials because of those higher oil prices. So it's really been an AI story on one hand and a nice move in energy on the other.
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B
So let's break that down. Let's start with the tech and communication services. Has it been an AI story in terms of return on investment and productivity uplift or. And the answer can be yes to both.
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C
Yeah, yeah.
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Has it been headcount reduction?
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C
Interesting. So probably not so much headcount reduction yet. Even though we are starting to see some headlines around that. You can look at survey data, companies that are laying off are only pointing to AI 5 to 8% of the amount of time for layoffs, reasons for layoffs. Now on the other hand, it has been an infrastructure driven story. We know data centers are being built out, we know semiconductors are in very high demand and that's really been one of the key subsectors driving the story and driving the earnings growth higher. We're seeing it reflected in stock prices as well. So not as much even a software AI story, very much a hardware tech infrastructure build out story on the AI
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side and in that piece of it, the infrastructure and the hardware, is it margin expansion through cost containment or is it price driving revenue growth and this is operating leverage?
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Yes, I would say the latter. This is a revenue growth story and we're getting a lot of leverage and these companies are able to use their capacity to really build out and then
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let's wear energy and materials talk to us about what's going on over there.
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C
Yeah, absolutely. Look, you know I think there is a probably near term move higher in some of the earnings growth stories of these energy materials company because they're benefiting from oil back at over $100. Now the interesting part of this story is if you look at the futures curve where markets see oil prices going, it's actually looking at lower, a somewhat mean reversion. So oil back at 80 or below by year end. So markets are really pricing in some, some sort of resolution to this Iranian conflict, oil mitigating and when we think about it, you know, when you think about oil supply, prior to this crisis, oil was actually oversupplied globally. And now a lot of economies are thinking about building out their supply, thinking about alternative supply chains, especially as the Strait of Hormuz remains closed. So when this does resolve over time, we could see a scenario longer term where oil prices actually return to or even move lower than what we saw prior to the crisis.
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That's pretty optimistic for lots of reasons. Before we go into other sectors, because you've talked about sort of the top of the pyramid here in terms of outperformance. Talk to us if you don't mind about Treasuries, because we don't talk about that a lot on this particular show. And lots of people's eyes glaze over when they hear about debt. But what's going on in the treasury world?
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C
Yeah, you know, look, it's been an interesting bond market. First of all, US treasury yields are still near 15 year highs. So the 10 year Treasury Y, which is usually the benchmark, what corporations borrow at, what consumers borrow at, is still around 4.4%. Now prior to, you know, over the last 10 years when the Fed funds rate was near zero, that treasury Yield was about 1 1/2 to 2%. Now with the Fed funds rate, you know, closer to 3.75%, we're seeing a 4, 4.5% treasury yield rate. We're watching it closely because if yields move meaningfully higher from here, that starts to put upward pressure on borrowing costs and put downward pressure on consumption. Right now it's been pretty rangebound and we actually think it's rightfully so. In this four, four and a half percent range, we think that's fair value for treasury yields. But we're mindful of it, we're watching it.
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So not such good news for mortgages yet, right? Not such good news for consumer borrowing costs yet.
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Yeah, I think that's fair. Look, I think we are off the highs that we saw post Covid, et cetera. Inflation has come down and inflation is a key input into Treasur yields. But we are not back to where I got a mortgage rate which was between 2 and a half to 3%.
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B
Well done. Like so envious.
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C
Yeah, but you know, I think 6% here or so in that range is probably fair value for, for a 10 year mortgage if you're looking in the market.
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So if we're looking at consumer. Let's talk about consumer earnings this earnings season. So on the one hand you've Got tech earnings per share up 50% year over year. What's been going on in the consumer space?
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Yeah, you know, consumer and consumer discretionary consumer staples. I'd say overall the consumer has been hanging in there and it is surprising to your point, borrowing costs aren't necessarily on the lowest end of the spectrum. Inflation has been elevated, we have seen oil prices remain high and yet you can always count on the American consumer to continue to spend. And you know, perhaps some of the things that we think about and talk about are this K shaped economy and there is a segment of the consumer that hasn't benefited because inflation has remained elevated for years now. But then there's a middle and upper income consumer that has benefited from rise in asset prices, from the stock market rise to some extent in their home prices. And so they are feeling a higher net worth. And what's interesting about the US economy is that really 70% of economic growth comes from that middle and upper income consumer. So if they are doing well, if they are seeing the appreciation, we tend to see it more in the economy as well. And so I think that's really what's been driving some of the optimism, enthusiasm and better economic data overall.
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And that consumer you've described is sort of the Edward Jones core customer in many ways, right?
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We have across the spectrum. But yes, middle America, we like to say we're bringing Wall street to Main street and those are the consumers that we try to support. You know, the key for them is from an investment perspective, if you want to meet your long term financial goals, invest early, invest often, stay disciplined and try not to let the headline noise get in your way. As we just saw over the last month or two, the headlines can be really noisy and difficult to get.
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Roller coaster.
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Yeah.
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And then the market rebounds in a V shape and we're right back at all time highs. So we want to make sure that we're not missing some of those best days in the market or some of those opportunities in the market either.
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So given what's going on at the moment, when you take a look at the S&P 500 to you, Mona, is this an expensive s and P500? Do you look at these earnings results and say actually it's justified and the future is good? Do you look at that and say, oh, multiples kind of. Yeah, kind of nosebleed?
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Yeah, it's a, it's a great question because one, we've moved up very far very fast both in earnings growth and underlying S and P returns. So you know, I think we're up 17% since the March 30 lows. Do we see this pace continuing? Probably not. You know, the pace of gains has been rapid. We don't think earnings growth will move up another, you know, 7 to 10% be revised higher to that extent. But all that being said, there is an old adage on Wall street, bull markets don't just die of old age, there's something that derails them and that's usually a recession or a downturn or a Fed that is rapidly raising rates. And neither of those scenarios seem on the horizon for us. So could we get a period of, you know, consolidation in the market, some sideways movement perhaps? Yes. But do we think that now is the time to kind of get out or the run is over? Probably not. So that's the interesting part of this market. There will be opportunities both in tech and non tech parts of the market.
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So what do you do in moving one's money?
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Do you add?
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Right. Do you buy more or do you say stay invested, don't jump, don't jump shit. But look elsewhere.
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Yeah. So a few things that we say especially at these new all time highs in the market. One definitely stay invested, don't do anything if you're already in. But you could look at a couple things. One, do you need to rebalance, have some parts of your portfolio moved in an outsized way and it could be tech because we've had a nice three your plus run.
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Yeah.
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Intact and you know, maybe you wanted it to be 20% of your portfolio. Now it's 30 or 40 and you want to maybe rebalance into other parts of the market. Number two, do you have cash or cash equivalents that you're sitting on? You know a lot of people bought CDs because as we talked about yields are higher money markets or just excess cash beyond, you know, emergency savings. That's money. We would start to look to deploy and when we're deploying we would say yes, we are equal weight in tech, but we want to make sure we have. So we say US large cap and mid cap which is tech and some of the emerging parts of the economy. And then we like em here emerging markets.
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You do? Okay, it's quite. Emerging markets. How do you define emerging markets? Because one person's emerging market is another person's somewhat advanced actually, depending on how you define it.
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Yeah, it's a great. We tend to go by the indices. So we use MSCI Emerging Markets Index which is heavily weighted in China, but it has of course India, Brazil and Other emerging economies as well. What we like about that story is that one, it's an alternative to US technology. So there is a big tech sector in EM that is doing very well. And if you think US tech has had a nice run, there may be other ways to play it. And two, EM tends to do well when there is a potential for the Fed to maybe cut one or two times down the road. So if there's a Fed rate cutting cycle or if the US dollar is looking like it may soften over time. So we do think both of those may play out over time.
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Why? Just explain that if you don't mind. Explain why a potential Fed cut could translate into an opportunity in emerging.
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Yeah, so you know, usually when you're in em, you're buying in local currency. And so when you're, when the US dollar softens, your local currency strengthens and so you have more purchasing power globally. And, and that's what we see in the EM space. And their consumer is actually also doing quite well. EM story similar to the US earnings story has re accelerated. And so it's interesting to see both sides of that aisle and not only em, but global markets have actually participated quite nicely this year as well. So interesting all around, but those are areas that we would recommend looking at if you haven't yet.
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It's interesting. Europe is nowhere in this conversation. Europe is because of Brit, which I guess isn't actually Europe anymore. Sadly my own personal view. Why is Europe not participating. Participating in this dialogue?
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Yeah, you know, Europe has always been a tough market. Interestingly the valuation has always remained, you know, fairly attractive. But we always say sometimes markets are cheap for a reason. And so part of it is the innovation story, you know, Europe is they don't have a heavy tech sector. In fact they're very heavily weighted in financials, industrials, healthcare. So a lot of those old school economies that just not have not seen the growth rates that we have here in the US and when you think about the innovation differential in every mag7 company is based here in the US everyone from Tesla to Nvidia to Apple, Microsoft. And I think it has something to do with we have a lot of access to private capital here in the U.S. so there's a lot of entrepreneurs making those big bets. We have a deep and liquid capital markets and Europe I think struggles in that way. And of course they feel in an outsized way the higher oil prices and inflation because they're much more heavily dependent on importing oil as well. So we are now in the US in net export of oil. So some of those dynamics structurally, I think, have hurt Europe. All that being said, they've had a nice run as well. They've played a little bit of catch up over the last year and a half, but it's been a tougher decade, I'd say.
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Let's take a break and when we come back, more of my conversation with Mona Mahajan.
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let's listen back to the rest of my conversation with Mona Mahajan, head of investment strategy at Edward Jones. So if the US has got tech and it's got the consumer as the engine of economic, let's call it, stability is at the core. If Europe doesn't have tech in the same way, what is it that Brazil has and India has? China definitely has tech that we know.
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Yeah, Brazil, India, China, 1. They have a very large domestic consumer economy and so their consumption is, you know, they have a consumption machine in all of those economies. I do think in particular China and India are showing a lot of promise in terms of the innovation and technologies that they're pursuing. And so those two economies in particular have shown tremendous growth and also it's been reflected to some extent their market prices as well. But broadly, I'd say the emerging markets, we want to make sure that we have exposure to parts of the world that are emerging in valuations, but also capital market formation, earnings growth, and can be a source of innovation.
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Can we talk about China just for another moment, Mona? Because there was a moment where people were very concerned about the Chinese consumer. We saw real estate on the brink, right. It's 24 months ago. And has it been more fiscal stimulus by the Chinese government? Has it been monetary stimulus by the Chinese government? Is it the AI and productivity story in China? What is it? Because I feel as though there's been a real sea change in sentiment. It went from China's not investable to everyone should get back into Chinese.
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Yeah, interesting question. You know I think broadly when you take a step back, China was growing at a tremendous growth rate, especially after it entered the WTO which was I think back in 2002 it just went through a period of massive globalization and we're talking 8, 10, 12% GDP growth rates which is phenomenal for any economy. I think naturally the law of large numbers caused it to slow down a bit. So we went back to the 6,8% growth rate and then they went through some structural changes with the one child policy, a slowdown in the labor market and to your point, some domestic real estate issues that really were intertwined with government. So it was hard to separate the two. And that really put the economy under pressure. And so we saw growth rates for the first time fall to sub 5% or so. Now I think China has one, re emerged in the sense of they have started to address in a meaningful way the real estate market and the issues that are going on there. And two, they are really putting an emphasis on keeping up with the US and maybe trying to outpace the US even on a lot of technology, AI innovation, parts of the market. And so I think that is going to be a key for China.
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Well, there's, there's so much going on in the markets, markets broadly Mona. But one particular topic is getting lots of attention. That's IPOs. And it feels as though we're gearing up for a summer of really exciting IPO activity. I have a sort of a conceptual question for you which is when you think about your clients or if we think about retail investors, there has this been question from their perspective, from our perspective as to whether to go buy stocks at the point of ipo.
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Yeah.
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And there's one narrative that is I think weighing on folks minds which is you see these private companies come out that long term investors while they were private make a ton of money. We see these huge run ups on the day of the ipo. Not always, but we've seen that enough so far in 2026. So should we be buying on IPO dose? Should we be waiting and seeing how things shake out? Should we be waiting for post lockup? How should we think about it? Right.
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C
And you Know, it's funny, day one tends to be strong, but if you do look, historically the, the 12 month performance of IPOs is actually underperforms the broader market. And so we want to be mindful, you know, some of these IPOs that are coming out are exciting, innovative, but to your point, they may have a lot of initial demand, a lot of initial early investors who want to exit their investments at some point. And so I do think one, for example, a company like SpaceX will be top 5s and P500 company will ultimately, I think it takes some time, but ultimately get into the S&P 500 index, get into the Russell Growth index and I think will be in the industrial sector, for example, a sector that we like. So I think if you are interested in getting exposure, in most cases you will get the exposure if you own index funds. And this will be a very, very large part of the index. And so to us it still makes sense rather than individual securities to buy these companies and stocks especially upfront in the basket format. Now we always have part of our investment portfolio that could be speculative and maybe you're really into the space economy and you think that's the way of the future and there could be a, of your investment portfolio that does have that individual, few individual securities that you really like. But for the most part we remain cautiously optimistic on the IPOs that are coming out. We think the capital markets opening up is a great sign. It's great for financials as well. But if you can keep those stocks in your basket of portfolios and maybe just have a little on your speculative
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side as well, just to build on a bit more. Mona, how do you think about where it's possible for someone to do this, where they have access, allocating some part of their portfolio to private companies through alternative asset managers, Private equity, venture capital, private credit.
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Yep. You know, again, this is, we think private markets are also a great way of diversifying your assets. To your point, we think it's a high net worth. So you know, for us we recommend those clients that have upwards of, you know, call it 5 million-plus in net worth to consider alternatives in their portfolio. Largely because some of the liquidity profiles of these alternatives is not as great and some of them have lockup periods. So if you invest in private equity, sometimes your money is locked up for call it five or 10 years plus and they're not marked to market. So you don't have as much transparency as to what they are worth. Now, all that being said, we know that the private capital and Actually, private companies have far exceeded even public companies. I think it's something like 3,000 public companies, roughly, and maybe 10,000 plus private companies. So a lot of great opportunities in the private space. But we want to be mindful that it's a part of your portfolio that you're okay having lower liquidity and potentially less transparency over the long term. And I always say, by the way, that there's a lot you can do with just equities and bonds even. Personally, I think it's a nice basis for your foundation, for your portfolio, tons
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of optionality, which is sort of the appeal of covering markets. Because there's so much that we can talk about. We are sort of getting towards the tail end of earnings season and the tail end of our conversation. So once the dust has settled and we can actually have normal working hours again because we're drinking from a fire hose, what are you looking ahead to for this? Sort of call it June, sort of early July, before we get into earnings season again.
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Yeah, before round two comes.
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Exactly.
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You know, it'll be an interesting year. First of all, we just saw Kevin Warsh, who was confirmed as Fed Chair, so it'll be certainly interesting to see how that transition plays out. You know, as we have probably talked about in many forums, I think the Fed and the independence of the Fed is first and foremost, and I think the markets have come to appreciate that they, they believe at least that that will remain in place. And I think, you know, Kevin Morrish may have a bit of a bias towards rate cutting, but for the most part he will have to make a very strong case. He's one of 12 voting members of the FOMC, an important one, but certainly not the key driver of the Fed policy. The other thing that we're watching as we head to year end, of course, is midterm elections. It's a U.S. midterm election.
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What's going to happen? Tell us. Look at your crystal ball.
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You know, that would be great information to know today. But I will say, generally, history tells us that usually the incumbent party does lose seats in both the House and the Senate. So, you know, they lose congressional seats and, and markets tend to actually like that gridlock environment. So that means less legislation, less new legislation is likely, less new, you know, regulation is likely. And so companies know the operating backdrop, and so it's not a bad thing. And I'll also say historically, markets actually tend to move sideways and maybe even a low, a little lower ahead of November 7, but then tend to rebound. That last month, month and a half because some of that uncertainty is behind us. So we'll see if history repeats itself. It certainly may rhyme this year after a nice run higher early on.
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Mona Mahajan, head of investment strategies at Edward Jones, please come back.
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I will. Definitely.
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B
Absolutely brilliant. Such clarity on so many different topics.
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C
Fantastic.
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And specificity, which we really appreciate. Not everyone's willing to do that, but thank you again for joining.
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C
Thank you, Anne.
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Appreciate it.
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Well, many thanks to Mona, head of investment strategy at Edward Jones. Great conversation for now. That's it for today's Blue Markets Daily.
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