B (4:58)

Thank you very much, Ann. I'm going to take them off now so I can read the stats.

A (5:02)

Oh you. I have to read for far. I need them on for far away as well.

B (5:05)

Actually we'll be doing a little of both. So some context for the S&P 500. It's been on a three year tear up nearly 80% since the start of 2023 and in that time it's posted double digit percentage increases each year and in 2025 it finished up 16%. And this is the part I remember doing a Daily show with you. It hit 39 record highs in this past year. Now if the S&P 500 raises in 2026 for the fourth consecutive year, that would be the longest streak since 2007 when it ended a five year run. There's a lot of stats but in the index's history there's only been five streaks of four or more consecutive years.

A (5:43)

Well, you almost glossed over it John, but let's just touch on one thing you which is if the S&P 500 goes up again in 2026 for a fourth consecutive year, it would be the longest streak since you said 2007 when it ended a five year run. Let's just talk about the end of that five year.

B (5:58)

Oh right.

A (5:58)

That wasn't just the end of a five year run. That was a catastrophic falling off the cliff and became known as the great financial crisis, the gfc. So you know, we are looking at a moment in time. There's been a lot of talk about a bubble. There's been a lot of conversation around whether AI has been fueling a bubble in tech stocks and a lot of of speculation as to whether we are seeing signs that perhaps it's all going to come to an end. That being said, let's take a look at what this outlook is from top the top Wall street analysts, all of whom put out their projections for 2026 towards the end of last year. We did not, by the way, see a Santa Claus rally to take us out of 2025. That is the typical five year trading day window when for the vast majority of trading sessions over the last couple of decades we've seen The S&P550 finish off up. This year we didn't. We saw the S&P 500 down just under a percent over those five trading days which ended last Friday. But off to a rip roaring start today. We sort of said at the top of the show we call it the Venezuela effect right now. But even without that we have seen the major banks being pretty bullish actually for this year.

B (7:07)

That's right. And so for context, The S&P 500 today was around 6900. That's where it finished. So on the lower end of expectations, bank of America, they see the S&P 500 in this year reaching 7100. So 2000 more which would be up 3.7% from the close of 2025. So that's 7100. I'm just going to run through a couple other. Barclays expects the S and P to finish at 7,400. JP Morgan Chase and HSBC at 7,500. Citigroup 7,700. And on the high end of expectations is Deutsche Bank 8000. And so let me give the comparison.

A (7:45)

Yeah.

B (7:45)

Bank of America sees a 3.7% increase and Deutsche bank sees a 15% increase.

A (7:52)

Huge range, huge range, huge range. Yeah.

B (7:54)

And the average of those comes out to be about 10%, which made me laugh because that's what we're always told. You know, when you're going to put your stock market portfolio, your investment, your retirement account, you put it in, you expect you're going to get 10% over the S and P over the long run.

A (8:10)

Over the long run. That's very important to note. That's, you know, really having lived through peaks and troughs along the way. So, you know, it's never for one particular year, it is average over the longer term. Well, there are a couple of things to look out for because of course, the key thing that we ask ourselves here at Brew Markets is the why behind the numbers. So the question is, why is Wall street so bullish? Why is it so optimistic for 2026, given the fact that this would be a pretty historic run, that there seems to be concern, as I said, about a bubble and questions around whether and if that would burst and what the timing of look like relative to how 2026 has started and how 2025 ended and what some of the catalysts could be to actually fuel a continued rise in the stock market. So let's touch on a couple of those. Let's start with interest rates. Yes, we did see a Fed rate cut in December. It wasn't without some controversy. We did see the Federal Open Markets Committee divided as to whether there should have been any cut at all or as to whether the Fed should have waited for some more information. Just as a recap, folks, as we came out of 2025, we'd had the government shutdown. It meant we didn't have complete sets of inflation data or employment data, and yet we did get those Fed rate cuts. My own view on that was I thought that Jay Powell could have waited till this month, till January with more data behind him to try to make the ultimate call. But January, here we are. And it looks as though analysts are indeed looking for another rate cut, at least one of them this year. The other thing that is sitting out there waiting to happen is that Chair Jerome Powell's term expires in May. We know at the end of last year that President Trump was interviewing with and meeting with potential candidates to replace him, all of whom tend to be more dovish, meaning that they tend to think about the need for interest rates being high to be not so profound, pointing to potentially more rate cuts. So we're looking at a 2026 where the market seems to be saying we're waiting for interest rates to come down even further and perhaps stay lower for longer.

B (10:13)

Yeah, they seem to be expecting it. And just today hedge fund manager Ray Dalio posted it appears most likely that the newly appointed Fed Chair and the FOMC will be biased to push nominal and real interest rates down, which would be supportive to prices and inflate bubbles.

A (10:29)

It's those last two words from legendary Ray Dalio saying it would be supportive to quote inflate bubble. So that to me is so fascinating. He has actually been a real voice suggesting that there should be bubble fears in this market. And there he is saying essentially that if rates continue to head downwards it's simply going to inflate the risk. That that is the case. So number one factor, number one, it's the Fed. What's the Fed going to do? Number two, we've got to talk about AI. What is the market expecting in terms of the contribution of artificial intelligence to productivity? Where they're going to see, we, we will see a return on the capital expenditure investments made in 20 big tech's already come out. We saw this at the end of last year saying they're going to invest even more into AI over the course of 2026. And so the question has been if the return on AI investment is going to be what the market expects, when is it coming, when is it coming more than if it is going to come. And so let's talk about what this means in terms of 2026 specifically.

B (11:31)

So just looking at the S&P 500 and talking about the concentration there of these tech stocks, the 10 largest stocks accounted for nearly 40% of the S&P 500. That's historically high. And about 45% of the S&P 500's gains in 2025 came from the magnificent seven. So if we're just talking about concentration of AI and what about that multi billion dollar AI circular investment that keeps going around to some of the same.

A (11:57)

Companies now about 40% of total capex also came from those same big spenders in technology. So again, huge concentration that not just in terms of the S&P 500G in terms of the investment that could actually generate future returns. So this is a big one we're going to look at. And related to all of this, of course, is earnings growth. Now, 2025 was a pretty robust year for earnings growth. We saw that in earnings season after earnings season. We talked a lot about it in the show. We dug into individual companies. We saw some of the efficiency gains that were being accomplished, but it wasn't clear that all of that was being AI driven. We did see companies who came off the back of aggressive hiring after the pandemic, retaining a lot of their headcount after the pandemic because they saw how difficult it was to keep talent and retain talent. We saw 2025, lots of layoffs, particularly in the tech sector. We saw lots of focus on cost cutting to offset tariffs, in no small part to supply chain shocks that came from the change in trade policy. The question that's out there for 2026 is what is going to happen to corporate earnings growth? And when again, you look at These projections for 2026 from the major analysts, they're saying that we think corporate earnings are going to remain pretty robust. If you look at those poll, they expect companies in the S&P 500 to report a 15% jump in profits on average this year, which would be the highest annual rate of growth since 2021. Which is extraordinary because remember, 2021 was a year of growth that came off depressed earnings for a lot of companies in travel, for example, that the pandemic could hit particularly hard. So there really is a sense of high profit expectations that's going to earning seasons this year. And we're going to be watching to see if companies actually live up to their promise.

B (13:42)

You know, I just want to say that there are some investors who were thinking back to 2007 have never seen a really bad year. You know, some of the younger people, maybe some, you know, not the institutional investors, gotten the apps over the last couple of years and are trading and they might be in for a shock one of these years if it doesn't go down. Because I, I have friends who have money in their retirement and they're like, it just goes up every year.

A (14:06)

Yeah, that's a really, really interesting point, John. And I was thinking about this over the holidays, actually. Someone had reached out to me and said, would I be willing to talk about investing as an angel? Which is when you take your own money and you put it into a startup. And the response I gave to them was, I think there has been a dangerous fetishization of angel investing. And in full disclosure, I do angel invest. I absolutely put money, my own money in early stage companies, but I've done that only after I've invested very aggressively in, in the stock market, in bonds, in real estate, in these lower risk on average asset classes, long before I would even consider doing that in a startup. And the reason I bring this back to the point you just raised is a lot of young companies have been funded in the age of very, very low interest rates. Right. We've got a whole generation of venture capital investors who've grown up only in a, in a pretty low interest rate environment. We've talked over the last couple of years about high, how high interest rates have been post pandemic. But even if you compare them to historical levels going back over the last couple of decades, they haven't been particularly high. Yeah. So that same mindset, which is not having lived through a different kind of macro environment. John, I agree with you. Those of those of us who came into really investing post 2000, call it 9, right when there was a lot of money being pumped into the economy through low interest rates and fiscal stimulation. It's a very, very different, different world. I started investing before that and in a recession prior to that. So you're right, it goes up, it does go down. And, and having that balanced portfolio is really important.

B (15:43)

And this week, just to keep an eye out, the BLS is scheduled to be back on track. You were talking about the Fed making decisions, all the data.

A (15:50)

Yes.

B (15:50)

They're going to have the December jobs report due out this Friday, so we'll be keeping an eye on that.

A (15:54)

Yeah, there is a deluge of macro data coming on out. So we're going to keep watching that. Of course we're going to keep watching. Also the commodities prices. Oil at the moment is sort of jumping around. We're going to be looking at gold and sil. Some other things we're going to be looking at that sort of ties into all of it. And we're going to be looking out for in future episodes we should be talking some more about currency, about the strength or the weakness of the US Dollar because that impacts how expensive imports are. We're going to keep an eye on tariffs. There's a little bit of chatter that they may be rolled back. We've got a Supreme Court ruling on the legality of some of these tariffs. That's going to have an impact. We're going to keep an eye out for, we can be looking here on the show at the tax advantages that were signed into the one big beautiful bill act that should be boosting corporate bottom lines. Well, and all of that, the wrapper around it is valuations. And let's just touch on that for a moment. If you take a look at companies in the S P500 right now they're trading at 22 times their expected earnings for the coming year, significantly above the 10 year average of 19 times. The other thing I would say is, you know, I've been saying personally for a while, I think stock valuations are looking rich. The banks are sort of saying that too. They say if you look at most metrics, these are levels at which stocks are trading higher than they have tended to in the past. So despite the fact they stand behind their heightened outlooks for 2026, they are a little bit cautious. They are saying there are risks to the downside despite where these average projections are landing. We're going to keep tracking all of those as this year goes on. I'm excited to be back in the saddle. I got to say. There's so much, so much going on. Let's take a quick break and when we come back, I explore one public stock that one reader, one listener said to us might preview a SpaceX IPO. Producer John, I want to set you up.

B (17:40)

All right. Well I'm not on the market but either way I don't know if I trust you in that department.

A (17:43)

Oh yeah, well would you trust a matchmaker who uses AI to comb through a database of people who meet all of your criteria?

B (17:49)

Actually yeah, that sounds great.

A (17:51)

Well that's what sitch matchmaking does. It was designed specifically for the high intent datas out there, such as detailed onboarding, gets to know exactly what you're looking for and your non negotiable.

B (18:01)

Okay, well my non negotiables include being a good pet parent and having an up to date will and testament specific.

A (18:06)

But yes, their matchmaker will help ease you into conversations to avoid ghosting and actually set you up. Skip the waitlist@joinsitch.com Morning Brew that's joinsitch.com Morningbrew John, we have a question from the audience.

B (18:21)

That's right, we got a comment from a listener on Spotify asking, Ann, would you please explore Rocket Lab's valuation and tell us why you're keeping an eye on the company.

A (18:30)

Well look, this is very timely because right as we launched into 2026, rumors abounded that SpaceX may IPO this year in a public market debut that could value the rocket launch giant including its satellite communications Brand Starlink at as much as $1.5 trillion. And with it, there are reports that SpaceX would look to raise a record $30 billion, which would make it the biggest IPO of all time. So for a sense of how the market might think of SpaceX as a public company, here's a quick look. One likely comp, which is Rocket Lab. Trading under the ticker rklb, the company went public via SPAC on the NASDAQ in 2021. Well, since then, the stock has soared nearly 680% to a market cap today of about $40 billion. Well, Rocket Lab was founded in New Zealand in 2006. That's about four years after SpaceX came to life. And it was the first private company in the Southern Hemisphere to reach space. The company builds and operates launch vehicles and spacecraft systems for both commercial and government customers. And it's best known for its electron rocket, which is a small satellite launcher. Well, Rocket Lab did decide to come stateside. It moved its headquarters to California in 2013 to ramp up business here in the United States. Pre IPO funding came from famed American venture capital firms, including Khosla and Bessemer Venture Partners, as well as from defense giant Lockheed Martin. And US Government involvement has also been important in Rocket Lab's rise. Launching its first mission for NASA in 2018. Well, second only to SpaceX in its total number of private launches to date, Rocket Lab is in the throes of developing its larger Neutron launch vehicle and to carry heavier payloads. That's a fancy way of saying the cargo it takes into space. And it's building out its own equivalent of the Starlink satellite Constellation, which powers SpaceX's Internet and remote communication services. The Neutron line would also enable Rocket Lab to accept more national security missions. And as we've said at the top of the show, it's an end use the market sees as likely to grow under the Trump administration. Indeed, in 2025, Rocket Lab landed major government contract wins, including a more than 815 million doll award from the US Space Development Agency. Some recent launches also at the end of the year into Mars mission that's been launched by NASA. The question is, how much money does Rocket Lab actually make and how is it valued? So a couple of highlights on these two points. 2025 revenue is expected to come in at around $600 million, with the backlog as of the end of the third quarter sitting at 1.1 billion. But Rocket Labs, despite that revenue number, loses money. It has about a billion dollars in liquidity but it burned nearly $70 million in the latest quarter and it's not expected to have positive cash flow until 2027. So benchmarking against SpaceX has been an important part of Rocket Labs's journey as a public stock. And at the end of 2021, a couple of things happened. SpaceX was valued at about $100 billion. Rocket Lab went public around then at under a $5 billion valuation. SpaceX's valuation, that bumped up to about $400 billion by last fall and then $800 billion by the end of the year, driven by the rapid growth of Starlink, which has over 8 million subscribers today. In response to that, investors took a look at Rocket Lab and decided to move their price targets for Rocket Lab upwards, although at a discount to its much bigger competitor, SpaceX. So when you wrap it all up, Rocket Labs is now trading at around 70 times revenue, which is a massive, massive multiple. That's left some investors concerned that the shares are now fully valued. And about a third of Wall street analysts that cover Rocket Lab have placed the stock with a hold rating, meaning it's not so sure that valuation is going to play out quite much more from here. So, one person's view, if privately owned SpaceX goes public, and as a result, there's a lot more information released on the inner workings and financial of that space giant, the market will be able to sharpen its currently hazy comparative analysis. A Rocket Lab and if there's one thing we've seen with Tesla stock, which is a retail investor darling folks do like to own a little bit of access to Elon Musk, which is one thing that Rocket Lab just doesn't offer, even though it is 40% owned by retail.

B (23:01)

And if you have a question for Ann, leave us a comment or send an email to Brew Market show@morning brew.com.

A (23:07)

Well, there is the closing bell because it's 4pm on the east coast, the market's wrapping up for the day and we don't have a ticker tape, but we'll throw it over to our human ticker, our producer John.

B (23:17)

The major indices all finished up today, with the S P 500 up 6/10 of a percent, the NASDAQ up 7/10 and the Dow up 1 1/4 tenths of a percent. Just short of that 49,000 finish that we were looking for today. A quick market headline. Versant Media Group, the portfolio of cable TV networks spun off by Comcast, began trading on the Nasdaq today under the ticker vsnt. The company has positioned itself as an alternative to streamers highlighting news and sports programming on properties like CNBC, USA Network and the Golf Channel. The stock opened at $45.17 and then quickly fell 15% to about $40.

A (23:56)

Interesting. So we've seen that come down. Now this isn't the same as an ipo. It was a spin out. But it's so interesting. In 2025 we saw a lot of IPOs see pops up in valuation on their first day of trading. Curious here to see Version actually going in the opposite direction in its first day of trading as an independent company while markets are watching to see how version is valued because investors are trying to decipher from all this what this means for the way in which Warner Brothers Discoveries cable channel portfolio should be valued. Remember, this was a big deal heating up competition between Netflix and Paramount skyd to go after that Warner Brothers Discovery portfolio of assets and trying to figure out what that cable channel piece of it is worth was a core part of trying to compare the Netflix bid versus the Paramount bid. Well, a final thought, it's tech time right now in Las Vegas. Given everything that's gone on in the news. With Venezuela's story that broke over the weekend, it's been easy to forget that today is the first to kick off a week of tech innovation unveils at the Consumer Electronics show or ces, typically a really big highlight for the January calendar. Well, there's going to be a week of big speeches from the likes of Jensen Huang, product unveils from the likes of Samsung. So stick with us this week as we cover the highlights as those come on out. Earnings also starting to rev back up. The financials are set to release some of their earnings in coming days and weeks and new macro data getting published in the run up to the first fed meeting of 2026. Well, happy 2026. It's fantastic to be back here in the saddle, back in studio. And that's it for today's Brew Markets Daily.

B (25:35)

Brew Markets Daily is hosted by Anne Barry and produced by John Couteau, Dark Abdelatif and Emily Milian. Our technical director is Uchenawaogu. Brittany Dotaku is our audio engineer and the president of Morning Brew Inc. Is Devin Emery.

A (25:47)

Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.