Melt-Up or Mirage? Markets Ignore Everything but Earnings

Summary

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Podcast Summary: Merryn Talks Money

Episode: Melt-Up or Mirage? Markets Ignore Everything but Earnings
Host: Merryn Somerset Webb (Editor at Large for Bloomberg UK Wealth)
Guest: John Stepek (Senior Reporter & Author of the Money Distilled Newsletter)
Date: May 8, 2026

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Episode Overview

In this episode, Merryn Somerset Webb and John Stepek dissect the phenomenon of a resurgent bull market in equities amid a backdrop of geopolitical tensions, persistent inflation, and questionable policy direction—yet markets appear Teflon-coated, focused almost solely on earnings. They review whether this earnings-based 'melt-up' is sustainable or a mirage, debate historical precedents for supply shocks via IPOs, and examine the outlook for the UK economy and bond market.

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Key Discussion Points

1. The Market’s “Earnings Myopia”

Timestamps: 02:05 – 08:33

• Markets Are Ignoring Macro Risks:
  Despite turmoil in the Middle East and other negative headlines, both hosts highlight how investors remain laser-focused on company earnings.

  • “We don't even need to bother talking about what's happening in the Middle East... The market literally doesn't care. The market doesn't care about anything except for... earnings numbers, right?” (Merryn, 02:10)
  • Nasdaq is up 11% since the Iran war started, contradicting any supposed "bear case" (John, 03:02).

• Exceptional Earnings Season:

  • S&P 500 earnings are surprising to the upside across sectors—this is fueling talk of a “proper melt-up.” (Merryn, 02:23)
  • PEG (Price/Earnings to Growth) ratio is just over 1, suggesting a fair valuation if earnings growth is realistic. (Merryn, 06:41)

• Historical Cautionary Tales:

  • Hosts reference the “magazine cover indicator” as a contrarian signal: when big financial publications highlight major trends, the move is often already “in the price.”
    • “The magazine cover indicator has once again paid off just so dramatically.” (John, 03:02)
    • Famous examples: The Economist’s “Drowning in Oil” (oil bottomed soon after), BusinessWeek’s “Death of Equities” (published just before a massive bull market, 1979). (Merryn, 04:40)

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2. Are Record Earnings Enough? Parallels with the 1970s

Timestamps: 07:30 – 08:33

• Earnings Can’t Save You from Sentiment or Inflation:
  • Merryn notes the 1970s as a cautionary period: earnings continued to rise, but US equity valuations collapsed, leading to stagnant real returns.
    • “Earnings kept rising... Earnings were tripled during the 1970s. But the market as a whole... went absolutely nowhere in that whole decade. So of course, you lost a big pile of money in real terms.” (Merryn, 08:29)
    • John highlights this was due to massive derating (falling P/E multiples).
  • Key lesson: “Earnings can't save you when sentiment turns and when inflation turns was kind of my point.” (Merryn, 08:33)

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3. Supply Shocks: The Coming Wave of IPOs

Timestamps: 11:52 – 16:10

• Flood of New Equity on the Way:

  • John discusses upcoming mega cap IPOs—particularly in AI and SpaceX—and the risk of market indigestion if too much equity supply hits at once.
    • “Stock markets, like any other market, the overall supply of stuff actually matters…we've got just an absolute flood of mega cap IPOs coming in the summer.” (John, 12:20)
  • Share buybacks have been the main mechanism reducing equity supply (supportive of markets), but announced buybacks often exceed actual buybacks.

• Lessons from 2000 Tech Bubble:

  • The hosts compare this dynamic to the 2000 tech bust, where a rush of IPOs peaked just before disaster.
    • “People often say there isn't a trigger for the dot com bubble bursting. But actually the obvious one to point to is the fact there was an awful lot of IPOs... as soon as the [IPO] lockups were up, they all were like, I'm getting out of here and they sold off.” (John, 12:20)
  • Legendary investor Sir John Templeton made a fortune shorting stocks as IPO lockups expired.

• Knock-on Effects for Private Markets:

  • If new IPOs disappoint, it could force private equity to mark down existing private-company valuations, putting further pressure on funds and investors. (John, 15:40)
    • “I'm wondering if you can get an end to the endless extend and pretend on the private assets side as well... that's the bear case.” (John, 15:40)

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4. The UK's Economic Outlook: Inflation and Policy Paralysis

Timestamps: 17:36 – 22:33

• UK Bond Market & Inflation:

  • John and Merryn discuss the chronic inflation tendency in the UK, rooted in long-term poor governance and policy responses.
    • “The UK is very inflation prone … because of poor governance over a very long period of time and bad policy making.” (John, 17:36)
    • Price controls have proliferated, a symptom of governments’ reluctance to address the root causes of inflation. (Merryn, 19:06)
  • Merryn: “It's almost impossible to imagine a new government coming in and saying, actually, do you know what, let's stop covering everything up with price controls... and let's get to the bottom of inflation. That's not going to happen.” (20:13)

• Political Appetite for Taming Inflation Lacking:

  • Globally, not just in the UK, there’s little voter will for tough action on inflation (John, 20:13; Merryn, 20:24).
  • The UK’s fiscal position may “look” better than peers on paper, but market participants don’t believe the story: high gilt yields reflect persistent inflation risk, not just fiscal concerns (John, 20:33; Merryn, 20:42).

• Inflation Expectations:

  • Merryn and John are skeptical of the central bank narrative that expectations are “anchored.”
    • “If you put too much stock in expectations then that always encourages politicians to think that they can somehow wrestle control of the narrative just by talking rather than acting.” (John, 22:11)

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Notable Quotes & Memorable Moments

• "The market literally doesn't care. The market doesn't care about anything except for… earnings numbers, right?"
  — Merryn (02:23)

• “The magazine cover indicator has once again paid off just so dramatically.”
  — John (03:02)

• "The earnings can't save you when sentiment turns and when inflation turns was kind of my point."
  — Merryn (08:33)

• “Stock markets, like any other market, the overall supply of stuff actually matters… we've got just an absolute flood of mega cap IPOs coming in the summer.”
  — John (12:20)

• “I'm wondering if you can get an end to the endless extend and pretend on the private assets side as well... that's the bear case.”
  — John (15:40)

• “It's almost impossible to imagine a new government coming in and saying, actually, do you know what, let's stop covering everything up with price controls... and let's get to the bottom of inflation. That's not going to happen.”
  — Merryn (20:13)

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Timeline of Important Segments

• 02:05 – 04:40: Markets ignore geopolitics, focus on earnings; the 'magazine cover indicator' discussed
• 06:14 – 08:33: Earnings growth, PEG ratio, and historical lessons from 1970s
• 11:52 – 16:10: AI and tech IPOs; risk of oversupply echoing the 2000 tech bubble; dangers to private equity valuations
• 17:36 – 22:33: UK inflation risks, governance problems, policy inertia, skepticism over inflation expectations

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Episode Tone & Style

Conversational, irreverent, and lightly skeptical. Both hosts balance humor (“Only we could do a depressing podcast when markets are hitting new highs...") with thoughtful, data-driven analysis. They mix historical references, anecdotes, and a refreshing degree of candor about market uncertainty.

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Conclusion

While the market rally seems unstoppable (“melt up”), Merryn and John urge listeners to look beyond headline earnings, warning of potential risks from surging equity supply, cyclical sentiment shifts, and embedded inflation. Their advice: question the hype, beware of crowd narratives, and remember that history rhymes—even amidst AI-fueled optimism.

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Transcript

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[John Stevik]

Foreign.

[Mehren Samzet Webb]

Welcome to the Marant Talks Money Market Wrap, where we talk about the biggest moves in markets this week and what is driving them. I am Mehren Samzet Webb, Editor at Large for Bloomberg UK wealth, and I'm

[John Stevik]

John Stevik, senior reporter and author of the Money Distilled newsletter.

[Mehren Samzet Webb]

Right, John, the bull market is back big time. We don't even need to bother talking about what's happening in the Middle east or what is not happening in the middle of the East. We have no idea. We're just going to leave it there.

[John Stevik]

But we'll also the market doesn' it doesn't care.

[Mehren Samzet Webb]

The market literally doesn't care. The market doesn't care about anything except for what at the moment, it's earnings numbers, right? So we're having an amazing earnings season and everyone you talk to just says, well, this is just the most massive of bull markets and it has to be because everybody has some kind of earnings surprise. And now we're moving into A proper melt up situation. And this is all marvelous. AI tastic.

[John Stevik]

And no one can get enough compute.

[Mehren Samzet Webb]

Can't get enough compute.

[John Stevik]

Just no compute anywhere. Electricity does not compute. Yeah, no. So anyway, we could just repeat words

[Mehren Samzet Webb]

of each other for hours here. But look, you've got this amazing. You tell us about earnings. Go on.

[John Stevik]

Well, no, it's not. It's just like the Nasdaq is up 11% since the Iran war kicked off. So I know we weren't going to mention it, but it's just one of those things where you can. Okay, so clearly the bear case has not been made here. And I thought it was interesting that the magazine cover indicator has once again paid off just so dramatically. Well, which magazine would that be, John?

[Mehren Samzet Webb]

Which magazine would that be?

[John Stevik]

It does sound tongue in cheek and poor old economists, but it's not. I mean, the reason the Economist works well for this is because the Economist is the voice of the closest thing you get to the crossover between mainstream and business news. So biggest audience for that kind of thing. So when you see something on the COVID that's related to markets, then it just, it must be in the price. It can't not be in the price because by definition everyone already knows it. And when it comes to the oil market, the economy has got particularly strong form because one of the most famous covers they ever did was back in the late 90s when they did a cover that was kind of the headline was Drowning in Oil. And the idea was basically that the oil price was never going to go up again. And basically that was the bottom forever the lowest price that oil ever got to until that time it went negative in 2020 and so on. Last week they came out with a cover saying basically, you people are crazy, the oil price is far. And of course since that cover came out, the oil price is down by 10%. So it's just this brilliant for kind of just, just brilliant for kind of contrarian positioning, but particularly on oil for some reason.

[Mehren Samzet Webb]

Well, they may yet be right. You know, inventories have been masking an awful lot of potential supply problems. So, you know, we may see another hike in the oil price coming and things may change in the Middle East. I mean, who knows? Who knows? But you're right. The magazine cover, when I was looking this morning again, I wanted to look back and actually double check when it was that BusinessWeek had that covered. Remember the one? And what we won't remember it obviously, but Death of Equities it was. Do you remember that? That was 1970, 1979. Just before inflation got kicked and everything went into massive, massive bull. So always worth looking at magazines.

[John Stevik]

Anyway, did you notice, like just one other thing, one of my other favorite pieces of trivia. Do you know what year business week launched? 1929.

[Mehren Samzet Webb]

Yeah, that would have been my guess.

[John Stevik]

Yeah, exactly.

[Mehren Samzet Webb]

Although you know what, I have very little moral high ground here because you'll remember when Money Week, the magazine I was launch editor of, launched 1999 was our trial issues and the first couple came out in early 2000. Although we were very, very bearish on the dot com. We are, we're bearish people. So but nonetheless that, that's when it launched, but that was because that was the time when people were prepared to finance a financial magazine because everyone was interested in markets and money and finance. Everyone wanted more and more information. So that's when people were prepared to put up the money. So presumably it was the same in 1929. People put up the money for Business Week in a way they wouldn't have been able to otherwise. And I think, just to be clear, you know, Business Week still exists and Money Week still exists. You know, you can survive these things.

[John Stevik]

Exactly.

[Mehren Samzet Webb]

Things are survival. Anyway, back to earnings. Back to earnings. Every thing that you will have received in the last couple of days, John, and every single thing that I have received in the last couple of days is all about, all about earnings and how everything is fine and how S P 500 earnings are gonna. This is a good one. I can't remember who this came from. S P500 earnings growth about to break out on the upside of a 90 year channel.

[John Stevik]

Wow. Wow, that's good.

[Mehren Samzet Webb]

And you know, it's not just big tech, it's not just big AI. Across the board, across the board we're seeing earnings surprises. So it's all marvellous. So from the point of view of most people looking at this, they're like, well, you know, stock prices are based on expected forward earnings. Expected forward earnings are great. So everything is absolutely fine. I did see one kind of interesting one which pointed out that given what's going on with earnings, the PEG ratio, so the forward pe, which divided by long term earning growth is down to only just over one. And back in the old days we used to say if the PEG ratio was one, everything was fine. So there you go, everything is fine unless earnings growth expectations are wrong.

[John Stevik]

Yeah, I think, I think we can wrap this one up now. Just, just say, yeah, we'll get out there and buy. Go, go, go crazy guys. Knock yourself.

[Mehren Samzet Webb]

So although I was also Looking back, I was looking back because, you know, you look at it and you think, well, is this like the end of the 60s? Is this like the 70s? Is it possible that in fact earnings growth was really great just before everything went wrong in the 1970s? And guess what? Yeah, yeah, yeah, here we are rhyming away. Rhyming away. So the whole thing behind this time is different because record high earnings, same in the 1960s coming into the 19 into 1969. Record high earnings coming into 1970. Earnings fell back. Inflation, you know, starts to, starts to take off towards the end of the 1960s. And then you move into this environment in the 1970s where by the way, earnings kept rising, kept rising. Earnings was tripled during the 1970s. But the market as a whole, the US market went absolutely nowhere in that whole decade. So of course, you lot of big pile of money in real terms.

[John Stevik]

Well, it was massively derated, wasn't it? The PE bet was the bit that went down.

[Mehren Samzet Webb]

So the earnings can't save you when sentiment turns and when inflation turns was kind of my point.

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[Mehren Samzet Webb]

You've been writing about something much more interesting, and I want to talk about that because regular listeners and readers will remember the challenge set to me by our colleagues in America. When was it last year? Wasn't it the end of last year to go out and buy a single share in AI so that I would have it when the great IPOs came and it turned out it was impossible to buy a share in AI, which OpenAI, which I think I'm heartily grateful, really. But you have views on those IPOs,

[John Stevik]

John well, I just think it's really interesting because one of the things that I think it's easy to forget is that stock markets, like any other market, the overall supply of stuff actually matters. And it was actually really convenient because our colleague Simon White, over on the very, very serious side of the business, he writes a column called Microscope, which I think only goes to the terminal subscribers. But he was writing about share buybacks and he was making the point that share buybacks are the biggest source in the US market of equity coming out of the market of de equitization and on an annual basis, certainly going back to 2000, there's only been three years in which the net equity supply, as in the amount of new equity hitting the market, actually was positive. And Those years were 2009 and 2020. So clearly all bad years for the market are all crashy years. One of the points he was making was that this year we're sort of expected to have record share buybacks, but share buybacks that are announced very rarely actually are followed through on. So you can't guarantee that we're going to get this number of buybacks. And what with all of the investment and all the rest of the companies are doing, chances are that perhaps these buybacks will disappoint. So then I was thinking, on top of this, we've got just an absolute flood of mega cap IPOs coming in the summer. So SpaceX is the obvious one, but then obviously there's various AI companies and then there's lots of other stuff we'll probably be hoping to get out the door. Like if SpaceX launches and it's really successful, then there'll be a queue out the door for all of this stuff that the private equity guys have been trying to offload with no success. And so what I thought was interesting is if you Compare this to 2000 and 2000, people often say there isn't a trigger for the dot com bubble bursting. But actually the obvious one to point to is the fact there was an awful lot of IPOs. And then the people who were the founders of those companies and the employees of those companies, they had to hold their shares for six months. And then as soon as the six months was up, they all were like, I'm getting out of here and they sold off. And actually that's when Sir John Templeton did what was probably the best short trade in history off the back of this thing. He made like a billion dollars by knowing when these IPO lockups were up and just betting across a load of them, the market was going to collapse. And he absolutely coined it. Most of us are not him. But yeah. So anyway, so long story short, I'm wondering what will happen when a flood of equity kind of hits a market that is currently hungry for it. But then maybe in six months time is getting a bit of indigestion. And then on top of that you're getting some marked to market values for assets that previously been privately held. And at first it may be okay, particularly SpaceX goes well, but if it all starts to wilt, then all of these kind of private companies that are still being held by these funds that are struggling. They're already struggling. They're going to have to turn around and say, actually, this isn't worth as much as we'd hoped it was going to be worth. And all of their clients are going to be sitting there going, actually, sorry, guys, we're done with this now. You've had five or six years of stuff going through the pipeline and it's not getting any better. We want our money back. I'm wondering if you can get an end to the endless extend and pretend on the private assets side as well. Well, at that point anyway, that's the bear case. I don't know. It's the most convincing bear scenario I can come up with at the moment.

[Mehren Samzet Webb]

Well, it is because it's happened before, hasn't it? And let's go back. Have you looked at any of the other big bear markets to see if there's one of those big supply surges before them all?

[John Stevik]

I mean, that's a good point. I mean, I haven't, because I guess 2007 I kind of think of as being something completely different. I mean, you usually see big deals being done before bear markets, but I wouldn't have said most cases, they're not so much a trigger as a symptom of everyone's got really overexcited. Whereas this sort of big equity supply, I think, is quite a significant thing. And 2000 is definitely the one that stands out to me. Have you seen any others that may be similar?

[Mehren Samzet Webb]

Well, I haven't, but I think it's worth looking at. I think we'll offer this to one of our professional listeners for free. Please go out and do the analysis for us and get back to us and let us know, because that would work a lot better for us than having to do it ourselves. Right, John?

[John Stevik]

Definitely, definitely. And it give them something to do. Definitely give them something to do.

[Mehren Samzet Webb]

Right. What else have you been looking at this week? I mean, we're. That just for just so, you know, listeners, John and I are talking on the day of the UK council elections and Scottish and Welsh elections. So we can't talk about the things that we really want to talk about today. You know, we're distracting ourselves with. With this AI Bubble nonsense, when in fact, of course we really want to talk about the UK bond market and stuff like that, but just not today.

[John Stevik]

Well, I suppose we can, because the other thing that I've looked at this week was the UK bond market. And I guess with that it's not so much. I mean, the political Uncertainty obviously adds little frissons to all of that, but I think there's a more fundamental issue, which is that the UK is very inflation prone. And we talked about this before, really, because of poor governance over a very long period of time and bad policy making. And as Andy Haldane said on the podcast a couple of weeks ago, there's an awful lot of potential in the economy that could be unlocked just by improving the policy making. The unfortunate thing is, I think, obviously we don't know what will happen as they're going through the polls, but whatever happens, either Keir Starmer steps down or he doesn't, and whoever places him will probably be within the same level of badness. Maybe one of them might be slightly better, one of them might be significantly worse, but there's not. We're still going to have this same kind of approach that if it's not working, you need to either slap a price control or a new law on it, as opposed to maybe if we sat back and got out of the way and let energy supply be more rationally produced and open up the North Sea, et cetera, et cetera. So I think we may be stuck with poor policymaking at least until the next general election.

[Mehren Samzet Webb]

Yeah, I mean, it's interesting mentioning price controls, because price controls, and we've discussed before, they just pop up all over the place now. And that brings us back to thinking about how inflation develops and how long it could last. I mean, it's very unusual in economies that have had higher and expected higher than expected inflation for four or five years or whatever, as we have had, as and as they have had in the us, by the way, for inflation just to pull itself together and come back to target just like that. That's really very unusual and particularly, I would say, unlikely in a political environment when the appetite to keep inflation low is kind of gone. The appetite to constrain spending, the appetite to look at the source of inflation, which in the UK's cases is all sorts of things, but out of control spending, endless price controls, endless regulation, minimum wages and all this kind of thing, they're all embedded and it's almost impossible to imagine a new government coming in and saying, actually, do you know what, let's stop covering everything up with price controls of various sorts and let's get to the bottom of inflation. That's not going to happen.

[John Stevik]

Yeah, I mean, I guess it's that whole thing, but there's not been any, any voter base for getting ready inflation. And I guess. Well, I mean, I don't think that's

[Mehren Samzet Webb]

just the UK by the way. I mean I think that at this point it's a Western issue. There is no appetite anywhere for dealing with the core of the problem.

[John Stevik]

Of all the countries, actually the UK's at least its theoretical fiscal pathway is actually pretty good compared to a lot of them in the uk.

[Mehren Samzet Webb]

Yeah, but you know that's nonsense, John.

[John Stevik]

Yeah, but at least, not at least, but at least we're pretending better than some other people discussion about it.

[Mehren Samzet Webb]

But no one believes it. If anyone believed it. Would guilt yields be so high?

[John Stevik]

Well, I mean that's true a lot. I mean the only thing I would say about guilt yields, I think guilt yields are a function of inflation rather than panicking about the deficit.

[Mehren Samzet Webb]

Aren't those things connected?

[John Stevik]

Yeah, but the things. Because inflation has consistently been about 1 percentage point higher than anywhere else. So if you want a real interest rate from a gilt, you have to charge the people who issue it kind of more to compensate for that. And I mean, yes, that's, you can argue the inflation is partly because we've never had kind of brilliantly controlled public finances, but a lot of it also comes down to the kind of price control side of the things that we were talking about. Whereas. Yeah, so even if we had kind of much healthier looking public finances, we'd still be getting charged a premium because our inflation's still higher than it should be. And then comparable kind of economies, I think something like CPI has averaged 3% since 2010. Ten years of that was the most disinflationary decade we've ever had.

[Mehren Samzet Webb]

Yeah, so I mean, that's what I mean when I say it's difficult to imagine it going back to 2%. And this whole idea that oh you people's expectations are still anchored. Are they though?

[John Stevik]

I don't place a lot of stock in expectations, I must admit, just because I think if you put too much stock in expectations then that always encourages politicians to think that they can somehow wrestle control of the narrative just by talking rather than acting. But people's expectations usually reflect an underlying reality which is that stuff is just getting more and more expensive relentlessly you

[Mehren Samzet Webb]

expect what you just had in the main. Right.

[John Stevik]

Yeah.

[Mehren Samzet Webb]

Okay. Well that was another optimistic chat, John. I enjoyed that. Only we could do a depressing podcast when Mark is at hiding new highs all around us and there's a possibility of a peace deal in the Middle east on the, on the table it's we've got to try harder on the optimism. Maybe some more optimistic guess would be a good thing. We'll get that Eddie Yardini back on again, I think.

[John Stevik]

Yeah.

[Mehren Samzet Webb]

Yeah, I think we better leave it there. Thank you, John.

[John Stevik]

Thanks, Bill.

[Mehren Samzet Webb]

Thanks for listening to this week's Merrick Talks Money Debrief. If you like our show, rate, review and subscribe wherever you listen to podcasts, this episode was produced by Moses and Aman Samasadi. As always, questions and comments on this show and all our shows are welcome. Our show email is merrimoneyloomburg.net.

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