Phil Orlando on Market Recovery, Earnings, and International Stocks

Market Performance and Outlook

• 🚀 The equity market has seen a phenomenal recovery since Liberation Day, with the S&P 500 up approximately 38%.
• ⚠️ Despite historically challenging months ahead (August, September, October) and rich forward multiples for the S&P 500 (22 times earnings), the long-term outlook for stocks is up and to the right.
• 🔄 A rolling rotation is expected, with profit-taking from 'Mag Seven' names benefiting small-cap, value, and international stocks that have lagged.

Earnings and Economic Growth

• 📈 Second-quarter revenues were up 6% year-over-year, and earnings increased by 12%, both exceeding expectations.
• 📊 Expectations for the third quarter are for revenues up about 6-7% and solidly double-digit earnings growth.
• 💰 Federated Hermes is revising earnings estimates higher for the rest of this year and next, supported by favorable fiscal policy and anticipated interest rate cuts.
• 🎯 The firm's GDP estimate for next year is 2.8%, significantly higher than the blue-chip consensus of 1.5%.

International Market Opportunities

• 🌍 International stocks are trading at a significant valuation discount (40% cheaper than domestic stocks) compared to the typical 20% discount.
• 💰 International stocks offer a higher dividend yield (2.9%) compared to the S&P 500 (1.2%).
• 📉 The dollar has been weak, a trend expected to continue, which benefits international investments.
• 🏦 Foreign central banks have been more accommodative, fostering stronger economic and earnings growth abroad.
• ✅ Federated Hermes maintains an overweight stance on international equities, viewing it as an asset class with strong potential.