Video summary

My 24-Month Stock Market Prediction (How I'm Investing Now)

Main summary

Key takeaways

Finance

Finance-focused summary (next ~24 months)

Macro / market backdrop

  • S&P 500: near an all-time high, just slightly below the prior record; rally has been supported by improved inflation and breadth.
  • Rates (30-year Treasury yield): reached ~5.31% (highest since July 2007) and remains above 5%.
  • 2-year vs 30-year move (“steepener”) over the past month:
    • 30-year yield rose ~13 bps
    • 2-year yield fell ~12 bps
    • Interpreted as: short end weakening / slower growth expectations, while long end demands higher compensation for inflation/deficits—i.e., a combined fiscal + inflation skepticism.
  • Fed policy:
    • Policy rate held at ~3.5–3.75% for five consecutive meetings.
    • Mentions 3 dissenters in July voting for higher rates (not cuts).
    • Chairman Kevin Warsh characterizes inflation as a “choice.”
  • Real economy weakening signals: retail sales fell, producer prices unchanged (July). Potential risk scenario: stagflation if inflation re-accelerates while the Fed stays hawkish and consumers cut spending.

Key drivers / “three variables” framework

  1. AI capex ROI (does capital investment in AI pay off?)

    • Hyperscalers expected to spend $754B this year (+83% vs 2025) and $905B in 2027.
    • Alphabet as a cautionary financial example:
      • First quarter negative free cash flow since going public (2004)
      • Took on ~$100B debt and raised ~$85B equity (June; first major share sale in two decades)
      • Uses buybacks historically but now issues equity to fund expenses.
    • External view: UBS (Keith Parker) forecast S&P 500 to 8,100 (end of this year) and 8,900 (end of 2027), but warns post-2027 outlook may worsen if AI capex erodes margins if ROI is unclear.

  2. Valuation / the “multiplier”

    • S&P 500 forward P/E multiple ~21 (about the 87th percentile since 1980).
    • Median stock multiple ~18.
    • Equity risk premium described as historically low vs bond yields around 5.3%, making stocks vs bonds a more balanced decision.
    • S&P 500 ROE: “just hit a record 22% over the past four quarters.”
    • Key valuation logic:
      • “Each unit of return on equity ≈ one point of P/E”
      • The focus isn’t “P/E must fall because it’s expensive,” but whether high profitability/ROE can be sustained.

  3. Inflation—especially energy as a fast-moving trigger

    • Crude oil levels:
      • Started 2026 near ~$57
      • Hit ~$113 in April
      • Then described as drifting lower (mentions “She is now in her 80s,” implying ~$80s).
    • No Iran deal and market pricing risks around Strait of Hormuz.
    • Claim: energy spikes are the fastest way to force Fed action within ~24 months (even if oil isn’t the whole inflation story).

Explicit scenario calculations (EPS + multiple → index level)

Bullish scenario

  • Goldman forecasts S&P 500 EPS:
    • $340 this year
    • $385 next
  • Apply P/E multiple = 21 (no valuation expansion).
  • Result: ~8,100 by end of 2027.
  • Additional tailwind: ~$8T in money market funds could flow into stocks.

Bearish scenario (not necessarily a recession)

  • AI capex disappointment leads to:
    • 2027 earnings = $340 (vs $385)
  • Multiple compresses:
    • 21 → 18
  • Index estimate: 18 × 340 ≈ 6,100
  • Implied drawdown: ~20%+.
  • Key point: this doesn’t require negative GDP—just moderate earnings underperformance + moderate multiple compression.

Base-case description

  • More volatile and more rotational than the prior 3 years.
  • Gains more from earnings than from multiple expansion.

Timelines and performance/risk guidance

  • Time horizon: next 24 months.
  • Main expectation (personal positioning): a “healthy correction” of ~10%–20% within the next 24 months.
  • Important caution: not predicting timing precisely—being “right on the points” but off by ~18 months could still be wrong for decision-making.
  • Probability statement: “Historically, 2-year periods have been positive about ~80% of the time.”
  • If a 20% decline forces selling → framed as a position sizing problem that can be fixed.
  • If you can endure drawdowns (e.g., long time horizon like 15 years) then stock volatility matters less.

Investing strategy / portfolio construction (presenter’s stated approach)

Core principles

  • Decide based on:
    • Asset allocation
    • Time horizon
    • Whether portfolio can survive mistakes/drawdowns
  • Recommends “most people” use a three-fund-style framework (not literally 3 holdings only, but conceptual diversification):
    • Market exposure (e.g., S&P 500 / total US)
    • A safer equity sleeve for downturn protection (value / dividend tilt)
    • A growth sleeve for upside participation
    • Plus: cash reserve (or equivalent) for unforeseen events / buying during declines
  • Advises distribution depends on proximity to retirement.
  • Mentions a separate video and optional Zoom consultation (~1 hour) for individualized percentages.

Presenter’s example current allocation (monthly $1,000 investable)

  • $300 core ETFs: VOO or VTI
  • $200 value ETFs: SCHD, VTV
  • $200 growth ETFs: QQQM, SCHG
  • $100 specialty sectors: VGT, WQTM
  • $100 cash (safety + redemption capacity during declines)
  • Plus $100 for:
    • specific individual stocks or Bitcoin “if there are good deals”

Tickersons / assets / sectors / instruments mentioned

  • Indexes: S&P 500, Russell 2000
  • Rates / macro: 30-year Treasury, 2-year Treasury; mentions Fed policy rate 3.5–3.75%
  • Equity ETFs:
    • VOO, VTI (core market)
    • SCHD, VTV (value / dividend tilt)
    • QQQM, SCHG (growth)
    • VGT (technology sector)
    • WQTM (sector/“specialty” ETF as labeled)
  • Cash equivalents: money market funds (~$8T referenced)
  • Crypto: Bitcoin
  • Company: Alphabet
  • Commodities: crude oil (oil)

Disclosures / disclaimers

  • “Not financial advice”
  • “I am not a financial advisor”
  • “Remember that any investment carries risks—do your own research.”
  • “I don’t have a crystal ball” (timing uncertainty emphasized).

Presenters / sources mentioned

  • Nolan Goavert (“Professor Ji”)
  • Keith Parker (UBS) — cited EPS/index forecasts and margin warning
  • Goldman — cited EPS forecasts and scenario setup
  • Evercore — cited optimistic target for S&P 500 ~9,000 by end of 2027
  • Kevin Warsh — referenced in Fed commentary (chairman mentioned as taking over in May)

Original video