Talk Your Book: What's Working in the Stock Market?

What It Covers

Chris Galipo from Franklin Templeton joins Animal Spirits on February 23 to analyze a market where the equal-weight S&P 500 is up 6% and 68% of S&P stocks are positive year-to-date, while Mag Seven names like Microsoft sit in 29% drawdowns and software ETF IGV hits new lows amid AI disruption fears.

Key Questions Answered

• •Market Broadening Signal: When 68% of S&P 500 stocks are outperforming the index — the highest reading in roughly 50 years — it signals a genuine rotation, not a bear market. The equal-weight S&P trades at 17x forward earnings versus 22.5x for the cap-weighted index, offering a concrete valuation entry point for investors willing to look beyond familiar mega-cap names.
• •Earnings Power Shift: From 2020 to 2025, Mag Seven EPS grew 750% while the remaining S&P 500 companies grew earnings only 32%, justifying prior concentration. For 2025–2027, earnings growth is projected to broaden significantly across sectors. Investors should rebalance toward sectors with improving EPS trajectories — energy, industrials, consumer staples — rather than chasing the prior five-year winners.
• •International Equity Setup: Rest-of-world equities now show earnings growth equal to or better than the U.S. for the first time in 15 years, with Japan's shareholder reform program running five-plus years. European and emerging market valuations remain discounted. Investors with minimal international exposure face a scramble to add positions as currency tailwinds and earnings catalysts simultaneously materialize in 2025.
• •Midterm Year Playbook: Midterm years historically produce below-average S&P returns, but 12-month forward returns following midterm weakness have been positive 100% of the time historically. Galipo's tactical signal: wait for VIX above 30 and S&P RSI below 30 before adding equity risk aggressively. Current VIX at 21 suggests the sell-off remains orderly and the optimal entry point has not yet arrived.
• •AI Margin Paradox: Walmart reported that customers using its in-store AI tool spent 35% more than non-users, and the company projects equivalent revenue growth over the next five years with zero headcount additions. This pattern — AI expanding margins without proportional labor costs — suggests corporate profitability benefits even as specific software business models face existential repricing from the same technology.