In this episode of Macro Voices, Adam Parker of Trivariate Research discusses the U.S. equity market, arguing that despite high valuations, strong corporate earnings will support further gains. He highlights the durability of the AI trade, suggests energy stocks as a valuable diversification away from tech concentration, and advises against pre-positioning for geopolitical risks or interest rate shifts.
Summarized by Podsumo
Adam Parker believes the equity market is not a bubble, but expects price-to-earnings multiples to contract while earnings growth sustains a choppy upward trend for the next 6-12 months.
He recommends overweighting energy stocks (7-8% of a portfolio vs. the S&P 500's 4%) due to above-average estimate achievability and low correlation to tech, making them a good diversifier.
Parker argues that the AI trade is durable but volatile, with semiconductor stocks like Micron trading at 4-5x peak earnings and offering upside; he warns against trying to time the top of the AI cycle.
Healthcare is identified as a contrarian opportunity: the market prices a 0% chance it will be the best-performing sector over 5 years, but Parker sees a 30-40% probability, given aging demographics and political constraints on healthcare cuts.
He dismisses value investing based on cheap valuations, noting that buying stocks that have become more expensive has outperformed for 15 years, as such stocks have a higher probability of beating earnings estimates.
"I think the corporate earnings have been strong and the price to earnings probably contracts some. And so you're left with a choppy but upward trending US equity market for at least the next six, twelve months, just because of the strength of the underlying earnings."
"I think the market is trading on a distribution of outcomes on 2031 revenue. And the companies where the out-year revisions are going up outperform those where they're not going up."
"I don't think value the way people think about it, like price to earnings or price to book, has any information in a less than three-year timeframe."