Five for Friday
October 17, 2025
Valuation, Running Your Race, Consumer, Electricity, and This Day in History
1. Value
One measure of whether stocks are in a bubble is how much of the market’s rally is being driven by earnings growth vs. multiple growth. This is a way to gauge how much of a stock’s move is about excitement over future growth potential and how much is about the company’s fundamentals today. For example, if a stock price doubles but the company’s profits are flat, the price-to-earnings (P/E) multiple has doubled, making the shares more “expensive.” Over the last 5 years, the S&P 500 has more than doubled in price (+106%) but its P/E ratio has gone slightly down (because profits have increased). The S&P 500 Equal Weight index (referred to as “the average stock” because it removes the outsized influence of the largest companies) is up 83% over the same period but its forward P/E ratio has shrunk. For both versions of the index, stocks have gone up without getting more “expensive,” suggesting that prices could have a way to go before the market reaches bubble levels of speculation.
2. "Bubble"
talk isn’t going away, however. This month’s In the Markets Now is on the value of running your own race.
3. Consumer
Our partners at Strategas (a Baird company) have challenged consensus opinion with a call for a consumer spending boom in 2026 at a time when most of the discourse is focused on labor market softness and tariffs. Headlines have largely moved on from the One Big Beautiful Bill Act to other items like AI and trade, but the economic benefits of that legislation won’t really ramp up until 2026. Strategas estimates that consumers will receive $150 billion more in tax refunds in 2026 than they did 2025 (or nearly an additional $1,000 more per worker). Since refunds are more likely to be spent than saved, this cash inflow—especially when paired with interest rate cuts—could go a long way in supporting the (non-AI) economy in 2026.
4. Power
A colleague recently noted that despite Big Tech hype and a still-elevated interest rate environment, the best-performing sector in 2025 has been Utilities. This is due to the massive—and ever rising—power needs of the AI ecosystem. The IEA projects that electricity demand from data centers is set to more than double by 2030 to ~945 TWh, more than the entire annual electricity consumption of Japan today. The question is twofold: 1) is electricity generation a true bottleneck to AI reaching its potential; and 2) what is the fallout for the consumer if electricity prices continue to skyrocket? Electricity costs are up nearly 40% in the last five years, well above headline inflation and wage growth. Balancing the desire for AI leadership with consumer inflation worries will be a tightrope for governments to walk, and the question for the Utilities sector is whether higher electricity bills for customers will make it more difficult for utility firms to get rate increases and regulatory approval for investment plans.
5. On this day
in 1973, Martin Cooper, an engineer at Motorola, filed a patent for a “radio telephone system,” the first truly portable mobile phone and a precursor to the modern cell phone. As the story goes, Cooper demonstrated the device to reporters by calling his counterpart at AT&T to boast about the progress. "I said 'Joel, this is Marty. I'm calling you from a cellphone, a real, handheld, portable cellphone.' There was a silence at the other end. I suspect he was grinding his teeth.”
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