JD Durkin: Let’s bring in a very good friend of ours once again here on the show, Melissa Otto, Head of Visible Alpha Research at S&P Global Intelligence. Nice to see you again.
Melissa Otto: Hey, JD. How’s it going?
JD Durkin: I mean, it’s going great, especially if you are an investor in these markets, because we remember the way that September ended last week. But here we are, fourth trading day of the month of October, four days of gains for the S&P 500. Is this the start to Q4 that you were expecting?
Melissa Otto: I mean, it kind of feels like we could be seeing the early innings of a Santa Claus rally.
JD Durkin: Yeah.
Melissa Otto: I mean, it feels a little bit exciting. You know, you’re seeing a little bit of that momentum come back into the market, especially ahead of earnings, where we’re going to see potentially very nice earnings growth coming into the mix.
I think all eyes are going to be on where the big hyperscalers are going to guide the market around CapEx, and then just hearing about the AI trade and what’s next.
JD Durkin: Melissa, if I’m not mistaken, one of the shows you joined us for earlier this year was also the day the Dow closed above 50,000. It’s certainly the first time ever. I remember you and I down here—
Melissa Otto: I bring on the bull.
JD Durkin: Oh, you really do. And here we are for the S&P.
Talk to me a bit more about those hyperscalers’ earnings. We’re not quite into earnings season. Obviously, we’ll hear from the big banks, the financial giants, first. But maybe some positioning, pre-positioning, into some of these tech names, given concerns over valuations. They continue to move higher.
Melissa Otto: Absolutely. And I think what we’re starting to see now is some stock selection happening. You’re seeing the likes of Caterpillar or Cisco, Nvidia, all outperforming very nicely year to date. Hyperscalers either in line or slightly underperforming.
I think the reason for that is that you’ve got Amazon, Meta and Alphabet all expected to show negative free cash flow due to that high CapEx that they’re spending around the AI infrastructure.
However, Microsoft being the one exception, they guided for an acceleration in their AI business line, which should be interesting and exciting as we go into this earnings season.
JD Durkin: I’m curious to hear what they say and what the numbers look like right now.
Melissa Otto: Consensus is expecting 50% growth in that.
JD Durkin: Wow. Unbelievable.
It’s the first time you and I have spoken in a bit. We do have a little bit of downward pressure, two basis points in the red for the 10-year Treasury yield. But for the most part, this has been a backdrop of a bit of a global bond rout that we’ve seen, the spiking especially in the long end of that very stubborn Treasury yield curve.
How have you been thinking about that as a potential pressure point over equities, especially the last few weeks?
Melissa Otto: Bring on the bull. Grow, grow, grow. I have a growth bias in my investment style, and I love to see earnings accelerate, sales accelerate. I love to see disruptors come into the market, change the game.
And I think we’re starting to see some indications of that. 2027 is teeing up to be potentially very exciting.
JD Durkin: Yeah. Given your investment style, what have been some of the biggest surprises, if any, so far here year to date in 2026? We know history tells us, especially for midterm elections, things can get choppy for Q3. But for the most part, we’re still coming off a pretty strong few months.
Melissa Otto: One of the biggest surprises for me was seeing Nvidia come down to around 15 times. We have not seen that level of valuation for Nvidia in a couple of years.
Nvidia tends to trade in a range of around, say, 23 to 27 times, and sometimes it’ll get up to 30 times when you get a little frothy or you get that real momentum trade going.
And so I think, as we look out, it’s interesting to see how the market is starting to get excited about Nvidia’s fundamentals again.
JD Durkin: Speaking of excited, I’ve been very excited to see you again. I’m out of time, unfortunately, so please come see us again, especially as we get a little further into earnings season. Melissa, nice to see you, as always.
Melissa Otto: Thanks for having me on.
JD Durkin: Take care. We’ll talk soon.
