Phil Neuhart, Head of Market and Economic Research at First Citizens Wealth, says fundamentals are still in place and his team's 12-month S&P 500 price target is 8,300, about 10% higher from when they spoke.
On Full Signal with Phil Rosen, Neuhart discussed a mid-cycle AI trade, a December Fed hike, the K-shaped consumer and a barbell overweight in technology, utilities and consumer staples.
Why he still calls the market cheaper
Neuhart said the most recent quarter delivered earnings growth of more than 30%, the third straight quarter north of 25%. He said all 11 sectors grew earnings and seven posted double-digit growth, while initial jobless claims sit at multi-decade lows.
Because earnings are up about 30% while the market is up about 10%, "the market's a lot cheaper today than it was to start the year," he said. He described the outlook as "optimistic, not max bullish, but we remain constructive."
Where he puts the AI cycle
Neuhart agreed that incremental economic growth has been driven by AI capex, but he does not see that spending stopping. He framed a slowing from $1.2 trillion to $1 trillion next year as still huge for the economy, and said a real drop in AI demand is what would keep him up at night.
He said adoption has spread from his innovation clients 18 months ago into Main Street accounting, legal and back-office work, and he put the trade in about the fifth inning.
If this is a game changer for the economy, "you want to own the economy," he said. "You want to be diversified." He also said, "Excess capacity is the enemy of investors."
The risk that would turn him bearish
The obvious risk is an AI unwind, and the under-discussed one is a K-shaped consumer. "We really do have two consumers," Neuhart said.
He cited the Fed's latest Survey of Consumer Finances, which he said showed half the population saw real net worth decline from 2022 to 2025. The other half owns stocks and homes, so a sustained selloff or a drop in home prices could hit what he called a bit of a top-heavy economy.
That is not his base case. Personal consumption is 70% of U.S. GDP, he noted, and the consumer is still growing around 2% to 2.5% in real terms.
The sectors his team is overweight
His factor-based equity process tilts toward profitability, or quality. That leaves the team overweight technology, with a defensive barbell in utilities and consumer staples and only modest overweights versus the S&P 500.
Beyond tech, he called out utilities on earnings growth, return on equity and valuation, and said AI-related power demand is starting to show up in the data. Staples are a ballast, because "the thing that people keep buying is toothpaste."
"I don't think it's a house of cards," he said of the AI debt boom, adding that he would not have an 8,300 S&P 500 target if he thought it was. He expects the Fed to raise rates by 25 basis points in December. After Governor Waller floated a 50-basis-point move, Neuhart said, "That is not my view."
Tune in to the full conversation with Phil Neuhart on YouTube, Spotify and Apple Podcasts.
For more on the AI cycle, read Strategist Adam Parker Says the AI Spending Cycle Is Only a Third Done and Explains Why He's Very Bullish on Healthcare, and subscribe to the free Opening Bell Daily newsletter for a daily briefing on stocks, macro and Wall Street.
This article is for informational purposes only and is not investment advice. Views and stock opinions are those of Phil Neuhart and market figures are as stated by the guest at the time of recording.
