S&P 500 to 9,000? 5 stocks to buy now

Joining us now is Eddie Gabor, co-founder and CEO of Key Advisors Wealth Management. Eddie, welcome to the desk. Not your first time on the show, but first time at the desk. So welcome.

Thank you. It's a pleasure to be here with you. All right,

so we have a big day ahead. We're glad that you can be here for it. Fed decision coming up later this afternoon. You've warned that the Fed is the number one thing standing in the way of this bull market or could stand in the way of this bull market. Explain.

So the biggest reason why we say that is right now the bond market has starting to show some warning signs when we see high yield spreads broaden out, you had the core weave news on their secondary market and the bond market, and what that tells us is the cost of capital for some companies, especially small companies.Which is the heart and soul of the US economy, are starting to go higher when the cost of capital is higher. That means there's a chance of economic growth slowing when you look 6 months out. If the Fed tightens monetary policy into an already tightening monetary situation like that, that's when we use the term things can break in the in the bond market, and that's our biggest concern.We actually have a proxy 2018, the fourth quarter of 2018, the Fed ignored some signals they raised in September, they raised in December, and the NASDAQ dropped by 20% in that fourth quarter, and the, and the S&P dropped by approximately 10%. So I'm hoping that Washington.Company will respect the signals that the bond market is giving us and let rates be where they are right now. And lastly, I'll argue the biggest reason why inflation is staying sticky is because of oil prices. Raising rates is not going to bring oil prices down. The only thing that's going to bring oil prices down.Is the geopolitical tensions subsiding and going away. So what they're trying to do, which I respect, is getting inflation down, but unfortunately they're in a bad spot because they have zero control over the one thing that's causing it to stay sticky

high. So I was taking a look at the CME FedWatch tool this morning. There's a 90% chance that the Fed will stay on hold today, but a 78% chance of another rate hike in December. So if they hike,What happens? Do we see a 20% downturn in the NASDAQ? Do we see this 10% downturn in the S&P 500?

I believe you will see that manifest in 2027 if they do that. If they raise rates again in December, as in the same time that the high yield spreads are where they are right now and we're seeing the secondary bond market, we will probably start to sell our more our tech holdings and put a defensive playbook for 2027.I do think the market is set up for a cold spring in November. I think we're going to have a really nice catch up trade in tech, but if the Fed raises rates, I think it's going to put cold water on this bull market. We're going to have to respect those signals as much as we want to be bullish, and we have to honor the credit markets. The credit markets will see.Signs of cracking before the stock market does. That's why I tell my team the bond market is smarter than the stock market. When we start to see the bond market flash warning signs, we will respect that and start to play defense.

What's the warning sign look like?

So you'll see high yield spreads widen even more.And we'll start to see other names, not just Coreweave. So Coreweave alone doesn't worry us. That's one company. I think there's an overreaction here short term. However, if you start to see the secondary bond market on names like Oracle and the hyperscalers start to widen, that's going to be the number one sign that we need to start selling, because what that means is mathematically it's going to be very difficult for them to meet their CapE numbers for 2027.

OK, so forEveryday retail investor who's saying, OK, but if I start to see red arrows, how do I know if this is a buying opportunity or if this is a warning sign? What specifically should they be putting in their watch list? What specifically should they be watching?

So they need to be watching. One of the areas to just really watch is high yield bonds. They can look at an HYG ETF for everyday investors. If you start to see that ETF start to go down in value.And continue to go down. That's telling you that those yields are widening and

down in value. Like, give us some numbers here.

What's 5 to 10%? That's a big move in bonds, OK, um, and that will be, that's gonna be our number one thing we're gonna be looking at is the difference between the yields and high yield versus the risk-free rate, which is the, the government bonds. When those start to widen, that tells you that there's some stress in the bond market and there's concerns about the credit.Quality of some of these companies. OK,

Iwant to touch on your defensive playbook as well, but before we get to that, what's the upside scenario if the Fed stays on hold today and then again in December?

I think this runs, we're going to see S&P 8500 to 9000 by the time we get to the first quarter of 2027. It is the underpinnings of this market.With the fundamentals and earnings and the profitability we're seeing and productivity with AI is like something we've never seen before. I've been doing this for nearly 30 years. These earnings numbers have been fantastic. The gray cloud over everything has really has to do with this war and the impact on inflation. If you remove that and no rate hikes, this market is going to really accelerate to the upside because there's a lot of people pessimistic right now that are short this market.They're going to be forced to buy and take it to new heights. So

8500, 9000 would be if we don't see rate hikes, but also if the Iran war ends.

That is correct,

and oil comes down to what?

So oil, in our opinion, once we get rid of that that threat with Iran, oil is back down to the 70s and 60s very quickly. Matter of fact, we can look at July in the summer when we had the peace treaty or thought of.It was a peace treaty. Oil came down substantially, um, and that means that the rate of change of inflation will decelerate and that brings yields down as well too, which is good for borrowers because the housing market's also been hit with this that covers a big part of the economy. So, uh, and I think there's a high probability that you see those things if the Fed.Just stays patient.

Thereare two vastly different scenarios though. So do you trust the Fed funds' futures and expect that the Fed will hike then in December, or what do you do right now as you wait to see how this plays out

right now in this market we are looking at it short term. You have to worry about right now, and right now there's not going to be a hike in November as well, we don't think there'll be a hike today or October. I'm sorry, October. Yes, we don't think there'll be a hike today. So that should be a really nice setup.For this next month of November, as you get to mid November, you'll start, we'll start looking at the probabilities of the bond market in regards to a hike. We've seen many times where probabilities went really high and then came back down. It changes all the time, correct. So trying to worry about a December hike right now, I think is too premature because so much could happen. And again, if oil prices peak and start to decelerate.That puts less pressure on the Fed as well because they've seen there's areas right now of inflation that are coming down, and I point to housing because that's a big part of the calculation of CPI and housing is starting to come down. Rents are coming down, prices are coming down. So right now I'm not worried about December because I think by the time we get to mid November we'll have a better idea on what that probability looks like. What

if Fed Chair Warsh indicates that.A rate hike iscoming.

It will be a very bad 2 or 3 days in the market. I will tell you I would buy that dip because I think we are oversold, and a matter of fact, that is, I think, one tailwind that we could see is everyone's expecting a hawkish pause.I think there's a higher probability of a dovish pause today than many people have Christ in. So, but you're right, if he's hawkish today and says that we are not close to getting the job done and implies that there's going to be a hike.In December, it's going to be, you could see a 2 to 3% pullback on the broad indexes that youwould buy.

Absolutely. Now when we spoke in April, it's been a while, you were encouraging investors to buy the dip, particularly in small caps and some of the beaten down software names. Where are you finding the best opportunities rightnow?

So right now the best opportunities we found are in the in the beaten memory names and the semi names.They went through a nasty sell-off, uh, just like they did in the summer, and that's been one of the hardest things to manage in this market is we've seen a lot of rolling, I call it crashes, anytime something drops by 20% or more, we define that as a crash amongst our team and clients, and you've seen big companies like Micron's of the world that lost 30 to 50% of their value in a month. Those to us have been the opportunity, so we use a month to set.September to really start to increase our tech exposure in these beaten beaten up areas as well as the recent sell-off that we've been seeing to increase tech going into November where we think there's a big catchup trade to ahead and

not too late. Micron obviously bouncing today at SK Heinech up about 10% today. Micron was up 4% last I checked. Not too late to get into those names. I don't believe so. Any other names in terms of tech that you're buying?The dip on,

so we love cybersecurity names, and I think

is there a dip

there? There hasn't been a dip there. And so from a technical standpoint, a lot of times when you see these breakouts, they continue to go higher. The one thing we like about the cybersecurity names is from a fundamental perspective, when you look at the next 6 to 12 months, the biggest concern we have from tech as a whole are companies pulling back on their investment.In regards to data centers and all the capex numbers that we expect to, when we talk to CEOs, the biggest concern they have with this AI driven world that we're in today are cyber attacks. That's gonna continue to be one thing that keeps them up at night. So when you look at corporate America and.The area that they will not skimp on on spending over the next 6 to 12 months will be cybersecurity. There's going to be a big push to make sure that your data is protected,

and I get that, and we hear that thesis a lot, but how do you know which cybersecurity names to buy?

In our opinion, one of the best things for everyday investors to do is just look at an ETF. Bug is an ETF. BUG is an ETF that we own for clients, and that has your best of breed names, your Crow stripes, your Palo Altos of the world. So versus having to try to pick one winner and.And also tech is extremely volatile, we know that. So it also reduces your volatility exposure there, but still gives you the upside potential that you're looking for when you get into a space like that.

But you did bring CrowdStrike as a pick with you, so you are stock picking within cybersecurityas well.

Absolutely. So our client base, when we look at them, we custom design their strategy. Some clients have a much bigger risk appetite than others. So the ones that.The bigger risk appetite, we will go and put individual names with the underlying ETF as well too just to get that extra exposure and hopefully that extra alpha. OK,

am I getting this right that Eli Lilly is another one of your AIplays?

It is, um, and, and Lilly to us because of some concerns that we have for next year, healthcare has been usually a great defensive area to be in.And it's, it's odd to now have a defensive sector that's benefiting from AI, and I think that's something that clients and investors need to look at is instead of just only looking at the chip names and microns and the videos of the world, is look at other areas that are using AI to increase profitability. And Lily, with the GLP-1 drugs that are out there, they are the leader in that space. They're investing quite a bit internationally as well too.And they're in a sector that we like for 2027, so it checks off a lot of boxes for us.

It's good to go back to your April picks, the beaten down software names, several of them did see a nice bounce since then. Time to take profits there. Not too late to get in there. What software names do youstill like?

So we still like Microsoft. Again. We want to increase the quality of our portfolios. Palantir we like as well too. IGV is a software ETF.That we bought during that dip as well too, we still own it. We did take a little bit of profit off of IGV when we started rotating into the beaten down memory and semi names, but we still have a core holding there and we still think that software is a strong place to be, uh, heading into the month of November.

What about some of the software names, excuse me, that aren't Microsoft?You know, CRMWorkday

we've stayed away from those names Oracle Oracle, we're staying away from Oracle as well too. What concerns us with Oracle again is some of the signs of the bond markets telling us when you look at the secondary bond market for Oracle, it's not nearly as extreme as some of the neo cloud names, but the cost of capital for them in the bond market has been increasing as well, so that concerns us a little bit.And that name has extreme volatility. So if you want exposure to an Oracle that to us has a much higher, uh, beta and a lot more volatility, I would err on the side of caution and being an ETF that has exposure.

You technically gave us a software, or I'm sorry, a healthcare.Pick with Eli Lilly, although that's as an AI pick. So tell us outside of tech and AI, what areas of the market do youlike?

So right now, as we're starting to position for next year as well too, this is boring, but we really like gold.We think gold is an area that's going to do really well

next year, even if the S&P hits 9000. We

do, uh, and the reason why is for all the factors that will cause the S&P to rip to those levels will be because the Fed is no longer tightening. Yields are starting to come down, inflation is coming down, the dollar stabilizes, and those are all positive catalysts for gold. Another contrarian play which has been left for dead is housing.Housing has been beat up because of yields. We do believe that trends and yields next year will start to trend downward, uh, and so that will be an area where interest rate sensitive areas that have been beaten up like utilities, like real estate will be great places to add to your portfolio,

will beor are rightnow

will be. I would not be buying housing right now. I need to see what happens with the Fed in December.

I guess though if another rate hike could cause a 20% selloff, why shouldn't investors take money off the table right now?

So I think it depends upon how much concentrated you are in the high flying areas. Obviously if you've had a huge return, there's nothing wrong with taking a profit and getting yourselves to a 20 or 30% position.But again, when we look at the set up for November, we haven't really, we've already had a lot of things sell off and correct to us that's not the time to take chips off the table, so I would be patient in doing that and we would be buying the dip right now going into November and as I said, I would start looking at the probabilities of the Fed hike rate hiking rates because as you know if those probabilities start to go down.That will be a tailwind for the markets that could give us the Santa Claus rally that we all hope for.

OK, but let's go back to your defensive playbook. If we do get a signal that the Fed's going to hike, if the Fed does hike come December.You had mentioned taking some chips off the table in tech. What would you be doing to protect your portfolio?

We would be selling the semis and the chips, uh, and the software names. When you have that type of selloff, it's going to go after your technology and higher beta areas first. We're gonna have to protect our clients in that space, and we're gonna have to put the defensive playbook, which will be cash, gold.Utilities and healthcare, it'll be the most boring, it'll be the opposite of basically what we have right now in that scenario, um, and then we'll probably, if that plays out in that defensive playbook, then you're probably gonna see, uh, in the second half of next year, some amazing buying opportunities.I have said to our clients, I think this next decade is going to be one of the best decades of our lifetime from an investment perspective because of how powerful AI is. But anything that's this disruptive, you're going to see booms and busts along the way. But

would that be a bust within a bull market then?

It would be now what you will see, because I think the bullish trend is going to continue, but you will see, so Elon Musk got a lot of hype for his the post he put on X about some of the neo clouds no longer being here. That's a realistic

scenario 2 200 plus of them correct, no longer being here or being consolidated.

I don't know if it'll be that extreme, but anytime.You see this type of new technology, a lot of folks get into it, and some just aren't going to make it. That's just how the markets work, and that will be when you know that it's time to start really buying aggressively. Are you buying any neo clouds? No, no. Again, we respect the bond market signals, and right now the bond market signals for the neo clouds is waving a big red flag.

If someone owns too much tech right now, where's the first place they should put their money?

If they take money off the table, if they're doing it today, I would sit it in cash right now. That's what I would do, and I would sit back till mid November. That

is

correct, uh, and then really see what the setup is going into December because if you're heavy in tech, you've had a fantastic year and instead of trying to, you know, be a little too greedy, just take some chips off the table. Something that sometimes the best thing for an investor to do is just be patient.And do nothing with the cash. I think sometimes we feel like we always have to be fully invested. And when you're properly risk managing a portfolio, there are times to push the gas down and then there's times that, you know, it's OK to just sit back and wait and see how things play out, especially if you've had a big year. And

if I do have a pile of cash that's sitting right now, we joke that people will be like, Where's all this cash coming from? So I do understand that. But if I am sitting in cash right now.Where's the first place I should put it if I want to put it to work

today? I would be buying the semis, the memory names, uh, and I would buy some high quality. I would buy names like Microsoft again if they've got the right risk tolerance. And the reason why we say that, especially in the semis and the memory, is that they've had a pretty big correction already. And if we're going to get a ketchup trade.In the month of November like we expect, I think you can see some really nice returns in those names. They're violent, so they're not for everyone from a volatility perspective, but we've seen the proxy all year.Even when you look back from last summer till now, we've had software have big corrections and come back. We've had memory had big corrections and come back, and we've had the semis have big corrections and come back, and I think we're at that same inflection point right now where the semis are poised to go back to where they were.

And are there any tech stocks that would be safe if we do see that market downturn? Would you?Flee to safety in some of the hyper scalers.

MaybeApple is probably the safest name to own in that space because Apple is, they're not very aggressive in AI or not perceived to be. They've got a very strong balance sheet. When you look at the debt markets, they have no problems with credit. So to us that would be the number one name to start piling into for a defensive playbook on that high quality. When you look at high quality tech, there isn't a name that checks that box off more than Apple. Would you buy it here?I would not buy Apple here because Apple has had to move because the other areas have taken a hit. So you can use that as a short term proxy as when memory and semis are hurting, money flows to Apple. So we wouldn't be buying Apple here because they've already had their move because of how the semis and memory names have been hurt.

But you would buy on a dip. Absolutely. OK. All right, I think this is a great time to pivot to our rapid fire round of this or that. You've played before. Quick questions, quick answers, no hedging. Are you ready, Eddie? Ready, Eddie.Bull market continuing or coming to an end. Continuing. Stocks by year end, higher or lower? Higher. How much higher?

5%.

Fed in December hike or holds?

Hold.

Bigger risk to stocks, the Fed or disappointing earnings. Fed.Market leadership in 2027 broadening or narrowing

Broadening

into

Healthcare, real estate, utilities,

tech sell-offs, buying opportunity or warning signs?

Buying opportunity,

semiconductors or software, semis, Microsoft or CrowdStrike. CrowdStrike. AI infrastructure builders or AI beneficiaries. AI beneficiaries. Eli Lilly or Microsoft for the next 3 years.

Lily.

Finish these sentences. One AI beneficiary, one AI beneficiary every investor should consider owning is Crow strike. The most overrated Mag 7 stock is Meta. The most overrated stock outside of the mag 7 is,

is, uh, the neo clouds.

The first warning sign that this bull market is ending would be

bond yields in the high yield space.

At what level?

4% over the risk-free rate.

The stock I'd buy today and hold through 2027 is Mike. Eddie Gabor, thanks so much for playing along. Thank you for all your picks and your perspective. Really appreciate it for having me. That's Eddie Gabor, co-founder and CEO of Key Advisors Wealth Management. If you enjoyed this street talk, check out our full interview with George C. He explains why he thinks stocks will end the year higher and the names to buy now. There's some similarities and some differences.