My 24-Month Stock Market Prediction (How I'm Investing Now)

A couple of weeks ago, the S&P 500 hit an all-time high above 7,800. In the same week, the 30-year Treasury yield hit 5.31% highest since 2007. And today, it's still over 5% now, which is so high. Stop and sit with that for just a second. The stock market is telling you the future is bright, but the bond market is telling you money's going to cost more for a generation. They both can't be right forever. So, today I'm going to walk you through the next 24 months. Now, obviously, I don't have a crystal ball, and if you do, please call me up so that we can make some cool content together. But, what I can tell you is what I'm definitely seeing right now, what's building up, and my best educated guess as a university professor and as somebody who works with high-net-worth individuals to be able to bring you exactly what I think is going to happen over these next 24 months. I'm going to give you three variables that actually decide what happens, the math on what happens if each one breaks, and then the honest version at the end that most people won't say out loud. And all of this means nothing if I don't show you exactly how I'm investing due to what I'm thinking is going to happen over these next 24 months. So, I'm going to break it down exactly, show you my exact percentage so that you can get a very good idea of what I'm actually doing with this information. My name's Nolan Govea. My students call me Professor G, and I made this channel to make investing simplified. Remember that all investing carries risk, so do your own research. This is not financial advice, and I'm not a financial advisor. So, here's where we actually are. The S&P 500 is sitting very high still, just off that record from before. Over the last month or so, the rally into it was real, and it had reasons. CPI and PPI both came in cooler than expected a while ago, oil pulled back from its high, and AI and tech earnings kept delivering. and the breadth improved, which matters more than most people realize. Back in June, only about 17% of S&P 500 stocks were outperforming the index. That was one of the lowest readings in a decade. That's a market held up by a handful of names, but in the last few weeks, the Russell 2000 has been hitting record highs alongside the S&P 500. That's small caps participating. That's healthier than what we had 2 months ago. So far, so good. So, here's what other people aren't talking about, though. The 30-year Treasury was recently at 5.31%. To put that in context, for most of the decade after the financial crisis, that number sat below 3%. It's now at the highest level since July 2007. And over this past month, something very specific happened. The 30-year went up 13 basis points, and the 2-year went down 12 basis points. That's called a steepener, and you need to understand what it means. Because it's not the same thing as rates are going up. The Fed controls the short end. When the 2-year falls, that's the market saying growth is slowing. The Fed will eventually have to cut. Nobody controls the long end. That's the market pricing inflation, deficits, and how much can plausibly go wrong over 30 years. So, when the short end says slowing, and the long end says we need more compensation to hold money at the same time, that's not a growth story. That's the bond market questioning the fiscal picture and the inflation picture simultaneously. That's the single most important thing that you need to pay attention to right now. But, what's going on with the Fed? The Fed's been on hold at 3.5 to 3.75% for five straight meetings. But, on hold makes it sound calm, and it's definitely anything but calm. If you remember back to the July meeting, three members dissented. They dissented in favor of raising rates, not cutting. Fed chair Kevin Warsh, who took over in May, has publicly described inflation as a choice. And meanwhile, the actual economy is softening underneath all of this. Retail sales fell, July producer prices came in flat. So, you do the math. Sticky inflation, a hawkish Fed chair, three voters who want a hike, and a consumer that's starting to pull back. If inflation reaccelerates and the Fed hikes into a slowing consumer, that's stagflation scenario. It's not the base case, but it's definitely more so on the table now than it was 12 months ago. So, let's move on to the three variables that I was talking about from the beginning, because this is what I'm seeing and what I want you to focus on over these next 24 months. Variable one, does AI CapEx earn its cost of capital? Consensus has the hyperscalers spending $754 billion on CapEx this year. That's an 83% increase over 2025 and 905 billion in 2027. To me, those aren't numbers, those are national budgets. Now, the spending itself isn't the problem. I've been telling you this from the beginning. Companies invest. Anybody who's built a business or runs a business knows that it takes money to make money. So, investing in infrastructure is not bad, as long as there's an ROI, a return on investment. Now, Alphabet just printed its first negative free cash flow quarter since its IPO in 2004. It's taken on roughly $100 billion in debt this year. And in June, it raised about $85 billion in equity, its first meaningful share sale in two decades. This is a company that spent years buying back its own stock, and now it's issuing more stock to fund these new expenditures. When a serial repurchaser starts selling equities to fund spending, this is basically you and I as investors asking to prefund eventual returns that haven't shown up yet. But look at this, UBS's Keith Parker has the S&P 500 at 8,100 by the end of this year and 8,900 by the end of 2027. His own note though says that visibility gets murky past 2027 because AI capex starts compressing margins once companies lose clarity on return on investment. So that's one of the most bullish forecasts on the S&P 500 has an expiration date and it all centers around the AI capex. Now moving on to variable number two, does the long end break the multiple? The S&P 500 trades at about 21 times forward earnings. That's the 87th percentile since 1980. The median stock is at 18 times, high but not crazy. Now put that next to a 5.3% bond. The equity risk premium, what you're being paid to take stock risk instead of just clipping coupon is thin, historically thin. Meaning that you have a choice between either putting money into equities like the S&P 500 or putting it into bonds and that choice just got a little bit sweeter because if you put it in bonds, it's pretty much safe. If a huge crash in the stock market happened, your money would be safe but on top of that you're earning that 5.3% whereas if you put in the stock market, historically you'll get an 8 to 10% return which is awesome, higher than 5% but there's also that chance that you could lose it and it could crash 30 or 40% and who knows how long it would stay down. Trailing four quarter return on equity for the S&P 500 just hit a record 22% highest ever. If corporate America is structurally more profitable than it used to be, then a structurally higher multiple isn't a bubble, it's arithmetic. Roughly every one point of return on equity is worth about one turn of price to earnings. So, the valuation argument isn't stocks are expensive, you have to sell, it's stocks are expensive and the profitability supporting it has never been higher. And you have to decide whether that profitability is durable. That's a harder question, but it's also the right question. Variable number three is all about inflation. Specifically, does energy keep inflation sticky? Crude oil started 2026 near $57. It hit $1 13 in April. Right now, it's in the 80s. There's still no deal with Iran and the market is pricing in a longer stint that we're going to have to deal with the Strait of Hormuz. An energy re-spike is the cleanest, fastest path to a Fed hike. That's the channel to watch. Not because oil's the whole inflation story, but because it's the one variable that can move fast enough to force the Fed's hand inside a 24-month window. So, let me do something that I wish that I saw on more of these videos that are trying to predict some type of an outlook. I'm going to show you actual math on both sides cuz it's very important for you to see how little things have to change. So, first would be the bull case. Goldman has S&P 500 earnings per share at $340 this year and $385 next year. Take $385, put the same 21 multiple on it, no expansion, you don't pay a dollar more per dollar of earnings, and you get roughly 8,100 by the end of 2027. That's earnings doing the work while the valuation stands still. That's a very believable case. And even more so, there's about $8 trillion parked in money market funds. If even part of that rotates into equities, you get the melt-up. Evercore's upside case is 9,000 by the end of 2027. But, let's look at the bear case. And the bear case doesn't even require a recession. Say AI capex disappoints, not collapses, just disappoints. 2027 earnings come in at $340 instead of $385. And the multiple compresses from 21 to 18, which is roughly the median stocks multiple today. 18 * 340, that's about 6,100. Call it a 20% plus drawdown, and I didn't have to assume a single quarter of negative GDP to get there. That's the whole point of this exercise. You don't actually need a crisis for us to hit something that's pretty tough. You need a modest earnings miss and a modest multiple reset arriving at the exact same time, which is how they tend to arrive. The base case is probably neither. It's choppier and more rotational than the last 3 years with returns coming from earnings rather than multiple expansion, which if you've been spoiled by 2023 through 2025, it's going to feel like something's broken. And that's what I've been trying to tell a lot of people, especially my clients, this last couple of years is definitely an anomaly. It's not the rule, it's not what always happens. It seems like making money is very, very simple. It seems like just throw it in some growth stocks or ETFs and that's how you do it. But markets have cycles and the rubber is about to hit the road. But everything that I just said is a framework. It's not a forecast. 2-year windows have been positive roughly 80% of the time historically. If you'd ask me in any given summer over the last century, what happens in the next 24 months? The highest probability answer was always, well, stocks are probably going to go up. And it was right about four times out of five. Right now, the setup is fine. Earnings are growing, profitability is at a record, breadth is improving, the consumer is softening but not breaking, and the tail risk is unusually identifiable. That's rare. Most of the time you get blindsided. 2020 wasn't on anybody's bingo card in 2019. This time we can name it. AI capex, return on investment, the long end of the curve, and energy. But hear this, please. Knowing exactly what could break the market doesn't actually tell you when it's going to break the market. I could be right about every single thing in this video, but wrong on the timeline by like 18 months. That still makes it wrong. People sat out in 1998 because valuations were stretched at that time. They were correct, they were also 2 years early, and they missed the largest gains of the entire cycle before the thing they predicted actually happened. So all in all, what does this leave you with? It leaves you with the only thing that was ever actually in your control, your allocation, your time horizon, and whether your portfolio can survive being wrong. Not whether you can predict the next 24 months, whether you can withstand them. If a 20% drawdown next year would force you to sell, that's not a market problem, that's a position sizing problem, and you can fix it this week. If a 20% drawdown next year would be irrelevant to you because you're not touching that money for 15 years, then most of this video is entertainment, and you should keep buying on schedule. Both of those are legitimate, pick the one that makes sense for you right now and where you are in your investing journey. And no matter where you actually are on that journey, I believe that most people should have everything invested in a three-fund portfolio specifically as follows. You'd want to have one portion of the portfolio in just a market average fund, something like the S&P 500 or total US stock market. You'd want another portion of that portfolio in something safer than the overall market, something like SCHD or VTV, something in value that hopefully also gives you a cash dividend. This will keep it safer if the entire market drops. But then, like I said, more of the time we're actually in an upswing. 80% of the time or more we're up, and so you want to capture that upside. That's why I think a portion of the portfolio should be in growth as well. All the while, I believe you should have an emergency fund off to the side in cash and cash equivalents, just something outside of the stock market in case of something crazy that happens. Now, the percentage of all of this changes based on where you are in your investing journey, where you are and how close you are to retirement. And I'll queue up a video after this that shows exact percentages based off of your timeline. Or you can always schedule a one-on-one private financial coaching meeting with me, where we meet on Zoom for about an hour, and the link to that is found down below for my private financial coaching. So now, with all the information that I just went over in this video, let me tell you exactly what I'm doing with my money and how I'm investing now and moving forward for the next 2 years. Number one is the fact that I do have a long-term investing outlook. I'm not planning to touch this money for quite some time, but I'm also not blind. I do think we're going to see somewhat of a healthy correction, somewhat of a drop between 10% and 20% in the next 24 months, and so I'm going to be ready. Let's say I have $1,000 to invest every month. Right now, I break it up like this: $300 to those foundational ETFs like VOO or VTI, $200 to value ETFs like SCHD and VTV, $200 to growth ETFs like QQQM and SCHG, $100 to specialty sectors like VGT or WQTM, $100 to cash to hold off for safety, but also for a big dip buying opportunity. And then $100 to any specific individual stocks or even Bitcoin if there are big deals month-to-month. Now, if you're closer to retirement or even in retirement, I can't stress enough how important it is to have that emergency fund. But equally as important is to make sure that your portfolio is actually balanced correctly based on what your goals are and what your risk tolerance is. Here's the video with the actual percentages and then exact breakdown of why to pick these types of ETFs and why this works for virtually every investor. Or watch this video that I made earlier this week to keep you going strong in investing and remember to keep investing simplified.