HOW I SEE IT – by Bruce

Volatility Continues/ Dow 50,000 /Passing the Batton

Equity markets rally to all-time highs earlier this week then reverse - a familiar pattern of volatility - AI and government policy driven - earnings are good overall.

Positives. AAII Investment Sentiment Survey - 38.5% bullish/ 23.3% neutral/ 38.1% bearish - bearish reading climbs - close to Nov/25 when we had a correction.

RBC CM - Pulse of the Market - First, we run through our thoughts on last week’s choppy price action in the S&P 500 and reiterate our 7750, 12-month forward S&P 500 price target. Second, we update the stats were tracking for 4Q25 reporting season which generally bounce back in our latest update but remain weaker than what’s seen in past reporting seasons. Third, we recap our macro takeaways from last week’s earnings call. On the outlook, consumer, tariffs, and AI - many of the themes echoed what we heard in prior weeks, but essentially AI fears stole the spotlight. We expect S&P 500 EPS +13% in 2026. Q3 company commentary is generally constructive. Cautious optimism on Macro. Strength in data center demand, healthcare, capital markets activity. Consumer cautious yet resilient. Companies managing through tariff uncertainties and impacts. Large cap beats decelerated versus Q3; small cap beats accelerated.

Charts - Investors are rushing into consumer staples at a record pace.

Charts - Investors rushing back into US software - massive bets on recovery.

Charts - Trucking looking better - truck load demand indicator for shippers jumped to 60.7 above the 60 - growth signal for the first time since April 2022.

Fed expected to cut rates in 2026 - keeping US dollar near the bottom end of its 5-year range against currencies.

Gold - physical gold demand in China is exploding.

Ned Davis Research - It’s hard to have an equity bear market without a sustained global slowdown and so far, our Global Recession Watch Report shows little signs of one. With the US and global economy set to grow at a decent pace this year, supported by stimulus in the US, China, Germany, and Japan, and most central banks not tightening policy (especially the Fed and the ECB), the conditions for the end of cycle are not in place. AI related Capex plans are driving US investment growth. There are signs of capex broadening across industries supported by favorable monetary and fiscal policy.

Fidelity - "The broader equity market kept improving beneath the service - key milestone the Dow hit 50,000 - while a round number like 50K may be symbolic they remind investors of the markets long term compounding power. The S&P has recovered from the 2025 correction and continues along a bullish broadening path. S&P 493 has steadily advanced. Q4 earnings solid momentum with 291 companies reported 79% beat earnings estimates by an average of 826 basis points.

Jim Paulsen - " Passing the baton - Should the baton be successfully passed from new Era stocks to broader marketplace the contemporary bull markets last medley leg may prove both exciting and profitable. The race appears to have entered the exchange zone. New leadership awaits - 5 of the 11 S&P 500 sectors are up by almost double digits and 8 of the 11 sectors have positive returns. A profitable problem  - Recent weaker economic policy reports have revived, recession fears, or at least raise sluggish growth worries. Although economic growth fears have risen the consensus earnings estimate for the S&P 500 index has not yet been impacted. The average gain for 2026 is 15.5% significantly above the long-term average of 8 to 9%. Weaker profit trends may cause some volatility in the stock market - my guess is persistent overall economic weakness will also bring greater policy accommodation and support for both the economy and the stock market.”

Bruce Murray - We may sound repetitive about our outlook - remains unchanged. We expect continued strength in the AI economy through 2026.

Dr. Ed Yardeni - Dow at 70,000 by 2029.  All the AI spending in just this year will certainly provide lots of revenue and earnings to the companies that are benefiters to the hyperscalers. The economy will also get a boost from so much capex. Capital investments are appropriate and sustainable because they lead to profitable tokens, and rising cash flows. That’s bullish for a broadening of the roaring 2020s stock market.

Dow Theory remains bullish - the fact that the delivery side of the economy, transports, is confirming the production side, industrials, suggests that the current views of the 2026 growth story as fundamentally solid.

Dr. Jeremy Siegel - "Looking ahead - the economic backdrop remains constructive. Tax refunds are beginning to flow. The appointment of a new Fed chair is positive. I do not see signs of inflation warnings. The international picture is also improving. With further evidence of the broadening out of trades in markets. Japan’s political developments are encouraging."

Tom Lee - "AI investors are rotating into bullet makers and not the armies. We continue to view 2026 as an overall tougher year for the markets with a three-phase market rally and large decline then year-end strong.

Negatives. Charts - US job openings dropped in December to lowest since September 2020. The ratio of available vacancies to unemployed workers is down the lowest since February 2021.

Leverage ETFs - there are now a record 108 long and 31 short tech related leverage ETFs - 139 in total. This is three times more than the second largest sector, financials, with 47 total funds.

Slower real estate transactions - real estate giant CBRE group plunged - there have been only two periods of time where the stock has fallen more - Covid and the Global Financial Crisis.

Ned Davis Research - Did last week’s updates from big Tech companies to spend $660 billion on chips and data centers this year represent the end of a cycle?

Fidelity - What to watch. Concentration in AI names still loom. Elevated sentiment could cap short-term upside. Dollar weakness is likely. Bitcoin remains fragile. Fed policy may become more complex under WARSH and BESSENT dynamic.

Brian Westbury - A tale of two migrations. Over time a loose set of immigration policies will tend to increase the national political power of states with expensive support for people in poverty, while strict immigration policies will tend to increase the power of states with smaller welfare states and lower taxes. Immigration a hot issue.

Program trading - most likely the major cause of these market swings. Remember the rules on short trading?

Investment strategy - Bubbles and Declines. “You make the most of your money in a bear market. You just don’t realize it at the time.” Shelby Davis.

Stock of the Days: ABX, TRI, RGSI, IFC, BBD.B

 

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