HOW I SEE IT – by Bruce
Santa Rally/The Sweet Spot/Impressive 493 begins
Equity rally since November 21, after a sharp short correction- Dow is now up 6% - ATH- we expected a Santa Rally -done -will this hold into year end.
Positives: AAII Investment Sentiment Survey - 44.6% bullish/ 24.8% neutral /30.6% bearish - bullish reading close to year high - good to see confidence.
RBC CM- Pulse of the Market - 1. Several things that the US markets have been linked to - breadth, bitcoin, private market fears, Fed cut expectations, consumer sentiment- have gotten better in recent updates. 2. A few signals from the year ahead outlook analysis has shifted over the past week. 3. There have been a few interesting twists and turns in positioning since Thanksgiving week in terms of sectors and factors.
Goldman Sachs. Laid out at 10 for 2026 market roadmap. 1. Slower growth - fading tariff, drag and real income gain support global growth in 2026 - GS sees US 2.5%, Europe area 1.2%, China 4.8%. 2. Lower inflation- tariff pass-through is fading but still shaped policy - US core PC easing to about 2.3% by the end of 2026. 3. Weak labor - Main risk is a sharper weakening in the US labour market as layoff signals pick up. 4. Central Banks - Fed seen cutting more in 2026, ECB on hold. 5. Developed market equities- late cycle set up, with cyclical re-acceleration and earnings growth expected to outweigh high valuations. 6. Emerging market equities- to keep our performing on better macro, commodities, earning growth, AI adoption, deregulation, and FX tailwinds. 7. Credit -corporate balance sheets remain strong - returns likely more idiosyncratic as leverage builds. 8. Weaker US dollar - drifting lower.9. Weak oil, strong gold, commodities -oil prices expected to soften on supply surplus, while gold may keep drawing flows on macro risks, deficit, and the weaker dollar.
Fidelity 2025- " In review from Turmoil to Triumph. The year began with intense volatility - tariff headlines sparked fears of trade wars morphing into capital wars with concern about foreign investors dumping US assets. That didn’t happen instead by December almost all major asset of classes delivered positive returns. Non-US equities were a standout. Even bonds performed well. What started as PE multiple expansion has now transitioned to earnings driven growth giving the market strong footing into year end.
Ned Davis. Our global recession probability model- ticked up for the month of January but remained in the low-risk zone. For the near term this is positive for global equities. However, if December marked a bottom that could spell trouble for second half 2026 as a model tends to bottom an average nine months before the next global slowdown.
Ed Pennock. The Fed cut interest rates by 25 basis points to 3.5% from 3.75% as widely expected and more importantly provided less hawkish signals than the market has seemingly feared around the path for future monetary policy. Markets pricing in potential further easing in 2026 but not immediately.
Jim Paulsen- A sweet spot. Maybe investors just need to chill. At least until the economy substantially exits the sweet spot. Will the Fed keep easing interest rates in 2026. Will it revert to contractionary policy on a hot inflation number? Well recession fears surge again. Will tariffs go up further . Watch out for the midterms. Will Main Street stay in a fussy mood about the future of America. Maybe investors just need to chill. At least until the economy substantially exits the sweet spot.
Dr. Ed Yardeni - "Long known for his bullish stance on mega Technology stocks is shifting course for the first time in 15 years. With big tech now representing nearly half of the S&P 500 and facing rising competitive pressures, Yardeni believes leadership will broaden to the rest of the market -the impressive 493- driven by productivity gains across financials, industrials, and a unappreciated healthcare sector. Also sees international equities becoming more compelling as US dominant approach its limits and warns the bond markets refusal to follow the feds easing path reflects unsolved inflation risks and growing fiscal strains. Takeaways -Market concentration has peaked- the impressive 493 era begins- new sector, overweight - global allocation pivot the Fed versus the bond market- all key themes.
REIT Outlook- the macro set up is more attractive as REITs generally outperformed during periods of low economic growth, and declining interest rates.
Negatives. Dr. Ed Yardeni. It no longer makes sense for us to continue recommending overweighting the information technology and communication service sectors and a S&P 500 portfolio as we have since 2010. It now counts for 45.2% of the index total market capitalization.
Charts. Excluding the mag seven the rally is driven largely by non-revenue and nonprofit stocks while the rest of the market is stagnant. There is no ground below us supporting the valuations. If something goes wrong, the correction could be pretty deep.
Layoffs- US layoffs are on track to exceed the great financial crisis levels. K shaped economy - we are in - the gap between the halves, and the have nots get forced even wider in real time.
Howard Marks - is it an AI bubble.
Brian Westbury. From rates to reserves to potential changes to the regional Fed bank system itself, 2026 could be a boisterous year for the Fed watchers. We, meanwhile we’ll be keeping our eyes on what it all means for the M2 money supply, which remains our Northstar on inflation.
Investment strategy – “Choose your heroes very carefully and then emulate them. You will never be perfect, but you can always be better.”
Warren Buffett.
Stock of the Days: NVDA, STCK, CVS, SRU.UN, UBER