HOW I SEE IT – by Bruce
Happy New Year / 2026 RBC DS PM Conference.
Happy New Year and all the best for 2026. Equity markets start the year positively - good sign for the year - historically, increases probability of a positive year.
Positives. AAII investment sentiment survey - 42.5% bullish/ 27.5% neutral/ 30% bearish - good to see bullish confidence holding up as we start the new year.
2026 RBC DS Portfolio Management Conference - spent the last 3 days listening to research analysts, economists, & portfolio managers with their outlooks for the year. Will share recommendations over the next few weeks.
RBC CM. Pulse of the Market - "First, after updating our models for the year end, we are reiterating our 7750, 12- month, S&P 500 price target - noting that the signal from our sentiment model deteriorated since our last update and early December while the signal from our GDP model strengthened. Second, a few things that jumped out in our updates include the recent divergence in the size and style trades. It has to be the S&P 500 inabilities to recapture last summer’s peak on the rate of upward EPS estimates revisions. Also, the latest results of the Duke CFO survey were that optimism picked up on one’s own company and broader economy, accompanied by an optimistic view on the productivity benefits from AI.”
Morgan Stanley’s 2026 forecast - Base case S&P 500 grinds higher. Bull case risk rips. Bear case sharp equity drawdowns. S&P 500 range from 5600 to 9000.
Charts - Gold over the years - gold has outlasted empires, crisis, and currency regimes in an era of digital assets. It’s staying power reflects not just geology, but psychology.
Charts - Midterm election. Going back to 1926. The S&P 500 has seen an average drawdown of 18.2% in the 12 months before the midterm elections. Going back 60 years the smallest drawdown has been 7.4% while the largest was 41.8%. After the midterms all is well.
Charts - No one wants defensive sectors.
Wall Street predicts – “Another year of gains helped by falling interest rates and corporate profits. Would mark the longest rallies since 2007 while only five such streaks in history. Evaluations are stretched - 22x forward P/E versus 10-year average of 19x. Key risks are overheated AI stocks, and sustainability of earnings growth with economic uncertainty.”
What to expect in 2026 to 2027 – “Markets have revised upward their earnings estimates for the next two years with projected y/o/y increases of 15.2% in 2026 and 28.5% for 2027 compared to the 2025 increase of 11.8% versus 2024.”
Fidelity – “EPS growth is now growing at 14% five-year CAGR. This is elevated relative to a historical norm. Historically, once earnings growth reaches these levels, forward returns moderate not reverse. Markets can still do well from here. The US is still strong with a 10% annual growth rate and dividends and buybacks. The US economy is operating well above potential GDP supported by both fiscal expansion and a dovish Fed.”
Ned Davis Research - S&P 500 Sector roadmap based on the US Presidential cycle shows this year to be a slight up year - but a correction probably in the next couple months - followed YE rally. (Buy the Dip opportunity).” It would be for easier global monetary policy, I don’t think we’ll get much out of DM’s, but for the Fed. But as discussed EM & Central banks have more room to ease, which would be particularly bullish for EM equities.”
Jim Paulsen – “Some nuggets hopefully golden. 1) Will US bond yields finally close the gap to foreign yields. 2) EM or frontiers as China supply chain diversifiers. 3) Is evidence of a risk-taking culture finally emerging in the stock market. 4) Another sign US bonds are too high. 5) Animal spirit stocks are finally leading. 6) Encouraging stock market signal from an aggregate put/call ratio. 7) Employment is key to bond yield - the 10-year US. treasury bond yield will likely soon decline and remain below 4%. 2026 is all about the Policy Push - it’s odd to be witnessing increasing evidence of a new bull market economic policy easing cycle as we currently enter year 4 of the contemporary bull market. We have a two-tier stock market. If policy officials finally bring the juice in 2026, It may be time to lower new era stocks in favor of traditional old era tilt.”
Dr. Ed Yardeni - "It’s an economic curiosity of our times. The US economy is undeniably strong in fact, remarkably resilient in the face of recent headwinds. It’s in the midst of an affordability crisis that has hit generation Z-er’s and other low-income folks especially hard. Even though consumer spending is brisk, and Dr. Ed expects it to remain so.”
Tom Lee – “Presented at our conference - 2026 will be a complicated year - wall of skepticism continues - new Fed chair and lower rates - economic growth positive - ISM below 50 will climb - EPS growth accelerates - positive first week of equities - $7 trillion sidelines and private $ too - bull markets don’t die of old age. Expect flat start to year - then rally - then pull back and YE rally”.
Negatives. Fidelity – “The silent risk. Markets are assuming stable long-term yields, but rising term premiums could unwind that assumption quickly. Should inflation, expectation, or risk premiums rise, evaluation compression becomes a real threat. The Fed’s easing stance may keep short rates low, but the long end of the curve could drift higher independently. Breath remains narrow. The market is led by a small set of names. Earning expectations are high and miss may cause repricing.”
Ned Davis Research – “Biggest risk is a sustained global slowdown which have historically been associated with cyclical bear market in equities. Models and watch reports still favorable but lots of potential triggers, including AI related correction. Fed doesn’t ease amid inflation risk. US China impasse. China economic disappointment.”
Tom Lee – “Headwinds - AI juggernaut - low grade stress on loans - private credit stress valuations high - margin debt high - midterm back drop - big IPOs planned for later in the year takes oxygen from markets.”
Brian Wesbury – “The bottom line-is that good things are happening, but risks abound. Blindly buying the market because it keeps going up would be a mistake. Pay attention and be nimble. This year could be a roller coaster.”
Investment strategy – "I’ve learned that only through focus can you do world class things, no matter how capable you are.” Bill Gates
Stock of the Days: MX, EFA, SHOP, ABNB, CJT