HOW I SEE IT – by Bruce
Happy Holidays/Consumer Confidence+/Rotation year
Equity markets drift lower this week - after markets hit ATHs 12/12/25 - pullbacks are always expected after strong rallies - will it be a short pull back as it’s mid -month - option expiry Friday - we expect volatility - will be set up for a year end Santa rally of light volume.
Positives: AAII Investment Sentiment – Survey - 44.1% bullish/22.7% neutral/33.2% bearish - bearish reading climbs - overall still strong positive views.
RBC WM - RBC Analyst Survey - Canada Heat Map - Overall views, Canadian analysts have a constructive tilt on performance, valuation, demand, and the Canadian policy backdrop.
RBC CM - Global Sector Navigator - A constructive bottom-up view heading into 2026. 1) Our global analysts generally have a constructive view on performance, valuation, demand, and the domestic policy backdrop heading into the new year. 2) The survey results highlight a bit more optimism from our analysts in the US and Canada than those in Europe and Australia going forward. 3) The sectors with the strongest performance outlooks varied a bit by region. Two things that jumped out where those materials gathered higher optimism than most other sectors in the coverage regions outside the US and that consumer sector views varied a bit by region.
Charts - "Less US Federal employees. This many federal jobs haven’t been lost in a year since 1953.”
Charts - “Need to get rid of red tape. High development fees challenge efforts to cut home building costs.”
Goldman Sachs - "At the sector level we expect the 2026 acceleration in economic growth will boost EPS growth most in cyclical sectors, including industrials, materials, and consumer discretionary.”
Fidelity - "Earnings rebound post Tarff Tantrum. Earnings estimates, which dipped during the mid-2025 tariff scare have rebounded. 2026 is lining up to start right where 2025 ends with expectations of 12% plus EPS growth.
Ed Pennock - "The broadening out of the market continues. Healthcare and consumer discretionary are quietly moving higher. The concern is the debt fueled AI growth isn’t fast enough to deliver the required ROIC. Markets up on pleasant CPI surprise.”
Ned Davis - "With the latest cut and another one penciled in for 2026 the Fed keeps financial conditions loose, which is supportive of the economy and stocks. But it could also stroke more inflation in the near-term contrary to where the Feds SEPs show.”
Jim Paulsen - "Tell Tales - Some intriguing concepts and relationships I follow. 1) Walmart warns about US profits. 2) 10-year bond yield is higher than you think. 3) So much for bond vigilantism. 4) Fiscal policy has been tightening. 5) Truflation near 2%. 6) Economic momentum to slow. 7) Cyclical stocks need low-income consumers - an early sign of overall economic weakness. Earnings or confidence? Since 1950, the direction of the US consumer confidence has historically been every bit as impactful for the stock market as the direction of earnings. I plan on writing more on why I suspect US consumer confidence begin improving in 2026. I am less worried about a fourth-year stock market jinx or a collapse in technology stocks.”
Jeremy Siegel – “Key takeaways. QT is effectively over- liquidity matters again. Inflation framework has shifted meaningfully. Labor market cooling is now acknowledged. Rate path - destination clear - timing data dependent. Long bonds are not the trade. Early sides of market rotation. Broadening looks real and healthy. Inflation tailwinds continue. AI optimism with a timeline shift.”
Dr. Ed Yardeni - "Our take, AI will have a powerful impact on productivity in the economy. The winners may not be among the Mag 7 at all but the S&P 500 impressive 493 and the economy at large. Still expect double digit equity gains and sees no imminent systemic crisis. Is increasingly cautious about overweighting what already dominate portfolios. Rotation instead of recession. Global diversification is finally paying. What could go right in 2026 – 1) large fiscal stimulus via retroactive tax cuts. 2) Baby boomer spending accumulated $80 trillion in net worth. 3) Fed easing and end of Q2 adds liquidity. 4) Ongoing AI, data center, and onshoring capex has momentum. 5) Midterm election pressure may push policy toward affordability. Bottom line S&P 500- 7700 by the end of 2026. 10,000 by the end of the decade. 2026 is shaping up as rotation year not a recession year."
Tom Lee - "Wall of worry keeps growing. Risk / reward still positive into year end. The reasons positive – 1) Last part of December is seasonally strong. 2) Fed is dovish. the new Fed is set to continue dovishness. 3) AI and block chain continue to see good visibility 4) 2026 GDP growth set to be stronger than 2025 = better earnings. 5) Investors are skeptical and a big wall of worry = good contrarian signal. 6) Stocks are oversold.”
Negatives: Charts – “Cash. From the latest BofA Fund Manager Survey: investors have the lowest cash allocation in history - the highest sentiment since July 2021. And the highest allocation to stocks and commodities since February 2022”.
Charts – “BofA and dot.com. Most people remember the late 1990s equity bull market as ending in March 2000. But in fact, non-tech stocks continue to climb for another year before finally succumbing to the throes of the 2001 recession. Are we heading for another great rotation in the months ahead? “
Charts – “Is the US market in a bubble. Historically, major technological breakthroughs have repeatedly produced asset bubbles. The industrial revolution fueled railway stock boom in the 19th century Britain. The roaring 1920s in the US were driven by automobiles, radios and early electronics. The rise of the Internet accumulated in the late 1990s bubble. Remember, bubbles form when investors believe a technology will create a transformative future, despite high uncertainty around timing and magnitude.”
Fidelity – “Watch outs. Market is priced for perfection. Any EPS miss could cause a draw down. AI capex may reduce buybacks weakening valuation support. Long-term yields could rise- bad for stocks and bonds. Inflation risk remains elevated, despite cooling indicators.”
Dr. Ed Yardeni - "Bond vigilantes are the primary risk- rising long-term yields despite Fed cuts - Fiscal deficits and inflation expectations push rates higher. Japan’s bond market stress. Private credit risks. A sharp equity draw down could trigger negative wealth effect.”
Brian Westbury – “We believe the path of M2 is more important than the actual level of interest rates and last week the restarted qualitative easy what should boost M2 in the month ahead. (is he turning positive?)”
Happy Holidays and all the best for the New Year.
Investment strategy – “Show me the incentives and I’ll show you the outcomes" Charlie Munger
Stock of the Days: XLF, MRVL, ARX, PBH, SU