HOW I SEE IT – by Bruce

Sleepy Start to earnings/ Economic Boss/ Good Shape
Another volatile week -some indices hit all-time highs earlier this week – January positive. Good start for the year. Geopolitics news shakes the markets.

Positives: AAII Investment Sentiment Survey - 44.4% bullish/ 24.8% neutral/ 30.8% bearish - steady numbers from last week- not to hot or cold - good not euphoric.

RBC CM Pulse of the Market.” A sleepy start to earnings. Small caps P/E serge. Earnings reporting season is off to a sleepy start with upward EPS revisions collapsing to 51% for the S&P 500 was 65.5% in September indicating weak earnings enthusiasm despite beat rates remaining flat at 81% versus 82% last quarter. Strong rotation trade from mega growth, mega cap growth to value and small caps. Mixed macro commentary from earnings calls, reveals geopolitical and tariff concerns manageable, consumer pressures, persistent but AI use cases still vague with limited productivity proof outside the tax sector. Described as planning assumption rather than impediment. RBC maintains S&P 500 price target of 7750 a 13% upside based on 14% earnings growth.

Charts. Weaker US dollar equals stronger commodities. Charts US dollar fall 12% in the last year. Canadian dollar up 10% in the last year. Bank of Canada on hold for foreseeable future -no surprises here -GDP growth expected to be 1.1% for 2026. Economic outlook remains largely unchanged. Inflation remaining near 2% target

Fed Powell dodges questions- Fed back in wait-and-see mode. Still some upside risk to inflation. The Fed expects tariff effects to be a one time.

Bruce Murray. “Can equity markets repeat -after 3 good years. I’ll look under the hood - reveals a more bullish view. As discussed in our piece on valuation, the largest companies trade at more reasonable multiples considering their growth prospects in previous cycles at 29 times P/E forward earnings and revenue growth at 15% per annum.”

Ned Davis Research. Global growth remains positive with flash PMIs standing out showing faster global events the start of the year. Consumer spending at the US remained relatively strong despite the government shut down last year. Inflation is still a concern for the first half of this year. Fed rate cuts are likely in later half of the year.

Jim Paulsen – “An excessively weak jobs market appears likely to mandate further policy accommodation. Today job creation is recession like. My guess is jobs will rule in 2026. Consequently at least through mid-year, the primary US economic mission will likely be reviving jobs with more policy easing which should also keep the stock market rising. The economic BOSS is the jobs market. Until it gets revived policy officials will likely have no choice but to continue bringing on the juice. And should policy accommodation rule during the next several months broad base stock marketplace which rely on policy support like small caps, cyclical sectors, deep value & international should lead. A job market this feeble is typically good for the stock market. While officially the economy remains in recovery the jobs market is very much recession like - historically the stock market has typically risen. What job creation nearly flat lines at the unemployment rate rises for a considerable period as they have most recently - the stock market typically does well in the ensuing months. Why because policy officials respond with lower interest rates - steer faster monetary growth - a weak US dollar - at a more accommodated to fiscal policy- was not only improves our overall economic growth and employment opportunities, but also stokes the stock market. Typically, this is the conventional environment for a new bull market one initiated by policy officials responding to a recessionary condition and a quest to restore economic health.

Why the job market is weak, as it is currently – “investors should be buying stocks. While the Fed may be taking a pause on interest rates other economic policies are still easing, including a moderate advance of the money supply growth, a steeping yield curve and a drop and the value US dollar. In the meantime, investor should take comfort from the historical positive impact of weak job conditions.”

Dr. Ed Yardeni – “The regional business survey is conducted by five of the 12 Federal Reserve District Bank - suggest that we’ll see a slight improvement in the National Manufacturing PMI during January. The economy is in good shape. Another Yo-Yo-Day in the market – Trump comments on influence on markets.”

Tom Lee - On balance the Fed is dovish. The new Fed Chairman will be dovish too. Energy & basic materials are top sector picks. Still the most hated V shape rally. “

Negatives. Gold is the ultimate vote of no confidence.
Inflation could accelerate in a 1970s style pattern.
Debasement trade. Concerns about Central Banks credibility. Doubts over long-term debt sustainability. Expectations of gradual currency debasement.
Rotation has begun. Always unsettling.

Brian Westbury – “From rates to reserves to potential changes to the regional Fed bank system itself 2026 could yet prove a boisterous year for Fed watchers. We meanwhile will be keeping our eyes on what it all means for the M2 money supply. If the Trump team really wants an easier monetary policy, it could trade the Treasury General Account which currently holds about $900 billion at the Fed. By spending that money rather than hoarding it and issuing more debt, it could quickly boost M2 by about 4%. “

Investment strategy – Long Term Thinking –” The single
greatest edge an investor can have is a long term
orientation”

Stock of the Days: TOU, FSV, RBA, AMZN, RBA

 

 

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