HOW I SEE IT – by Bruce
YE rally? / RBC GAM Global Investment Outlook- 2026
Steady to up equity markets this week - good to see after strong Nov. finish - back-and-forth market action since October 1 - will this continue, or will we see a YE rally?
Positives: AAII Investment Sentiment Survey - 44.3% bullish/ 24.9% neutral/ 30.8% bearish - drop in bearish reading - lowest level in 6 months - good confidence.
RBC CM - Our year ahead US Equity Market Outlook: First, our 12-month forward price target for the S&P 500 is 7750, approximately the median and average of five different models that we use which focus on sentiment, valuation, the appeal of stocks relative bonds, the economic outlook, and monetary policy. Second, some of the key headwinds/downside risks and tailwinds/upside risks we are monitoring include shifts in expectations for the economic backdrop, renewed interest in geographical diversification, and the midterm elections. Third, tactically near term, we are leaning into the rotation in leadership within the US equity market from growth to value and the mega Growth trade to the rest of the market, but caution that a shift in earnings dynamics is still needed for the transition to have significant duration. Fourth, we have gotten more comfortable adding to small caps but see risk that its recent out-performance ends up being short-lived once again, unless the underlying economic backdrop and overall economic conditions heat up significantly.
RBC CM- US Equity Market Outlook - Consensus 2026 S&P 500 per share of $311 up +13% Y/O/Y.
RBC GAM - Global Investment Outlook - New Year 2026. Key conclusions - resumption in Fed cuts and optimism around artificial intelligence boost stocks to new records. Trimming equity overweight as elevated valuations limit upside potential. Economies have been resilient, and amid tariffs with the leading indicators pointing to a continued expansion, albeit at a sluggish pace, across the world’s major economies. Stocks climb to new records as investors embraced risk taking in an environment of diminishing trade, uncertainty, falling interest rates, and a massive ramp up in AI related spending. Double digit profit growth has supported gains so far this year.
Charts - Six years since start of Covid. For 40 years stocks were lower in December during the first year of presidential cycle only once. December starts tough, ends well. Breath continues to improve. 95% December Fed cut. 30% January Fed cut. White House wraps up robotics agenda for 2026. Large consumer staples insider buying. Trucking stocks breaking out. The backdrop for risk assets remains constructive. Global earnings are accelerating, and the Fed appears set to cut into 3% inflation fueling - a re-inflation growth regime rather than recession or stag-inflation.
Dr. Jeremy Siegel – “The consumer is behaving better than they feel. Labor market stable, but not booming. Growth is stronger than the mood. Bond market is rewriting the macro narrative. Fed policy cut is live. AI landscape - still bullish, now more competitive.”
Ned Davis Research – “Improving breaths with a new breath thrust signal, as well as a pessimistic extreme last week, supports a year-end rally. Liquidity remains adequate and renewed Fed rate cut expectations as support to the bullish case. Global economic data has been mixed to weaker, but nowhere near recessionary. Expect a year-end rally for Europe.”
Jim Paulsen – “Jobless claims lose their signal, bond yields to decline towards 3%, cyclical stocks poised for our performance, tech stocks invariant to Fed conditions, job market driving the policy bus. Stock market signaling economic weakness. A recession will likely be avoided but key relative stock market performance metrics suggest real US growth may slow more than widely expected. The pace of US real economic growth has accelerated to an unacceptable pace, dangerously close to recession like conditions. Real economic activity seems poised to slow even further in the coming months. My guess is the US will avoid an imminent recession primarily because of relatively conservative behaviors among both consumers and businesses, widespread pessimism, strong private sector, balance sheet’s high levels of liquidity across the economy, and economic policies which have finally turned supportive.”
Dr. Ed Yardeni – “China has a shot at overshooting the government’s 5% GDP growth target in the coming years. On paper, the American consumer looks flush. Unemployment is low. Inflation is down, stock market is up. The average wage growth has kept up with inflation. Indeed, the Misery index is low, which usually means consumer sentiment readings are high. But now sentiment is low. The prices of 9PED components essentially for many have inflated faster than wages.”
Tom Lee – “I think December will do better than November. The S&P 500 will close somewhere around 7300. Why? The Fed is set to cut rates in December, the economy is still healthy, the business cycle really hasn’t started, there’s pent-up demand in housing, the government shut down is over, stocks were oversold in November, and finally - December is usually strong, but it’s probably even better because November was weak. Still the most hated V shaped rally.”
Negatives. RBC CM-US Equity Market Outlook. Further slowdown in GDP growth represents a risk to outlook. US midterm elections pose a longer-term risk. Money market funds keep growing - for the first time in history total assets in US money market accounts have surpassed $8 trillion.
Bank of America concerned about cash allocations, a sell signal was triggered for the fifth month straight - Institutional investors cash as a share of assets fell to 3.7% in November - the lowest in 14 years. Cash allocations at or below 4% indicate a sell signal for stocks with treasuries outperforming over the next 1-3 months.
Ned Davis Research – “Risks include geopolitical tensions like China and Japan, escalating problems and credit, extreme inflows into US equities from foreign investors, raising bubble concerns, and the first half of December tends to be weak.”
Brian Westbury – “The next few months of budget battles are important. Will we continue to make gradual progress against the deficit? Let’s hope so. The US is at a serious inflection point. Many seem to think inflation can help fix it. We don’t see how.”
Investment strategy – “Don’t beat yourself up over mistakes - learn at least a little from them and move on - It’s never too late to improve.” Warren Buffett.
Stock of the Days: TRP, MSFT, GOOG, MFC, RY