The Week Ahead - 1/18/25

A comprehensive look at the upcoming week for US economics, equities and fixed income

Jan 19, 2026

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Please note that I do often add to or tweak items after first publishing, so it’s always safest to read it from the website where it will have any updates.

As a reminder, some things I leave in from prior weeks for reference purposes, because it’s in-between updates, it provides background information, etc.. Anything not updated this week is in italics. As always apologize for typos, errors, etc., as there’s a lot here, and I don’t really have time to do a thorough double-check.

For new subscribers, this is a relatively long post. The intent is to cover the same areas each week. Sometimes the various areas are more interesting, sometimes less, but it’s easier just to go through them all, so you can expect this format (with things in the same places) each week.

The main sections are intended to cover 1) what’s upcoming next week, 2) what the Fed and rates markets are up to, 3) what’s going on with earnings (which along with valuations and positioning are the determinants to stock prices over the long term), 4) what’s going on with the economy (both because of its impact on our daily lives (I am a business investor in my “real” job) but also because it impacts earnings), 5) valuations, 6) breadth (which gets into sector/style performance), 7) positioning/flows (this is the most important determinant to asset price changes in the short term), 8) sentiment (really only matters at extremes but interesting to track), 9) seasonality (gives you an idea of what normally happens), 10) “Final Thoughts” (remember you get what you pay for there, and it’s the last thing I do, so it often is a bit rushed), and 11) my portfolio (to be transparent about where my money is in the market (but note first it is most definitely not intended as financial advice, and second as I mentioned earlier my main job (and investing assets) are in private industries (RE & venture capital)) so my portfolio is built with that in mind (i.e., it’s not how I pay the day-to-day bills) plus see note about MLP’s in that section).

The Week Ahead

The upcoming week is holiday shortened in the US (Monday all US markets are closed for Martin Luther King Day). It’s also a lighter week as is often the case for the third week of the month, although we will get a couple of normally more important reports that are delayed in the combined Oct/Nov personal income and spending report which includes PCE prices (the Fed’s preferred inflation indicator) as well as the first revision (and I think only revision in this case) to 3Q GDP.

We’ll also get a delayed Oct construction spending report along with Jan flash PMIs and the final UMich consumer sentiment read, Dec pending home sales, and the normal weekly reports (ADP, jobless claims, mortgage applications, EIA inventories).

No Fed speakers with the blackout, but we will get a couple of Treasury auctions, although ones that are rarely (as in once or twice) covered in the thinly traded 20yr Treasury Bond and 10yr TIPS.

In terms of the Fed, next week will also bring us oral arguments in the Lisa Cook case on Tuesday. This is an extremely consequential case, as a decision against Cook (she is suing to block her “for cause” (i.e., for misconduct) removal as a Governor by Pres Trump on the basis of a not uncommon error in a mortgage in her name that predates her time at the Fed) would open the door wide to pretextual removal claims by a President giving wide powers to remake the Board.

We’ll also get another release of opinions from the Supreme Court Tuesday morning. We’ll see if the IEEPA case is among them.

Q4 SPX earnings season picks up next week with 30 SPX reporters (although again 7% of SPX by earnings weight, the same as this last week), 11 of which are over $100bn in market cap in NFLX, IBKR, JNJ, SCHW, PLD, GE, PG, INTC, ABT, ISRG, COF (in order of reporting date).

Ex-US a heavier week with highlights a policy decision from the BoJ (and PBOC), flash PMIs, Japan CPI and trade data, the monthly “data dump” from China (GDP, retail sales, IP, unemployment, FAI, property prices, etc.), ZEW economic sentiment, UK employment, retail sales, and CPI, Australia employment.

Finally, next week will have Davos, which will be interesting if for no other reason than Pres Trump will be making a speech Wednesday where he is expected to focus on his “America First” agenda and unveil proposals including around home affordability and credit card fees. He will likely also make additional comments, after having already created a stir over the weekend, regarding his desire for some sort of American ownership or control of Greenland.

Notable executives on the Davos program include Nvidia (NVDA) CEO Jensen Huang, Microsoft (MSFT) CEO Satya Nadella, Salesforce (CRM) CEO Marc Benioff, PepsiCo (PEP) CEO Ramon Laguarta, JPMorgan Chase (JPM) CEO Jamie Dimon, and Goldman Sachs (GS) CEO David Solomon.

Ex-US things pick up from last week with highlights a policy decision from the BoJ (and PBOC), flash PMIs, Japan CPI and trade data, the monthly “data dump” from China (GDP, retail sales, IP, unemployment, FAI, property prices, etc.), ZEW economic sentiment, UK employment, retail sales, and CPI, Australia employment.

Canada
Canadian inflation may have edged up in December from November’s 2.2% because of a base-year effect from last year’s goods and services tax holiday. Still, falling gasoline prices and easing rents should keep the result only modestly above the Bank of Canada’s 2% target, and the release is unlikely to shift expectations of a policy rate holding steady at 2.25% for most of the year.
The central bank’s business and consumer surveys will shed light on sentiment around inflation and jobs as a review of the North American trade deal approaches. November retail sales and a flash estimate for December will offer insight into household demand as US tariffs weigh on the economy.
Asia
Central banks take center stage in Asia, with the BOJ the marquee event and policy settings scheduled elsewhere in the region too. Chinese banks are expected to hold loan prime rates steady on Tuesday. Indonesia’s central bank meets on Wednesday, with rates widely expected to be kept at 4.75%. Malaysia sets borrowing costs on Thursday, with the overnight policy rate also expected to be maintained, keeping the focus on guidance and how policymakers frame the external environment heading into the new year.
New economic data will fill in the contours of the growth picture once the policy dust settles. In China, in the wake of Thursday’s signal that there’s room for further easing, Monday’s data dump — including fourth-quarter GDP, retail sales, industrial production and property indicators — will anchor the week. Taiwan publishes export orders on Tuesday, offering another read on the global electronics cycle. Japan has trade figures on Thursday followed by CPI on Friday, ahead of the BOJ.
In Australia, Thursday’s jobs report is the key domestic input as investors gauge whether employment conditions are cooling cleanly or remain tight. Also on Thursday, South Korea publishes fourth-quarter GDP. New Zealand’s CPI report on Friday lands after aggressive rate cuts through 2025. Rounding out the region, India’s PMIs Friday offer a timely snapshot of momentum while a run of ASEAN data adds color on regional conditions: the Philippines releases balance-of-payments figures on Monday, Malaysia publishes CPI and trade on Tuesday, Thailand reports car sales during the week, and Singapore closes with CPI on Friday.
Europe, Middle East, Africa
Investors focused on the UK will see a blast of key data that may further shape rate expectations after a monthly GDP report showed a surprising rebound in growth during November. Data on Tuesday may show a further slowing in wage increases, and jobs numbers will reveal how the labor market is holding up. Reports the following day are expected to show a slight and probably temporary pickup in inflation, to 3.3% — noticeably above the Bank of England’s 2% goal. Statistics on public finances and retail sales are scheduled for Thursday and Friday, respectively. Testimony on financial stability to lawmakers by BOE officials including Governor Andrew Bailey is on the agenda for Wednesday.
Initial January PMI readings for the UK and the euro zone will come on Friday. Elsewhere in the currency region, a final assessment of inflation on Monday and consumer confidence on Thursday are due. Within individual euro-area economies, Germany’s ZEW investor confidence gauge on Tuesday and French business confidence on Friday may draw attention.
The European Central Bank will publish an account of its Dec. 17-18 meeting on Thursday. Davos will be the focus for policymaker comments, with three panel appearances by President Christine Lagarde on the schedule.
Also of interest for the ECB is the potential selection of a vice president to succeed Luis de Guindos later this year. Euro-zone ministers will discuss the matter on Monday.
Elsewhere, data on Wednesday will likely show South African inflation accelerated to 3.6% in December, still keeping the average for 2025 below the central bank’s 3.3% forecast. Together with a stronger rand, that may give policymakers room to cut rates.
A trio of rate decisions is on the schedule in the region. Romania’s central bank is expected to keep rates steady on Monday as it awaits firm evidence of easing price pressures after inflation ended 2025 close to 10%. Turkey is likely to cut borrowing costs on Thursday, with policymakers encouraged by slowing inflation. The rate is expected to drop to 36.5% from 38%, according to the median estimate of economists, sticking to a measured pace amid inflation risks. And Norway’s central bank is widely expected to keep rates on hold for a third meeting the same day as underlying price pressures show no sign of easing. Officials may repeat an outlook for further cuts in borrowing costs “in the course of” 2026, anticipating lower inflation, and after growth proved weaker than expected.
Latin America
The highlight of a busy week in Mexico is its mid-month consumer prices report, the final inflation gauge central bankers will see before their Feb. 5 policy meeting. Most economists see the headline reading picking up slightly to remain above Banxico’s 3% target but still inside the 2% to 4% tolerance range, with the core print continuing to run above the tolerance band. Data in line with estimates should cinch the case for a Banxico rate pause next month after 12 straight cuts; policymakers had signaled as much in their December post-decision communique. Mexico will also be serve up retail sales and GDP-proxy data for November.
Colombia is slated to post November GDP-proxy data, retail sales, manufacturing and industrial output. All four indicators have been in the black since May on rising public-sector spending, leading some analysts to conclude that the economy is overheating. In Argentina, GDP-proxy data for November may show more sputtering from South America’s No. 2 economy after a negative month-on-month result in October. Davos-watchers can look forward to an appearance by the country’s ever-colorful president, Javier Milei.
Paraguay’s central bank in December kept its key rate at 6% for a 21st straight month. In the post-decision statement, the central bank pegged 2025 GDP growth at 6% with an inflation rate of 3.6%. A little more than a week later, the December consumer prices report showed that the annual print in one of the region’s fastest growing economies had declined to 3.1%, well below the bank’s 2025 estimate. Policymakers take their first decision of the year on Friday.

DB one-pager:

BoA’s cheat sheets:

Market Drivers

So let’s go through the list of items that I think are most important to the direction of equity markets:

Fed/Bonds

As noted previously this was one of the sections that had grown unwieldy, so I’ve really pared it down (I know, it’s still really long). Given I provide daily updates on Fed expectations, Fedspeak, and analyst thoughts on the Fed, it’s duplicative (and time consuming) to regather it all, so, again, I encourage you to look at those (the daily posts) for updates. I will just give more of a quick summary.

I’ve taken out the background information from how we got to where we were from the start of the year through the end of March, but if you’re interested you can find that in this section from the March 23rd update. And I had left in the background from March the August as I had said it was “still relevant in terms of ‘how we got here,’ and it reflects the continued slow evolution of the Fed away from worries about tariff impacts on inflation towards the need for rate cuts (remembering that absent those tariff worries the Fed would already be cutting at this point).” But I had “[a]t some point the hawks will become less hawkish and then I’ll reset all of this…. Powell this week could seal the pivot, but remains to be seen.” Well that’s exactly what Powell did, so if you’d like that background, you can find it at the August 17th update. In addition, I have taken out the “next phase” in the Fed’s evolution (from the August meeting leading up to the October meeting). You can find that material at the October 19th update.

As I said after the Dec FOMC minutes were released:

This to me is a dovish setup. Inflation doesn’t have to come down “in the near term” to allow for further rate cuts, and all the members agree that if there is any further softening in the labor market (and a 4.7% unemployment rate in the upcoming payrolls print could do it) more cuts are also coming. So really only if inflation goes the wrong way and the labor market doesn’t deteriorate will we not see more cuts this year. Note, there is no discussion of weak growth required. As a side note, it seems to me, based on previous speeches and the way productivity operates, the “forward looking” group is assuming that productivity will be helping to keep inflation in check despite what seems to be healthy economic growth. That makes this week’s productivity report (although for 3Q) important.

But as I noted last week:

with unemployment in the NFP softening two tenths (including revisions) to 4.4%, and job growth, while missing estimates, not that far off and remaining positive while household survey saw strong job growth (even as there are a host of weaker metrics such as sector breadth of job gains, involuntary part-time workers, a falling workweek, slowing aggregate income growth, etc.), the chance of a Jan rate cut has effectively fallen to zero.
That means even if we get a cool (even very cool) CPI print, given all of the distortions in that series introduced by the shutdown, it will require an affirmative declaration from a key Fed member (a la Williams speech ahead of the Dec FOMC) to get markets “onsides”. So unless/until you hear that, there will be no cut this month.

And that proved accurate as despite a “very cool CPI” the readthrough to PCE (the Fed’s preferred inflation gauge) was actually a bit hotter than expected. That along with the economic data coming in fairly solid (as covered in the Economy section) along with the “core” of the Fed clearly signaling that rates will remain at current levels until inflation or the labor market soften a bit further (meaning they are done with their “forward looking cuts” as described in the minutes saw rate cut expectations fall to the lowest to date. Currently there are less than two rate cuts priced for this year, and that doesn’t change much thereafter (meaning markets see one, maybe two, more rate cuts in total). Currently there is a cut priced (over 50%) for June and another (right at 50%) in October.

I think that we have perhaps travelled a bit too far in the hawkish direction, but one thing we can say definitively is there will be no Jan rate cut. That was confirmed by even one of the doves, Philadelphia Fed Pres Paulson as covered during the week. More importantly the “core” of the Fed (also discussed this week (Powell, Jefferson, Williams)) who are the swing voters between the doves (Miran, Bowman, Waller (although Waller hasn’t spoken since the Dec FOMC so not quite sure on him)) and the hawks (in terms of voters, basically at this point all of the regional Fed Presidents (given Paulson is the most dovish)). With Williams and Jefferson both indicated that rates “are in a good place” it was a clear signal on their intentions. Finally, a little of this move also came on Friday when Pres Trump said at a press conference he preferred Kevin Hassett (the previous favorite and who is expected to be the most dovish among the candidates) remain in his current post, seeing odds for former Fed Gov Kevin Warsh shoot higher. Warsh was a hawk during his time at the Fed, only turning more dovish when he came up for consideration for the top job.

So now we are left to wait. As I indicate in the Economy section below, I think there’s actually more risk to the economy reaccelerating (at least in the first half) than softening materially, so I think it’s probably not a bad bet that we won’t get a rate cut until after Powell is gone (at the end of May). After that there’s too many variables to go through (a lot depends on who is nominated, what they say, what happens with the Lisa Cook case, does Powell step down as Governor, not to mention what’s going on with the economy and labor market).

The 2/10 Treasury spread fell back back to +0.63% from +0.72% the prior week, which was the highest since Jan ‘22.

As a reminder, historically when the 2/10 curve uninverts following a long period of inversion the economy is either in a recession or within a few months of one. It uninverted in Sept 2024, so I had said this looks officially like a “this time is different” situation as we’re now over a year. Anything that has a lead time that long is not really useful.

The 3mos/10yr yield curve also edged to +0.57%, down from the +0.64% to start the year which was the highest since Oct ‘22 still though calling for more rate cuts or a move higher in 10yr yields (this is historically around +1.25%).

Note this curve is considered a better recession signal than 2/10’s w/the last four recessions on average coming a few months after the curve uninverted (prior to that it generally uninverted after a recession had already started)).

It had spent nearly a year within a quarter point of 0%. The only other comparable period (inversion followed by a long stretch around 0%) was 1989 when it spent the year within a slightly larger band (but after a much smaller inversion). When it finally lifted after that instance a recession followed six months later. This is NOT to say I think we’ll see recession in 6 months (quite the opposite).

Also, as noted back in February, reinverting is something that it did prior to (or just after) the last two recessions and it also dipped (but didn’t reinvert) in the two recessions prior to that, although this one was much more mild than previous. Regardless, the longest it went in those previous four instances before recession after reinverting is 6 months (2007).

Also note that in 1989 and 2007 we saw similar periods of a recovery from inversion that stalled at the zero line for long periods of time which turned into recessions after they finally started to steepen again (but in 1989 it took six months (we’re beyond that now)), but see the note above about the length it spent around the zero line.

Similarly the 10yr Treasury yield is now more comfortably above the Fed Funds midpoint (and the EFFR), at +59bps (moving up 5bps this week along with 10yr yields) still though well under the typical non-recessionaly spread of around 1-1.25%, so calling for another ~50bps of rate cuts (or perhaps if one thinks the 10yr is mispriced, a higher 10yr yield (or some combination)).

The 2yr yield though remains below the Fed Funds midpoint (and EFFR) by -5bps, but that is up +12bps the last two weeks. It is still though well under the typical non-recession spread of ~+50bps so also calling for 2-3 more rate cuts (or a higher 2-year yield).

Long term inflation expectations as measured by the 5-yr, 5-yr forward rate (expected inflation starting in 5 yrs over the following 5 yrs) pushed up to 3-month highs at 2.27%. Still though just in the middle of the range since 2022. They’re also a touch above their 20-yr average (2.25%). Given this was the same day that

The peak in 2025 was 2.41% July 28th which was the joint highest (with October) in a year) and 2.67% was the post-pandemic peak in Apr ‘22. The 2025 low was around Liberation Day at 2.02%

And the 10-yr breakeven inflation rate moved up +5bps to 2.33% as of Friday, also the highest since Oct, but remaining in its post-2022 range.

10yr rate real rates edged back to 1.88% but the data is as of Thursday, so they likely ended unchanged by the end of Friday, we’ll see next week. They overall remain in their range since Aug 2023.

They are well below the 2.34% in mid-Jan (which was the highest since Oct ‘23 (and before that 2007)), but also still well above the 2012-2020 peak of 1.12%.

The ACM model of the 10yr Treasury term premium (which is solely based on interest rates so has no “external anchor” to help explain why short-term rates may be moving (such as Fed policy expectations)), fell back to +0.70% as of Wed from +0.81% the previous Friday, which was the highest since Sept 2nd, still up from +0.51% Oct 28th (which was the least since April).

The high of the year was +0.91% on May 21st (which was the highest since July 2014). This is up +0.21% since the Oct Fed meeting.

The MOVE index of expected 30-day Treasury note/bond volatility fell to 56.15 on Thursday, the least since Sept ‘21, before rebounding a touch to 58.05 on Friday.

Mortgage spreads (based on the Freddie Mac 30-yr rate) took another leg lower last week to 1.83% the least since Feb 2022 (when they were surging higher from 1.45% in Jan 2022 to the 3.1% peak in June 2023 as the Fed tightened rates).

They’ve now fallen well under the peaks from the 2010-2019 period but still have some room (~23bps) for them to fall to get to the 2004-2008 avg level of ~1.6% (I use that period as it was like now a period of higher yields than post-GFC and also a period when the Fed wasn’t buying MBS and we had a more robust private market pre-2004 although with Fannie/Freddie maxing out their MBS purchases we very well might fall right through that). It also happens to coincide with the pre-pandemic 10-year average as well despite the distortions.

The Chicago Fed National Financial Conditions Index and its adjusted counterpart took another step down (looser) to the least (loosest) since Nov ‘21 in the week through Jan 9th.

Both of these indexes are very comprehensive, each w/105 indicators. The “adjusted” version attempts to remove the correlation between the various indicators due to broad changes in economic conditions which also impact other areas (so as to not double count them).

https://www.chicagofed.org/research/data/nfci/current-data

Goldman’s US Financial Conditions Index in contrast moved higher although overall not far from the least since 2022.

As you know if you read my RRP updates (Reverse Repurchase Program where financial institutions can park money overnight which sets a “floor” under funding markets (as you wouldn’t lend to anyone else at a rate less than you can lend to the Fed risk free)) RRP levels in mid-August finally dropped to the “near zero” levels I had been waiting (seemingly endlessly).

In line with my expectations, RRP shot up to $106bn as of Dec 31st about double the typical month-end bump as banks “painted their books” for regulatory purposes, but also as expected they dropped right back down now at just $2bn, effectively at zero, in line with the Fed’s desire to keep them at minimal levels (which led to the Fed having to start the reserve management purchases).

As a reminder, now that RRP levels have drained to minimum levels, attention turns to bank reserves as discussed below.

Bank reserves, which fell as low as $2.83tn as of the end of October, which was the least since Oct 2020 and down from $3.6tn Apr 10th (the highs of the year) under my “danger zone” level of sub-$2.9tn, continued to rebuild, helped by the passing of year-end (where banks drop their risk-weighted assets) and supported by reserve management purchases of $40bn a month (for the time being) added to the end of QT (as of Dec 1st). They are now at $3.05tn (+$30bn w/w), a four-month high,

This is a level Fed members have generally indicated they are comfortable with.

Getting back to rates,

I said back in April 2024 that 2-year Treasuries were a good buy at 5%, and as I noted once the Fed started its cutting cycle thereafter the ship has likely sailed on seeing those yields anytime soon (meaning years). I still have some 2yr’s but have been selling on big dips in yields, not really getting a chance to reload as they never seem to be at a level that makes sense, although most analysts think they’re going lower from here.

In terms of 10yr’s I had advised then grabbing some at 4.7% (which I subsequently sold on the drop under 3.75% as posted here in September) but at the time that level seemed like something we wouldn’t see anytime soon, but we got back there in January (and I added some as posted here), and it seemed like we might be headed much higher until Treas Sec Bessent noted the administration’s focus on keeping the 10yr yield low (and perhaps more importantly committing to the auction schedule set up by Sec Yellen for the foreseeable future (and perhaps even reducing longer term supply as he has noted in subsequent interviews and through the increase to the Fed’s buyback program), which has exerted downward pressure on 10yr yields). I sold that new, small position on the dip under 4% in April, and I had been waiting on us revisiting that 4.7 - 5% area to reload.

But as noted in late Sept, it is looking less and less likely that I will get that trip back up to the 4.7% area to add to my 10yr holdings any time soon. I had been thinking that 4.3-4.5% is potentially in the cards, but even that seems like too much despite all of the worries about deficits, etc. We have gotten to 4.2% but no further. Most commentators see rates heading lower not higher from here, although were are now testing that 4.2% level. There is very strong resistance at 4.3%, we’ll see if we can get there.

In 2025 the 10yr yield for the most part held the bottom of of my 2025 likely trading range of between 4 and 5%. As I have written the past couple of weeks “We’ll see if that level can continue hold and/or if yields can get any traction to the upside or downside.” As I said coming into the year, my 2026 range is 3.5 to 4.5% (with risk to the downside if the labor market continues to weaken).

For all the old “final hike” and “first cut” materials, you can reference the Feb 4th blog post.

BoA finally updated their Dove-Hawk chart. Logan I think is as hawkish as Schmid, and I’m not sure I’d characterize Goolsbee as Hawkish, more Centrist, but otherwise seems about right.

And JPM added that gives you 2026 voters. I have some quibbles. The ends are fair but there really should be a distinction b/w Miran and the rest. No way is Barr dovish (and he proved that with a speech not long after I first wrote that). He’s now proven himself to be with the Bostic/Kashkari Fed Presidents. Also, not sure about Cook (she seems to vote with Powell). I think Paulson though should be with Williams and Daly (and she proved that with a speech on Dec 12th. Collins was fairly hawkish in her last appearance as has been Goolsbee (although he’s tricky, dissenting from the Dec cut but also saying “I’m one of the most optimistic folks about how rates can go down in the coming year.”). Otherwise hard to argue much with the slotting.

And here’s one that goes over current term expirations. Note that all of the regional Fed presidents had their terms renewed for another five years (so now expire Feb 28, 2030)

Earnings

As a reminder, I have removed most of the background material, which you can get in the Feb 4th blog post. You can reference this post from 12/1/24 for stats on 3Q, this post from 3/9/25 for stats on 4Q, and this post from 6/1/25 for stats on 1Q 25. And the 9/1/25 post for 2Q 25.

While Q3 earnings will continue to trickle in, they won’t move the needle, so if you want to reference the stats for Q3 you can find them at this posta from 11/23/25.

As we embark on Q4 results season with 7% of the SPX by earnings weight having reported (so very early) through Thursday, so far 79% have beaten (down from 83% in Q3, which though was the best since Q2 ‘21), a little above the 5yr average of 78% and the 10yr average of 76%.

The magnitude of the beats though are just +5.8%, below the already low +6.6% in Q3, and well below the 5yr average of 7.7% and the 10yr average of 7.0%.

The low beat rate is solely due to financials (which have been the predominant reporters thus far by earnings weight) which have come in so far at just +0.5% over estimates, the least of any sector that has reported any companies (six SPX sectors have not reported any companies yet, which changes in the upcoming week).

With the relatively low beat amounts, expectations for y/y earnings growth were trimmed -0.1% w/w according to Factset to +8.2%, which still represents a +0.4% increase from Sept 30th.

The 8.2% in expected earnings growth continues to be largely driven by Tech which is expected to see a huge +25.9% y/y increase.

The only other above 8.2% is Materials at +8.7%. In contrast Cons Discretionary, Energy, Health Care, and Industrials are expected to see negative y/y growth.

This is the second straight quarter we’ve seen earnings estimates for a quarter increase leading into earnings season in contrast to the decline we normally see (not to mention that in every non-recession quarter, earnings estimates will increase further from here (more on that coming)). The past 5 years the decline from the start of a quarter to its end has been -1.6% and 10 years -3.1%

It’s also the first time we’ve seen back-to-back increases in expectations leading into a quarter since 2021. But note that most all of that +0.5% increase was driven by Tech (+6.1% growth since Sept 30th) and Financials (+1.2%), who, along with Energy (+0.3%) were the only sectors to have seen their expectations rise over that time.

Factset attributes the rise in earnings expectations ahead of the earnings season to strong guidance with 47% of companies issuing positive guidance, above the 5-year average of 42% and after Q3 (49%) the best since Q3 ‘21 (57%). In addition only 57 companies guided negatively ahead of the start of earnings season, the least since Q4 ‘21 (51). And given the rise in earnings expectations have been driven by Tech, you won’t be surprised that guidance has also been driven by Tech with 32 components guiding higher, well above the 5-year (22.2) and 10-year (18.5) averages and the second most since tracking began in 2006 after Q3 (36).

And I noted last week that if past is any guide the earnings growth for Q4 can be expected to come in at +13.7% or higher. My figures were based on Factset data coming into Q3 though and Factset updated the analysis this week incorporating that quarter, but the conclusion doesn’t change much, in fact allowing us to raise that “average minimum increase” over the past 1, 5, and 10 years to expect at least +14.0% earnings growth in Q4.

Factset says over the past 1, 5 & 10 yrs companies have beaten earnings expectations by 7.4%, 7.7% & 7.0% respectively resulting in “inflation” to the earnings estimates on average over the quarter by 6.4%, 7.4% & 5.7% respectively over where they stood as of the start of the quarter (in this case Sept 30th which was 8.2%).

So using those averages would mean Q4 earnings will come in at +14.7%, 15.7%, or 14.0% respectively.

Actual earnings by the end of the quarter have not surpassed expectations at the start of the quarter in only 3 of the past 43 quarters (Q1 ‘20, Q3 ‘22, and Q4 ‘22 are the only exceptions according to Factset).

2025 as whole remained at +12.4%, up from +10.6% Sept 30th.

2026 earnings expectations remain at a very strong +14.9% growth with Q1 +12.2% (down from 12.6% the prior week and 13.1%at the start of the year), Q2 +14.6% (unch), Q3 +14.8% (-0.1%) and Q4 +18.4%(!) (+0.1%).

This would be the third year of double-digit growth

Factset notes that only two of the top five contributors to earnings growth for CY 2026 are “Magnificent 7” companies: NVIDIA and Meta Platforms. Overall, analysts expect the “Magnificent 7” companies will report earnings growth of 22.7% for CY 2026, which is slightly above the estimated earnings growth rate of 22.3% for CY 2025. On the other hand, analysts predict the other 493 companies will report earnings growth of 12.5% for CY 2026, which is above the estimated earnings growth rate of 9.4% for CY 2025.

And 2027 earnings are expected to grow another +14.9%, which would be a fourth year of double-digit growth. Interestingly Energy is expected to take the lead +22.0% followed by Cons Discr +21.7% and Tech +17.7%

Factset: 2026 earnings expectations on a numeric basis edged higher this week to $310.95 but remain a little below the peak, still representing +14.9% y/y growth, down just around -0.5% from the start of 2025.

In terms of the earnings growth expected for 2026 Factset notes it will be a record. On average over the past 25 yrs there is a -6.3% deterioration from where it starts the year ($311) which would equate to $292.34 based on the average deterioration. But Factset pulls out 4 outlier years (2001, 2008, 2009 & 2020) where the overestimation was between 27-43% due to recessions. Excluding those, and assuming no recession, the difference is just -1.1% (which would equate to $307.58.

2027 earnings expectations are at $358.13, a record high, representing blazing +15.6% growth.

Unlike revenues which are led by Tech (which is still second) the most growth in 2027 earnings is expected to come from Energy (+22.5%). Tech though is +21.0% and Cons Discr +17.5%.

While 4Q earnings estimates are expected to grow the least since Q1 ‘24, revenues are expected to grow +7.8% y/y (almost as much as earnings) which is the most since Q3 ‘22 with Tech +18.0% and Comm Services +10.3% in double digits.

Those have also grown now by more since the start of the quarter (from +6.4% on Sept 30th).

Q4 profit margin expectations are at 12.8%, below the previous quarter’s 13.1%, but above the year-ago 12.7% and 5-year average of 12.1%.

In terms of revenues for Q4, 67% of S&P 500 companies reported revenues above estimates according to Factset, also a very low beat rate below the 5yr average of 70% and the 10yr average of 66%, and like earnings the beat amounts at +0.3% are well below the 5-year average of 2.1% and the 10-year average of 1.4%.

As with earnings, the poor revenue beat amount is due solely to financials which have seen revenues miss by -0.9% on average, the least of all sectors that have had a company report.

While 4Q earnings estimates are expected to grow the least since Q1 ‘24, revenues are expected to grow +7.8% y/y (+0.1% w/w and almost as much as earnings) which would be the most since Q3 ‘22.

Those have also grown now by more since the start of the quarter (from +6.4% on Sept 30th).

Factset: 2025 revenues are now expected to grow +7.2% up +0.2% w/w and +1.6% since the start of 2025 (which is an unusually high increase). Just energy is expected to have negative revenue growth (but much less than expected even June 30th).

2026 SPX revenue growth is now expected at +7.3%, with Tech +17.8% and Comm Services +10.5% carrying the load (the only two sectors expected to be above the SPX).

2027 SPX revenue growth is expected at an equally strong +7.3% with again Tech +14.4% and Comm Services +8.8% leading.

In terms of how markets are handling earnings beats & misses for 4Q, again noting this is very early in the process, it doesn’t bode well after we again unusually raised the bar coming into earnings.

Looking at the two days before to two days after a report we are for a third quarter seeing beats rewarded much less than typical according to Factset in fact with a negative reaction -0.4% down from +0.4% in 3Q and 2Q and vs the 5-yr average of +0.9%.

Meanwhile misses are again being punished much more than average at -4.0% vs the -5.0% in 3Q and -5.5% in 2Q (which BoA said was the worst negative reaction since 2000), again well worse than the 5-yr avg of -2.3%.

Factset’s compilation of analyst bottom-up SPX price targets for the next 12 months as of Thursday continued to increase for a 30th week to 8,085 which would be +16.3% from Thursday’s close. That’s an ATH +74pts w/w (+564pts the past 10 weeks and +1,439pts the past 30 weeks).

Tech (+25.4%) easily remains the sector seen by analysts with the largest upside (the only sector above the SPX), followed Cons Discr (+14.8%), while Energy is now the sector expected to see the smallest price increase (+7.5%) followed by Materials (+7.8%).

As Factset reminded us in December, the last 20 yrs (through 2024) analysts have been on avg +5.9% too high from where they start the year (which was 6,755 coming into 2025, 8,000 for 2026) but note they underestimated it five of the past six years (including 2024). They ended ~100pts too low.)

Factset: In terms of analyst ratings, buy and hold ratings continue to dominate with buy ratings at 57.7%, after December tied Feb 2022 for the highest on record (to 2010) at mont- end at 57.5% according to Factset. Hold ratings are at 37.3%, with sell ratings at 5.0%.

The Information Technology (67%), Energy (65%), and Communication Services (64%) sectors have the highest percentages of Buy ratings, while Consumer Staples (45%) has the lowest percentage.

Consumer staples also has the most sell ratings at 8% and Hold ratings at 47% (down from 50% four weeks ago, next closest on Hold ratings is Utilities at 46% (up from 45% four weeks ago)).

The percentage of Buy ratings is above its 5-year (month-end) average of 55.1%. The percentage Hold ratings is below its 5-year (month-end) average of 39.0%. The percentage of Sell ratings is below its 5-year (month-end) average of 5.9%.

Factset also notes that two of the three sectors that have recorded the largest price increases since December 31st are also two of the three sectors that had the highest percentages of Buy ratings on December 31st: Communication Services and Information Technology. The other though, Energy, saw the second smallest price gain since then.

Just one of the three sectors that have recorded the smallest price increases since December 31 are also one of the three sectors that had the lowest percentages of Buy ratings on December 31st: Consumer Staples. The others were Utilities and Materials/Industrials.

And some other earnings stuff:

Economy

Over the past 2+ years part of my earnings optimism has been due to the economy holding up better than expected. While earnings only track the economy loosely (and markets look forward 6-12 months), there is a clear positive correlation between the economy and earnings (particularly a weak economy and weak earnings), and there is a very strong correlation between earnings and stock prices (although stock prices (being as noted forward looking) generally fall in advance of a recession and bottom 6-9 months before the end of one). So if you can see a recession coming it is quite helpful, although very difficult (especially ahead of the market). You can reference this Week Ahead (see the Economy section) for a lot of material on how every recession is preceded by talk of a “slowdown” or “soft landing” as close as a month before the start. That report also has the notes about how small caps have shorter debt maturity profiles and more of it (debt).

As long time readers know the beginning of this section hadn’t changed much since I switched to the Week Ahead format in mid-2022, with the indicators to me during that period consistent with solid (which at times has been robust) economic growth, and I have been a broken record that I “certainly do not think we’re on the verge of a recession (although as noted above every recession starts out looking like just some economic softening).”

Since the end of March, though, we’d seen the data soften (it actually stretched back pre-March with 1Q services spending getting a notable markdown in the GDP revisions (as did services exports (tourism, etc.) and construction spending)) with reports since then more mixed, although remaining consistent with an economy running around trend levels (if not a bit above).

While we were deprived of the official data, what we saw during the shutdown “seemed to offer little change in the picture with estimates of layoffs and hires remaining generally low, consumer sentiment remaining weak, but private estimates of spending healthy, reinforced by earnings reports which also indicate a fairly healthy business environment (even if top-heavy) with solid balance sheets and low delinquencies (again though with some cracks in the subprime or leveraged areas and what seems like perhaps some slowing in certain pockets of discretionary spending like restaurants).”

As noted in mid-December, we’re finally starting to get some more recent data, and as I said two weeks ago “we continue to see an economy with some softening in hiring but spending remaining very solid along with good business investment spending, strong government spending (concentrated in defense and other administration priorities), offset somewhat by weak spending on structures outside of data centers and subdued exports.”

The data since then has generally supported that, but to me is starting to show some evidence of at least stabilization if not reacceleration in the economy and even some green shoots for the labor market (although that is still more mixed). Last week we saw continued strength in Nov consumer spending and, in more current data, the industrial production report (our broadest look at manufacturing) came in better than expected. Dec CPI came in cool, mortgage rates hit the least since 2022, and we saw home sales continue to inflect higher hitting the best levels in years. Jobless claims remained very low historically (initial claims fell to levels rarely seen in the past 50 years) and the ADP job growth survey remained in positive territory (if subdued).

I have said the past few months “the data continues to show an economy remaining in ‘ok’ shape (although a 3Q GDP print over 4% is definitely more than ‘ok’ and now 4Q is looking to be better than anyone had expected coming in), with continuing ‘tiny cracks’ as I put it in mid-June,” but if the data continues to inflect higher, particularly with the tax refunds that are upcoming (and it appears more fiscal stimulus coming down the pike), continued expansion in AI spending, government spending having troughed, the Fed more inclined to cut than raise rates, etc., I will soon have to upgrade that to “an economy that has reaccelerated to “solid” shape”.

I said at the start of September 2024:

without question, the evidence is building that the days of >3% real GDP growth are behind us. That though is far from a disaster, and we should be happy to settle into something more around trend (1-3% real (infl adjusted) growth). The important thing will be to see the softening level out (L-shape) rather than continue to fall turning the “soft landing” into a recession.

And, it is starting to look like I am going to have to eat my words as two quarters exceeding 3% is clearly more than an outlier. We’ll see how 4Q turns out, but at least I can say from that starting point, I at least was ahead of the majority who saw a recession or at best 1% growth in 2025.

Finally, as a reminder, as we turn the page into 2026 we’ll be getting more economic boost from deregulation and the OBBB which should at the very least offset the drag we’re getting from the tariffs, restart of student loan payments, and in the short-term loss of the health insurance subsidies (although I expect those to be replaced at some point) and perhaps provide a bigger tailwind than many are expecting.

The Citi Economic Surprise Index improved to +16.7 as of Friday from +7.8 the prior week and the best since the +21.8 Dec 10th (which had been the highest since Sept).

The high of 2025 was 28.6 Sept 4th and the low was -24.6 in late June. The 2024 high was 47.2 (in Feb) and the low -47.5 (in July).

And GDP estimates are for now consistent with a no recession call (again though remembering GDP going into recessions generally doesn’t look like one is coming (it was up around 2% in Q2 & Q3 2008 well after the recession had started)). After a very strong read in Q3, estimates outside of the Atlanta Fed are for a slowing in Q4 due to the shutdown drag (which will be “paid back” to us in the current quarter), but estimates for the most part have also been rising with a 2+% quarter now expected much better than the 1% most were expecting a few months ago.

Atlanta Fed saw their 4Q GDP tracker ease back but remain with a 5-handle at 5.30% after having come in the closest for 3Q at +3.48% vs the actual 4.3%.

NY Fed’s 4Q GDP tracker hit the highest since it initiated tracking in August +0.09% to 2.71% almost all on the retail sales report.

As a reminder, they were well under for 3Q at +2.31% vs the +4.3% actual first estimate and 2Q at +1.68% vs +3.0% after being too high for 1Q at +2.6% vs -0.3% (although they have been closer in most quarters prior to 2025)).

And another reminder, the model is “dynamic” and constantly updating the itself (how it weights inputs, etc.) to become more accurate which result in “parameter revisions” (which are normally small but last week saw an increase of +0.60%). This week just +0.01%.

Their Q1 2026 tracker was +0.13% w/w to +2.75%, the highest since they started tracking in late November.

The St. Louis Fed 4Q GDP tracker continues to confound but at least improving to -0.06% as of Friday from -1.46% the prior week (but, yes, they are still tracking a negative GDP print). Unhelpfully they do not give a breakdown of the inputs.

The St. Louis Fed was a pretty good tracker pre-pandemic, but since Q2 ‘20 it has been much less so. For the just completed 3 Q they were by far the lowest of the trackers at +0.42%, nowhere in the vicinity of the 4.3% actual first estimate.

That dismal 3Q performance comes after undershooting 2Q ‘25 by -1.2% and overshooting Q1 ‘25 by +3.7%. It did though do well Q4 (and Q1) ‘24 but otherwise has been at least 1.5% off every quarter since Q2 ‘20, often by much more than that.

BoA sees their 4Q GDP tracker edge up another tenth (after increasing +0.7% the prior week) to 2.2% as of Thursday (so this week incorporated NFP from the previous Friday). They see real final sales to domestic purchasers coming in at +1.3%.

Here were the details behind the change if you’re interested in the granular detail:

Oct housing starts came in lower than expected. Payrolls of residential remodelers also came in lower than expected. Dec CPI came in lower than expected. CPI is used as a deflator in PCE tracking. This led to an increase in our 4Q PCE tracking. New home sales in Oct and existing home sales in Dec came in slightly higher than expected. In the Nov retail sales report, core control retail sales came in slightly weaker than our above consensus forecast. Also, Oct was revised down. However, food services, which also feed into GDP tracking came in strong in Nov along with some upward revisions to Oct. On net, this led to a small decline. Core PPI in Nov came in below expectations. PPI is used as a deflator in our structures investment and inventory accumulation tracking. Also, business inventories in Oct came in above expectations. Overall, this led to an increase.

As a reminder their tracker was 1.2% low for 3Q vs the first estimate and 0.8% low for 2Q ‘25 GDP, a tenth high for 1Q, right on for 4Q ‘24 GDP & two tenths high for 3Q ‘24.

Their official forecast was 2.7% for 3Q GDP (vs 4.3% first estimate) and is 1.4% for 4Q.

Goldman after this week’s data left their 4Q GDP tracker as of Friday at +2.1% (Q/Q SAAR). As they said the prior week when they unveiled it, “1.1pp above the Bloomberg consensus but 3.0pp below the Atlanta Fed’s GDPNow model…our forecast incorporates a large drag (-1.1pp) from the government shutdown, but since the Atlanta Fed’s GDPNow model is a nowcast based on available data for the quarter, it cannot anticipate the impact of the shutdown before it materializes in the source data… This accounts for about a third of the gap between our forecast and the GDPNow model.

“Private domestic final sales growth, which excludes government spending, inventories, and net exports (and therefore will mostly look through the temporary impact of the shutdown), should provide a better gauge of underlying growth in Q4. We forecast quarterly annualized private domestic final sales growth of +2.2% for Q4, slightly below the +2.6% average pace in Q1-Q3 but marking another quarter of firm growth.”

Goldman’s official “house forecast” is for +2.4% GDP with +2.5% private domestic final sales growth (last column).

Goldman’s Dec US Current Activity Indicator* jumped +1.6% to +3.1%, the highest since Dec ‘24 and before that the joint highest since Apr ‘22.

*The CAI is their “real-time measure of inflation-adjusted economic momentum using 37 inputs.”

The Weekly Economic Index from the Dallas Fed* in the week through Jan 10th jumped +0.37% to 2.45% (after though the prior week was revised -0.05% lower), remaining in the 1.49 - 2.79% range it has occupied since 2022 only poking above a couple times (most recently Apr 5th).

This series has become one of my favorites as it has a high correlation with actual GDP (see chart and note the recently released Q3 GDP report showed y/y GDP at 2.33%, right in line with this index) and has consistently indicated no recession and relatively healthy growth since the pandemic (which is what we’ve seen). It was referenced in November by Dallas Fed Pres Laurie Logan as support for her contention that the economy “remains solid”.

Importantly, the 13-wk avg is at 2.23% (down a bit from the 2.53% reading May 3rd, which was the best since 2022, but still a very healthy reading), continuing to evidence economic momentum that is slightly above trend.

*The WEI is scaled as a y/y rise for real GDP (so different than most GDP trackers which are Q/Q SAAR) and uses 10 daily and weekly economic series but runs a week behind other GDP trackers.

https://www.dallasfed.org/research/wei

Other economy stuff:

Valuations

Like the other sections, I’ll just post current week items regarding the multiple. For the historical stuff, see the Feb 4th blog post.

With equity indices mixed, with large caps flat (Mag-7 lower) but small caps pushing higher, P/Es followed:

-The SPX forward P/E (red line) edged back to 21.9 (-0.2pts w/w, -1.7pts from the highest since 2001 on Yardeni’s model (which is a bit lower than most others (presumably due to the forward earnings calculation and earnings data source))).

-Mid-caps’ (blue, S&P 400) though +0.2pts w/w to 16.7 (the highest since 2024 and -0.4pts from the highest since early-’21 (17.1)).

-Small caps’ (green, S&P 600 so higher quality than the Russell 2000) +0.2pts to 16.1 (the highest since early 2025 and -1.0pts from the highest since early-’21 (17.1)).

-Mag-7 (purple) though -0.4pt to 27.7, the least since 1H ‘25 (-3.2pts from the highest since 2024 (30.9)).

https://yardeni.com/charts/stock-market-p-e-ratios/

Other valuation stuff:

Breadth

The McClellan Summation Index (“what the average stock is doing”) continues its upward move since bottoming in late November now the highest since late Sept.

The Nasdaq volume-based version (red line, favored by Helene Meisler for this index) also finally turned up from the least since April.

SPX new 52-wk highs (red line) pushed over 60 again to 62 last week after hitting 64 the previous week, which was the highest since Nov ‘24 and only the third time we’ve had over 60 since then.

More notably, the 10-DMA (blue line jumped to 47, the highest since Dec ‘24 from 19 two weeks ago, which was the least since June (the 2024 peak though was 76).

% of stocks over 200-DMAs (red lines), a gauge of stocks in longer term uptrends, which had been lagging the price action since Sept, got in gear two weeks ago for the NYSE and is now the best since Dec ‘24. Nasdaq though, like its price, is lagging.

SPX more similar to the Nasdaq.

% of stocks above 50-DMAs (red lines), a gauge of stocks in medium-term uptrends, a similar story, although those highs were in June (but those were the highest since Jan ‘24).

And shortening the lookback to % of stocks above 20-DMAs (red lines, indicative of equities in shorter-term uptrends) not quite as strong, but the same idea.

SPX growth/value fell to a 5-mth low of 2.33 as of Jan 16th, down from the highest since 1995 (2.44) the first week in Nov, but still up from around 2.0 to start 2025.

https://yardeni.com/charts/growth-vs-value/

The softening in the growth/value SPX ratio comes even as the relative forward earnings of growth vs value pushed to a new record high (1.69 as of Jan 8th), further off the chart.

Equal-weighted SPX vs cap weighted ratio moved to the highest since Sept now up against its downtrend line from the start of the drop from the Jan ‘23 peak.

IWM:SPY (small caps to large caps) extended well over its downtrend line from the start of 2024, now the highest since Nov ‘24.

SPX sector breadth quite varied last week with just two sectors not up/down more than 1%.

On the positive side, 6 of 11 sectors higher (down from 10 the prior week which was the most since Nov), but five of those were up over 2% (the same as the prior week and up from none the week before that), and three were up at least +3% (down from two the prior week but those two the prior week were both over +4.6%(!)).

Leadership changed from Cons Discr & Materials to RE and Staples (Industrials and Energy were again third and fourth though).

On the negative side, four sectors down at least -1% (from one the prior week (Utilities)), and two (Financials & Comm Services) were down at least -2%.

While the right third of the stock-by-stock chart from FINVIZ_com looks a lot like the prior week (with the exception of Utilities going from red to green) the rest looked pretty different, particularly with a lot of red in software, banks, lots of Health Care and basically all of Comm Services.

Looking at the top 11 stocks by market cap, just four were higher (vs seven the previous week but three the week before that) led to the downside by JPM -5.08% edging out META who quietly sunk -5.02%. #12 V was -0.61%. Leading to the upside easily was WMT +4.5%. AVGO was the only other up over 1%.

2025 loser Moderna MRNA is starting 2026 much better up +22% to lead the SPX last week, one of 11 stocks up at least +10% (down from 22 the prior week).

Despite the SPX finishing lower for the week, ~120 SPX components were up over +4%, the most since Nov and up from 100 the prior week and 18 and 15 two weeks before that. A little over a fifth of those were >$100bn in market cap (down from a little over a third a week ago) in AMD, KLAC (again), APH, GEV, AMAT (again), MO, LMT, BLK, RTX, JNJ, CME, ETN, HON (again), ANET, BA, DE, MU, CAT, NEM (again), NEE, SBUX, PEP, WMT, XOM, COST, IBKR (again) (in descending order of percentage gains),

On the other side Intuit INTU, led decliners -15.7%. Eleven other components were down over -10% (up from three the prior week).

~70 SPX components were down -4% or more (double the prior week and up from just 3 the week before that), with 16 >$100bn in market cap (after four, eleven, and zero the previous three weeks) in INTU, CRM, APP, ADBE, QCOM, BSX, ISRG, WFC, BKNG, MA, V, BAC, JPM, VRTX, DIS, COF (in order of percentage losses).

Other breadth stuff:

Flows/Positioning

EPFR from the Flow Show:

EPFR FICC flows in the week through Wed saw Commodities and Gold/Silver move back into the second and third spots (they have been in the top three for the last couple of months for the most part) w/+0.5 & +0.4% in AUM respectively.

Bank loans this week took the top spot at nearly +1% of AUM, the largest since July. Rounding out the inflows were Corp IG, TIPS, USTs, then Corp HY.

Cash fell to last place after the 3rd largest inflow on record the prior week (but last week’s report noted “the 1st week of year always big MMF inflow”), followed by the prior week’s largest outflow EM debt who dropped -0.35% of AUM after -0.9% the prior week (which was the ”biggest since May ‘22,” but only after the “biggest inflow ever 3 weeks ago”).

ICI data on money market flows in the week through Jan 15th like EPFR saw a huge outflow of -$74.7bn (vs the -$62bn EPFR recorded) the most in at least 20 weeks (I haven’t been keeping a record of this that long), which brought their seven week total to +$207.8bn.

Institutions (who hold ~60% of MMF assets), saw the bulk of the outflow (after having leading inflows for 7 of the prior 8 weeks, at -$55.8bn cutting total inflows over the past 18 weeks to +$440.3bn.

Retail also a big outflow of -$19.0bn, now +$114.1bn the past 18 weeks).

Total MMF assets up to a record $7.80tn.

https://www.ici.org/research/stats/mmf

On combined systematic strategy positioning, BoA says “[w]ith equity realized volatility now at depressed levels, volatility‑sensitive strategies may have pushed aggregate systematic equity positioning to its highest level in roughly five years. Looking ahead, the risk profile is asymmetric: downside moves could prompt material positioning unwinds, while flat to higher equity markets would likely result in more gradual adjustments.”

In that regard, BoA estimates a combined +$19bn of buying in a flat market (down from +$22bn the last week) driven by vol control with smaller adds from CTAs and risk parity,

-$22bn of selling in an “up” market due to the volatility increase (”up market” defined as 97.5 %ile price path or ~+3.5% similar to Goldman)),

and -$169bn selling in a “down” market, up from -$127bn in their last update (”down market” defined as the 2.5 %ile price path or ~-2.9% (different than Goldman who uses --4.5%)).

While CTAs still dominate the selling in a down market (due to both increased volatility but more importantly breaking sell triggers) representing -$116bn of the -$169bn in combined estimated selling ,as noted last week vol control is becoming a larger piece adding -$54bn (with risk parity the difference).

Goldman similarly says “The systematic/CTA cohort is comfortably long (above an 8 out of 10),” although they see “some small additional baseline buying expected over the next month.” Still they also see a much larger unwind if things go the other way.

Tier1Alpha continues to model less of a rebound in overall systematic positioning just now getting past the levels levels of late Oct but well off the 2024 highs.

DB sees systematic positioning at the 84th %ile net length to 2011.

Looking more specifically at CTA (systematic trend follower) positioning in the US indices, BoA says:

“CTAs with medium- to long-term trend signals remain stretched long across US, European, and Japanese equities. Shorter-term models are less extended in the S&P and Nasdaq. Based on our models, CTA unwinds would begin following declines of roughly 3% in the S&P 500 and Nasdaq, 5% in the Russell 2000.”

As a reminder, BoA now looks at bullish, flat, and bearish price paths (which are based on price trend vs moving averages), but also in short, medium, and long term price trends. It appears that we continue (as we have since early December) to see only the shortest not yet having brought their positioning back up to the levels from early Nov (although they are getting closer on all but the Nasdaq) leaving less room for CTAs to add per the systematic positioning summary, but they also see a good amount of breathing space before any selling would take place.

They don’t therefore provide buy levels (as that is more volatility dependent as they note) but they see the first layer of sell triggers at 6755, 24932, and 2559on the SPX, NDX, and RUT respectively.

DB sees CTA equity positioning at the 81st %ile to 2010 up from the 73rd %ile the prior week. In terms of the US, long positioning is at just the 63rd %ile (up from 54th the the prior week) with the SPX at the 65th (from the 55th), RUT at the 62nd (53rd), and NDX the 51st (from 46th), so seeing more room to expand than BoA models.

Tier1Alpha sees CTA positioning in US equities more in the mode of BoA closer to full positioning.

BoA on SPX gamma:

“SPX dealer gamma continues to be historically stretched. Gamma was +$11.7bn (96th 1y %ile) as of Thursday’s close and so far this year gamma has averaged long ~$10bn (>2.5x the average level during 2025 of +$3.6bn). So long as the S&P sees flat-to-up price action near term the current profile suggests gamma is biased to remain elevated. Historically it is common for gamma to be extreme concurrent with equities climbing to new all-time highs; as a key driver of this dynamic, calls generally are a dominant portion of the stickier >1wk gamma supply so equities rallying typically raises their gamma.”

So unlike some others, BoA sees gamma as very high (at least as compared with the past year which has been relatively low), which should cushion volatility.

BoA also sees it as relatively stable in the 6800-7100 area (with a peak at 7100 which must represent the JEPI call strike, which is an interesting spot as Tier1Alpha says the JEPI call strike is 7155, so perhaps BoA disagrees) but falling off sharply on moves past those levels where volatility would be expected to pick up.

Tier1Alpha though sees gamma a little differently:

“SPX remains trapped in a neutral-gamma range, leaving the broader setup intact. Neutral gamma is the transition zone between positive and negative regimes, where dealer imbalances are typically less extreme.”

BoA’s estimate of risk parity positioning (which they estimate at around $200bn of AUM at max exposure) continues to see the leveraged exposure to bonds at the highest since 2021, while the stock and commodity exposure remains around average levels since then.

DB models risk parity funds (est ~$250bn in max AUM) much differently than BoA with the equity allocation at the 79th %ile and commodities the 75th but bonds at just the 38th (although the charts don’t look quite in line with that):

“Risk-parity funds’ overall equity allocation overall equity allocation largely moved sideways this week (79th percentile), with allocation staying flat to the US (75th percentile for a third week), developed markets excluding the US (73rd percentile), and EM (83rd percentile). Their allocation to bonds (38th percentile) and allocation to inflation-protected notes (63rd percentile) stayed flat, while allocation to commodities (75th percentile from 77th) was trimmed.

With the relatively subdued volatility, BoA’s estimate of vol control equity exposure (which they estimate at around $200bn of AUM) continued to edge higher. While not yet at the 2025 peak, it is getting closer.

DB sees vol control funds at just off “their historical maximum (99th percentile),” with their “sensitivity to market selloffs low”.

While Tier1Alpha models vol control positioning as further off the highs.

And there is some scope for further expansion as we drop a 1.1% day out of the the 3-month lookback (which is “the new rebalancing toggle,” as it has moved over the 1-month). There is also a 1.2% day falling out of the 1-month.

I like to look at the impact of moves in leveraged ETFs on the overall market as a barometer of risk appetite (the greater the impact, the more investors have in these ETFs which I think of as “higher risk”), and both SPX and NDX leveraged ETF AUMs edged back although both remaining in their recent ranges and overall much closer to the highs of 2024 than the lows.

Remember, this is a “constant negative gamma” source as Charlie McElligott put it in a Oddlots appearance (meaning that there is double/triple buying pressure from them as they rebalance each day).

Looking at the two largest single stock ETFs $TSLA and $NVDA, in line with the pivot away from the Mag-7 in recent months both have seen their AUM’s fall back to near the lows since June. TSLA ETFs shed -$0.3bn in AUM to $7.5bn (40th %ile over the past year), while NVDA leveraged ETFs fell -$48mn to $5.9bn (35th %ile over the past year).

$GOOG edged past $PLTR to take third place both at +$1.1bn while $META fell to 7th (from 4th two weeks ago) at $0.9bn behind now $MSTR +$1.1bn and $MU +$1.0bn.

And after buybacks ended 2024 at record levels and started 2025 even better, they had by and large remained below seasonal averages since April until October when they seemed to have picked back up (depending on who you ask), but according to BoA and Goldman they accelerated into year-end and are near record levels on a nominal basis but still just in line with the average since 2010 on a market cap weighted basis We are now into the the buyback blackout window which will continue for the next few weeks which take away discretionary buybacks.

And some other notes on positioning:

Sentiment

Sentiment (which I treat separately from positioning) is one of those things that is generally positive for equities when its above average but not extreme (“it takes bulls to have a bull market”, etc.), although it can stay at extreme levels for longer than people think, so really it’s most helpful when it’s at extreme lows (“washed out”). We got close to washed out levels in April before steadily recovering much of that through late July (when I said we were “getting to” euphoric).

Since then things had been much more mixed on the sentiment front, before again moving back towards extreme bullish readings in later October. Things fell back though along with the equity drawdown in November, and a couple hit at or near extreme lows for the year at the end of November. But like clockwork they have rebounded along with the equity recovery although only a couple are really anywhere near extreme levels.

After taking a one-week break, AAII investors continued to move more bullish drawing from both bears and neutral seeing the bull-bear spread widen to the most since Nov ‘24:

AAII bulls (those who see higher stock prices in 6 mths, blue line) pushed to 49.5% from 42.5% the prior week, the highest since Nov ‘24, remaining above the long-term historic average of 37.5% for a 3rd week (and the 6th week in 7 (with the other week 37.44).

Bulls also remained above the level of the bears (who see lower stock prices in 6 mths, red line) for a 7th week, the longest streak since 2024, who edged back to 28.2% from 30.0%, still at touch above the 27.0% two weeks ago, which was the least since Oct ‘24. Bears remained under the long-term average of 31.0% for a third week but only the 7th time since Dec 12th.

With both bulls increasing by more than bears decreased, the Neutral camp (yellow line), which shot to 31.0% the two weeks ago, the highest since Jan, fell back to 22.3%, the least since Nov 13th and remaining under the long-run average of 31.5% for the 77th week in 79 (since July ‘24).

https://aaii.com/sentimentsurvey

The AAII asset allocation survey saw the allocation to stocks edge down to 70.8% in December from 71.2% in Nov, which was the highest since Nov ‘21, moving into bonds which edged up to 14.4% from 14.0%, which was the least since May ‘24, while cash remained at 14.8%, a tenth off the 14.7% in Oct which was the least since Nov ‘21.

In the special question this week AAII asked “Relative to your expectations at the start of the year, how did your portfolio perform in 2025?”

Only 13% did worse than they expected (including 2% who did “much worse”).

A little over two-thirds (68.5%) did better than expected (including 21.5% who did “much better”).

20% did about as they expected.

NAAIM (investment managers) exposure index (blue line) edged back to 96.01% from 97.72%, a fourth week of incremental moves after exceeding the 100 mark for the second time in 2025 (and third time since Jul ‘24) Dec 17th (which means that the average respondent (investment manager) was levered long equities).

The 4-wk avg (reddish line) was also little changed at 95.4% from 96.6% remaining below the 97.9% Dec 24th, which was the highest since Mar ‘24 (99.0%).

As a reminder, the index “represents the average exposure to US Equity markets reported by our members” and which ranges from -200% (2x short) to +200% (2x long).

https://naaim.org/programs/naaim-exposure-index/

The 10-DMA of the equity put/call ratio (black/red line) after falling to the least in a month at 0.55 the prior week, scooted back up to 0.60 (meaning more downside protection being bought), the highs of the year, before edging back a touch Friday. Still it remains well below the 0.71 in late Nov (which was the highest in a year) a little closer to the 0.50 it hit at the start of Oct (which was the joint lowest in three years)).

When it’s increasing it normally correlates to a consolidation in equities and increase in volatility and vice versa.

Goldman’s US Equity Sentiment Indicator* after moving into “stretched positioning” (over 1.0) two weeks ago for the first time in nearly a year softened for a second week now back into negative territory -0.2 for the first time in six weeks.

*The indicator combines “six weekly and three monthly indicators that span [across the more than 80% of the US equity market that is owned by institutional, retail and foreign investors]. Readings of +1.0 or higher have historically signaled stretched equity positioning. Readings of -1.0 or lower have signaled very light positioning and have historically been a statistically significant signal for subsequent S&P 500 performance”.

The CNN Fear & Greed Index (blue line) jumped higher last week to 62.17, back into “Greed” and the highest since Sep 22nd, from 50.63 the prior week (and 44.63 the week before that).

After having the seven indicators on one side or the other for the most part in 2025, they are starting to drift back towards Greed with now just one indicator in Fear or Extreme Fear while three are in Extreme Greed:

Extreme Greed = junk bond demand (vs investment grade); stock price strength (net new 52-week highs) (From Neutral); safe haven demand (20-day difference in stock/bond returns) (from Fear)

Greed = None

Neutral = market volatility (VIX & its 50-DMA); stock price breadth (McClellan Volume Summation Index); market momentum (SPX vs 125-DMA) (from Greed)

Fear = None

Extreme Fear =put/call options (5-day put/call options)

https://www.cnn.com/markets/fear-and-greed

The revamped BofA Bull & Bear Indicator is now at 9.3, the highest since Feb ‘18, “an extreme bullish level,” and pushing further above the “contrarian sell signal” level.

The push higher was “on strong global stock index breadth (89% ACWI indices trading >50 & 200dma), uber-bullish FMS positioning (record low 3.3% cash level), robust credit market technicals”.

Hartnett notes that “past 24 years average 3-month return when B&B Indicator >9.3… ACWI flat, S&P500 - 1%”. All six of the components are either “Bullish or “V Bullish”.

Hartnett notes the “old” BofA Bull & Bear indicator increased to 7.5 (highest since Feb’21) although still not yet at a sell signal (the old indicator didn’t hit a sell signal post-pandemic (why they changed it)).

And it’s over. The record streak of bullishness in Helene Meisler’s weekly poll ends (barely) at 13 weeks, as unlike AAII and NAAIM, 49.1% of Helene’s poll respondents see the next 100pts higher on the SPX from 60.9% the prior week (and a record 73.3% four weeks ago).

Note, though, that streak resumed soon thereafter with another 6 weeks of bullish readings (and the SPX chopped for a bit but also continued on its way for another six months).

Looking in more detail at when the previous longest streak (10 weeks) of bullishness in Helene’s poll ended in Apr 2021 (second chart), the next week was higher but then we fell back for two weeks, chopped for a month, then resumed climbing into the Dec ‘21 peak of that cyclical bull.

The record low was 33.2% on May 17th. While they started the year unusually much more wrong than right (but also after Helene had to start with a new X address which dropped her followers dramatically), they have been more accurate since the start of October (mostly coinciding with their newfound bullishness).

And the link to Helene Meisler’s always excellent Weekly Chart Fest.

Her message this week:

The one observation I have is that with the Russell 2000 being up so much this week I cannot find much that looks interesting anymore. MOO and XLB, some of my new faves in the last few weeks are up too much now. IYR which I liked last week really scooted upward too, although not quite enough to capture a ton of love. But it’s the move in bonds on Friday that should have everyone’s attention.

It normally includes Citi’s Panic/Euphoria Index which fell almost to the zero line at the end of April, moved higher, softened again in August but never left Euphoria before hitting new 52-week highs six weeks ago before again softening but remaining well into Euphoria.

While the fine print says “[h]istorically...euphoria levels generate a better than 80% probability of stock prices being lower one year later,” it has seen a mixed track since the start of 2024:

-It entered euphoria in late March 2024 (when the SPX was around 5200). We didn’t get to 5200 by late March of this year, but we got closer than I would have thought at 5500 (and we did fall under for one day in April).

-The next entry into Euphoria was in late October 2024 w/the SPX around 5800. The closest we’ve been since the start of October was 6550.

This most recent entry was in July w/SPX at 6200. We’ll see how it does this time (so would need to be under 6200 July 2026).

Seasonality

As we move into the second half of January, seasonality for all years since 1950 turns less supportive but still positive with a median return of +0.5% a little below the median for all periods.

Looking since 1929 the second half of Jan similarly weakens to more mediocre levels with an average gain +0.33%, right in the middle of all half-months, a little above the all-halves average of +0.25%, and the median a little better +0.45% which is similarly around the middle of all half-months and a little below the all-halves median of +0.59%.

The second half of Jan has also been positive 57.7% of the time, a touch above the 56% average and in-line with the 57% median for all halves, while the standard deviation (volatility of returns) is 3.27%, down from 3.52% for the first half and below the all-halves avg/median of 3.5%.

For the month as a whole, since 1928 January is the 3rd best month with an avg return of 1.21%, up 62.2% of the time.

And looking specifically at Year 2 of the Presidential cycle, January has been up 58% of the time with an average gain of 0.80% (vs 62% and 1.19% for all year), but if we zoom in on since 1970, it’s up just 36% of the time with an average loss of -1.77% (vs 59% and 1.08% for all years).

Final Thoughts

As noted three weeks ago as we embark on a new year, I’ll be reworking this section. If you want the summary as to “how we got here” in 2025 you can see the Dec 21st Week Ahead in this section. I really didn’t get a chance to do much here this week for the reasons noted at the top.

As I said three weeks ago:

I mentioned five weeks ago things seem overall in favor of the bulls. Earnings expectations remain high (and increasing), seasonality doesn’t get much better (although that’s ending soon), buybacks are flowing (has already though started to slow with Q4 earnings season coming soon), the Fed while not a big tailwind is not a headwind (and there’s no question that the “Fed put” remains alive and well), Pres Trump is unlikely to be a negative catalyst (and likely to be a positive catalyst) through the midterm elections (and partly as a result volatility has receded to the lows of the year which fuels buying from systematic funds), the economy remains in decent shape even if the jobs market has cooled (that 3Q GDP print was something), etc. Sentiment indicators are mixed but the most frothy eased off last week, and the more important positioning indicators indicate a sufficient amount of caution with room for positioning to improve.
As I said several weeks ago, “I continue to believe as I have said for most of the year ‘for now it makes a lot of sense to be comfortably long stocks, with a plan in place for the inevitable 5-10% drawdown.’”
The one fly in the ointment is always something out of Washington (particularly if we get that Supreme Court ruling on the IEEPA tariffs which will definitely be market moving, although I’m thinking a negative ruling has been increasingly socialized so might not be as big of an event as I had thought earlier in the year).

And I noted last week,

despite the forced extradition of Maduro (and a host of proclamations from Pres Trump on everything from defense industry buybacks to MBS purchases to credit card interest rates, not to mention a pile of economic data which saw FOMC rate cut expectations pared back, markets have taken them mostly in stride with the SPX hitting a new high. So overall there’s not much that has changed especially with breadth getting back on track.

And that overall seems to be the case with markets hanging in there, but there are a number of items from the continued escalation of the President on a number of fronts (the dust-up with the EU over Greenland the most recent), to Fed rate cut bets increasingly being priced out which seems to be pushing interest rates out of their recent ranges, to the closed buyback window, to again full systematic positioning that are starting to raise some yellow flags.

I ran out of time to expound much more on things, but for now we remain in a high gamma environment which will keep things stable. But there are a lot of moving pieces right now, and if they come together the wrong way, especially if we get something new out of left field (like an unfavorable Supreme Court ruling on the Lisa Cook case or some unexpectedly weak earnings), things are set up for a quick pullback, including in the small caps which have run pretty far. I am not expecting that, and I don’t think it will be anything major, but it seems prudent given the environment to “have that plan in place.”

And as I’ve written since August:

The longer term story remains a positive one, and whatever happens between here and the start of November, I’ll likely turn more bullish to close out the year given its historically good track record. The Fed is embarking on a cutting cycle in what does not appear to be a recession (which has almost always resulted in market gains), earnings growth has been strong with revisions) the highest in years, we will continue to get more fiscal tailwinds from the OBBBA as we move into 2026 (as noted in the Economy section), the economy remains healthy with some evidence of acceleration (at least in Q3), corporate buybacks remain solid on pace for a record year (and we’ve exiting the discretionary buyback blackout), and retail continues to want to buy the dip. It’s when we start to see a majority of those flip that I’ll be more concerned.

And in the long term, as always, just remember pullbacks/corrections/bear markets are just part of the plan.

Portfolio Notes

Most of the SLB position was called away.

Cash = 15% (held mostly in SGOV & BOXX (BOXX mimics SGOV but no dividend, all capital appreciation so get long term capital gains if you hold for a year)

Taxable Bonds/Fixed Income (mostly short duration like MINT, SHY, SCHO, ICSH, etc., but also 2% or so in longer term (TLH, TLT)) = 10%

Core equity positions (each 5% or more of portfolio (first 2 around 10% each, total around 25%) Note the core of my portfolio is energy infrastructure, specifically petroleum focused pipelines (weighted towards MLP’s due to the tax advantages). If you want to know more about reasons to own pipeline companies here are a couple of starter articles, but I’m happy to answer questions or steer you in the right direction. https://finance.yahoo.com/news/pipeline-stocks-101-investor-guide-000940473.html; https://www.globalxetfs.com/energy-mlp-insights-u-s-midstream-pipelines-are-still-attractive-and-can-benefit-from-global-catalysts/). That said, I should note that I would not necessary recommend such a large position in MLP’s at this time. I bought most of these positions a long time ago (many when oil briefly traded with a minus sign in front of it). At this point I have become “trapped” in them because of the way they are taxed as partnerships (selling them would trigger a very large tax bill). I don’t expect much out of them price-wise, but they will continue to kick off very good tax-advantaged yields and I will continue to sell out-of-the money puts and calls on them to generate additional income (hard to complain about 15% returns).

ET, EPD, BINC

Secondary core positions (each at least 1.5% of portfolio, less than 5%)

PAA, ENB, HYD

And the rest of the top 50 (all >0.5%, less than 1.5%):

GILD, XOM, VNOM, AM, AMZN, IBIT, BOND, URNM, ING, ARCC, TLH, MPLX, GSK, VICI, RRC, NVDA, TDG, GLD, CTRA, FXI, TLT, SCMB, MSFT, AR, DUOL, BIP, MRVL, OXY, OWL, BAYRY, CPER, VZ, DIS, PFE, DDOG, NKE, GTBIF, EWZ, O, BEP, ES, CRM, CHWY, CMCSA, BA, UNH, GIL, LULU, OBDC, INDA, MELI, PYPL, KKR, DVN, AXP, ARES, JPM, WDAY, FISV, YOU, ANET, TOST, ASML, ADBE, AVGO, COF, NOW, CI, UBER, GOOGL, AGNC, LVMUY, BRK/B, GDX

Note: EPD, ET, MPLX, PAA all issue K-1s (PAGP is the same as PAA but with a 1099).

Reminder: I am generally a long term investor (12+ month horizon) but about 20% of my portfolio is more short term oriented (just looking for a retracement of a big move for example). This is probably a little more given the current environment. I do like to get paid while I wait though so I am a sucker for a good well supported dividend. I also supplement that with selling calls and puts. When I sell a stock, I almost always use a 1-2% trailstop. If you don’t know what that is, you can look it up on investopedia. But that allows me to continue to participate in a move if it just keeps going. Sometimes those don’t sell for days. When I sell calls or puts I go out 30-60 days and look to buy back at half price. Rather than monitor them I just put in a GTC order at the half price mark.

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