The Week Ahead - 1/4/25

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

Jan 05, 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

We’ll jump into 2026 with both feet this week as we get our normal first week of the month reports with a focus on the labor market and a return to “jobs Friday”. But as usual, before we get there, we’ll get Dec ADP (does small biz hiring bounce back after worst read ex-pandemic in 15 years?) and Challenger job layoff/hiring announcements (Thurs), Nov JOLTS, and weekly jobless claims. And, as usual, we’ll get the Dec ISM PMIs (and S&P final services), auto sales, and as we often get the first week, reports on the trade deficit and factory orders, but for Oct (so a month late).

But we’ll also get some reports we don’t normally get the first week as the shutdown delayed 3Q productivity report comes in (an important report given the Fed’s new focus on this subject as a reason rate cuts may be appropriate despite strong growth), and due the upcoming Friday being the second Friday of the month, we’ll also unusually for jobs week get a delayed Oct housing starts/permits report, Nov consumer credit, the Dec NY Fed consumer survey (Thurs), and the preliminary Jan UMich consumer sentiment survey, plus the normal weekly mortgage applications and EIA petroleum and natgas inventories reports. So lots of data to kick off 2026.

Fed speakers on the official calendar are light with just Fed Gov Bowman (who is now officially out of the running for Fed chair, so we’ll see if her tone changes), and Richmond Fed Pres Barkin (twice), but I’m sure there will be more.

No non-Bill Treasury auctions (>1yr in duration) until they pick back up the following week.

Similarly, just one SPX earnings report next week in Constellation Brands (STZ), but the following week we’ll kick off 4Q earnings season with JPM on the 13th.

Also, next week we have the CES (consumer electronics show) in Las Vegas. This has morphed into a tech confab which in addition to all the new products is led by a kick-off speech from Nvidia’s CEO Jensen Huang that has proven to be market moving in the past. He speaks Monday.

Finally, of course, we’ll be dealing with the fallout from the extraterritorial military operation resulting in the arrest of Nicolas Maduro. The coming weeks will be crucial to fulfilling the President’s stated desire to bring a more stable and democratic regime to power. I would also be remiss not to mention we are “on the clock” for a few major items. First the Supreme Court decision on the IEEPA tariffs will be coming down at some point likely this month, and Trump has said he will pick a successor to Jay Powell as Fed Chair in Jan (although that deadline has slipped several times). We also face another government shutdown unless new appropriations or a stopgap measure are in place by Jan 31st.

From Goldman:

Ex-US we’ll also get the normal first week of the month data filled with inflation, employment, consumer, and other reports from around the globe, although no G-20 central bank decisions. And of course all eyes will be on Venezuela following the downfall of Nicolas Maduro.

Canada, Europe, Middle East, Africa
Canada will release their December employment report as well, while i n the euro zone, several reports will complete the picture for inflation at the end of 2025. German and French consumer-price numbers for December come on Tuesday, with figures for the region as a whole scheduled for the following day. The European Central Bank affirmed last month that euro-area inflation is on track to stabilize at 2%, and the upcoming data are likely to point that way. Economists predict the headline gauge will be exactly at the target, while a core gauge that strips out volatile food and energy costs probably held at 2.4%. Also being watched is the ECB’s survey of consumer inflation expectations, on the schedule for Thursday. Unemployment and economic confidence will be published then, too.
As is usual for this time of year, remarks by officials are fairly sparse, although ECB Vice President Luis de Guindos, chief economist Philip Lane, Executive Board member Piero Cipollone, and Governing Council member Francois Villeroy de Galhau all have scheduled appearances. Among other national reports are manufacturing-related numbers. In Germany, the region’s largest economy, factory orders for November come on Thursday. Industrial production is due there and for France and Spain, too, the following day. Meanwhile, Friday marks the deadline for applications for the No. 2 post at the ECB, with euro-area finance ministers set to decide later this month who’ll succeed de Guindos. The Spaniard’s non-renewable eight-year term expires in May, and the field of contenders is getting crowded.
Inflation is on the schedule for Switzerland on Thursday. After the gauge unexpectedly dropped to zero in November, economists predict a slight uptick, to 0.1%. That should be enough to meet the central bank’s forecast of 0.1% for the fourth quarter. A negative reading would be only the second such monthly outcome in more than four years, though policymakers — who’ve already cut rates to 0% — have vowed to look through sporadic subzero results. Sweden’s inflation data are also due on Thursday. The CPIF gauge tracked by the Riksbank hasn’t fallen below 2.3% since last January, so officials will monitor for any progress toward their 2% goal. Norway’s consumer-price growth on Friday will similarly draw attention at a time when the underlying measure has stayed stubbornly at or above 3% for half a year.
UK consumer lending numbers on Monday may be the highlight there, with no Bank of England officials scheduled to speak and major data not due until the following week. Political discourse may perk up, though, as Parliament’s recess ends on Monday. In the Middle East, Turkish inflation data on Monday may show a slight slowdown, to 31%. The same day, Israel’s central bank is likely to keep borrowing costs unchanged.
Asia
Australia’s CPI figures for November — due Wednesday — are expected to show that inflation eased modestly but remained above the central bank’s target, reinforcing policymakers’ cautious stance after recent upside surprises. The figures should help the Reserve Bank of Australia gauge whether the latest price pressures are starting to fade. Inflation readings are also due from the Philippines and Taiwan.
On Thursday, data are set to show that Japan’s wage growth slowed in November, largely due to base effects and fewer working days. Underlying momentum remains solid, supporting the Bank of Japan’s view that pay growth is strong enough to sustain inflation.
Latin America
Consumer prices take center stage in the region, with all five big inflation targeting economies closing the books on 2025 by the end of the week. Of those, all but Colombia will have inflation back within their respective central bank’s tolerance range, while only Peru’s BCRP has it at or below target. Most analysts see the data supporting some mild tweaking to monetary policy in Chile, Peru and Mexico before their central banks arrive at a terminal rate. On the other hand, Brazil seems well positioned to begin some aggressive unwinding, while Colombia’s BanRep — responding to a 23% hike to the minimum wage announced Dec. 29 — starts to tighten from its current 9.25% as soon as this month.
In addition to consumer price data, Chile will also serve up minutes from the central bank’s most recent rate-setting meeting. The Dec. 16 quarter-point cut, to 4.5%, doesn’t leave much daylight between the current key rate and the likely terminal rate. Rounding out the week, Peru’s BCRP meets with inflation having run below the 2% mid-point of its target range since late 2024. Headline readings like that might argue for some easing after pausing at 4.25% for its last three meetings. Still, the economy is in no real need of stimulus, and volatility ahead of elections scheduled for April can’t be ruled out. Veteran central bank chief Julio Velarde and colleagues may opt for caution with a hold at 4.25%.

DB one-pager:

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 last week, “with the relatively light data and and Fed speaking schedule there’s not to update, but we’ll be getting the FOMC minutes this week which I’m go over in the Wednesday update.” I put a lengthy update out on X, which I have reposted below, on the FOMC minutes but overall they came out a little more dovish than I had expected, confirming there is a clear majority who are “forward looking,” and it appears assuming inflation “declines over time as expected,” which apparently means “somewhat elevated in the near term before moving gradually to 2 percent.”

This to me is a very 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.

Currently markets continue to see little chance of a Jan cut but 2 (maybe 3) more cuts next year, with one around March/April and one July/Sept (and potentially a third in December). This will likely shift quite a bit in one direction or the other after the data this week and then perhaps again the following week after CPI (on the 13th).

The 2/10 Treasury spread pushed up to +0.72% on Friday, 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, 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.

Similarly the 3mos/10yr yield curve edged to the highest since Oct ‘22 at +0.57%, still 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 +55bps 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 -17bps. This is also 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) held just under 3-month highs hit last week at 2.22% but remains still just 8bps from the 2.14% Nov 20th which was the joint the least since April, and before that Mar ‘23, and remaining near the bottom of the range since 2022. They’re also a touch below their 20-yr average (2.25%).

The peak this year 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 10-yr breakeven inflation rate edged back to 2.25% as of Friday, in its post-2022 range.

10yr rate real rates little changed at 1.93% last week just off the highest since mid-Aug, but overall remaining in their range since Aug 2023. They are still 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 #UST 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)), little changed at +0.76% as of last Tuesday, remaining a little below the +0.80% from three weeks ago which was the highest since Sept 2nd, but 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.

As mentioned above, the ACM model has a weakness in that it looks only at rates with no “anchor” to the external environment. The Kim-Wright model addresses that by adding in an expectations layer (from Blue Chip forecasters) of the expected path of short-term rates. TradingView has started carrying that, so I am going to likely switch over to that (or at least note both). Unlike the ACM model, the post-pandemic peak was in Jan at 0.80%, and the overall current level is lower at 0.56% (as of Dec 22nd). The overall message is similar though in that pre-pandemic you have to go back to 2013 to find comparable levels.

The extended discussion on term premium (what it is, why it’s important, etc.), can be found in this section in the Feb 4th Week Ahead.

The MOVE index of expected 30-day Treasury note/bond volatility bounced to 62.36 from 58.50 the prior week which was the least since Oct ‘21.

Despite Treasury volatility edging higher (but still just above the lowest since Oct ‘21), mortgage spreads continued to grind lower falling below 2% to 1.96% for the first time since March 2022 (when they were surging higher from 1.29% in March 2021 to the 3.1% peak in June 2023 as the Fed tightened rates).

They’ve now fallen under the peaks from the 2010-2019 period but still have some room (~45bps) for them to fall to get to the 2010-2020 avg level of ~1.6% (median is a little lower at ~1.5%).

The Chicago Fed National Financial Conditions Index and its adjusted counterpart both fell to the least (loosest) since Nov ‘21 in the week through Dec 26th.

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

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 the my notes from the last two weeks, 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 on Friday to just $5bn, 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, as of Wednesday fell back to $2.85tn (-$110bn w/w), a near two-month low, as banks reduced some of their risk-weighted capital in preparation for the regulatory reviews which use a year-end snapshot. But because we now have the start of reserve management purchases of $40bn a month (for the time being) added to the end of QT (as of Dec 1st), they remained above those Oct lows.

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. As I also noted four weeks ago, BMO’s excellent rates strategist Ian Lyngan has said he’s continuing to look for 3.85% by the end of this year (probably not going to happen) and 3.5% by the end of next year, and he doubts we’ll see even 4.5% which so far has been the case. TD, another good rates shop is similarly looking for 3.5% next year.

So “[o]verall the 10yr yield continues to hold the bottom of of my 2025 likely trading range of between 4 and 5%. It’s broken that level a few times, but it’s held each time outside of a [few days]. We’ll see if that level can continue hold and/or if yields can get any traction to the upside or downside.” As noted last week I am thinking for 2026 the range will likely be closer to 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 post from 11/23/25.

There was no update again from Factset this past week, so all of this is left in from two weeks ago with just a couple of new posts at the bottom. If you want the charts from the last update, here’s the link to that Week Ahead.

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 two weeks ago we’re finally starting to get some more recent data, highlighted by an update on the labor market with our preeminent report in Nonfarm payrolls I noted though that report is best viewed with some skepticism as the collection periods were highly distorted, particularly for the household survey (where the employment rate comes from) which likely influenced things. We won’t have that problem in the upcoming December payrolls report, though, and we’ll be getting quite a bit more data in the upcoming week as noted at the top, so we’ll see if the message changes. But for now 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.

Overall, I would say, as I have the past several months, the data continues to show an economy remaining in “ok” shape (although a GDP print over 4% is definitely more than “ok”), with some “tiny cracks” as I put it in mid-June.

As 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 (although as noted the Atlanta Fed now has a nearly 4-handle for 3Q, and we should be happy to settle into something more around trend (1-3% real (infl adjusted) growth). That though is far from a disaster. 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.

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.

After falling back into negative territory for the first time since July two weeks ago, the Citi Economic Surprise Index improved for a second week to +14.2, still though down from the +21.8 three weeks ago, which had been the highest since Sept.

The high of the year was 28.6 Sept 4th and the low of the year 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 are for a more moderate read for Q4, but a good part of that is due to the shutdown which will be “paid back” in the current quarter.

No update from Atlanta Fed this week.

Atlanta Fed initiated their 4Q GDP tracking at +2.98% after having come in the closest for 3Q at +3.48% vs the actual 4.3%. They were right on until a couple of weeks ago (and of course they may end up being right on once the revision comes out).

NY Fed’s 4Q GDP tracker remained at +2.07% with no data inputs this week.

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)).

As another reminder, the model is “dynamic” and so adjusts in real time as data evolves) and “parameter revisions” added +0.01%.

As noted three weeks ago, the NY Fed has also released its Q1 2026 tracker which similarly remained unchanged at +2.17%.

The St. Louis Fed 4Q GDP tracker also was unchanged this week at +1.12% on Friday. 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 3Q 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.

Goldman’s Dec US Current Activity Indicator edged down -0.3% to +1.5%, down from 2.0% in Nov.

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

The Weekly Economic Index from the Dallas Fed (scaled as y/y rise for real GDP (so different than most GDP trackers which are Q/Q SAAR) and which uses 10 daily and weekly economic series but runs a week behind other GDP trackers), in the week through Dec 27th edged up +0.02% to 2.23% (after the prior week was revised -0.11% 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 2.24% (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.

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 pulling back and earnings expectations little changed P/E’s fell back last week:

-The SPX forward P/E (red line) back to 21.8, (-0.3pts w/w, -1.8pts 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) also -0.3pts w/w to 16.0 (-1.1pts from the highest since early-’21 (17.1)).

-Small caps’ (green, S&P 600 so higher quality than the Russell 2000) edged back -0.2pts to 15.3 (-1.8pts from the highest since early-’21 (17.1)).

-Mag-7 (purple) fell back to 28.0, the least since Aug, from 29.0 the prior week (-2.9pts from the highest since 2024 (30.9)).

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

Other valuation stuff:

Breadth

The NYSE McClellan Summation Index (red line, a longer-term breadth indicator (”what the avg stock is doing”)) turned back lower last week.

The Nasdaq volume-based version (red line, favored by Helene Meisler for this index) though continued lower for a second week and is the least since April.

SPX new 52-wk highs (red line) continued to deteriorate last week falling on Wed to just 2, the least since April before rebounding to 10, the least since Oct 13th outside of Wed’s read. That’s down from 54 hit three weeks ago (which was the best since July), the 2025 peak of 61 in March, and the 2024 high of 137. The low was 0 in April.

The 10-DMA (blue line) also moved lower for a third week. It’s at just 19, the least since June. The 2025 high was 40 in October (and the 2024 peak was 76).

Continuing to see a divergence on the NYSE Composite which has been pushing higher and the % of stocks over 200-DMAs (red lines), a gauge of stocks in longer term uptrends, which has been deteriorating. Nasdaq a similar story but both have been falling.

% of stocks above 50-DMAs (red lines), a gauge of stocks in medium-term uptrends a similar story.

And shortening the lookback to % of stocks above 20-DMAs (red lines, indicative of equities in shorter-term uptrends) we had been seeing the same thing until we got a bump Friday. Hopefully that continues. Nasdaq has seen a larger deterioration and got a smaller Friday bump.

SPX growth/value edged lower to 2.37 remaining above the 3-mth low of 2.35 Dec 7th, still down from the highest since 1995 (2.44) the first week in Nov, but still up from around 2.0 to start the year.

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

Even as the relative forward earnings of growth vs value continues to move to new highs (1.68 from 1.61 the prior week), one week lagged (now actually off the chart).

Equal-weighted SPX vs cap weighted ratio little changed still not extending after clearing its downtrend line from April, remaining not far from the least since 2003.

IWM:SPY (small caps to large caps) also little changed after being turned away from its downtrend line from the start of 2024 two weeks ago.

SPX sector fell back to 4 of 11 sectors higher last week (down from 8 the prior week, matching two weeks ago), and just one was up over 1% in Energy (+3.3%).

No sector down that much but Cons Discretionary was -3% and three sectors were down over -1% (also Financials and Tech).

Stock-by-stock chart from @FINVIZ_com is for the last 5 trading days so includes the previous Friday but is broadly consistent with a lot of weakness in Financials, Tech (concentrated in software) and Cons Discr (concentrated in TSLA but a lot of other big names down over -2% including AMZN, BKNG, and MCD.

Looking at the top 11 stocks by market cap, just three were higher (vs nine the previous week and seven the two weeks before that) led to the downside for a second week by TSLA -7.8% (down over -12% from its intraday high Dec 22nd). Leading to the upside was WMT but just +0.9%.

Micron MU, which was the second best SPX performer in 2025 with a massive +240% gain, added another +10.8% to lead the SPX last week.

18 SPX components were up over +4%, up from 15 the prior week but down from 33 and 80 the two weeks before that. Four of those were >$100bn in market cap in MU (for a third week), INTC, COP, BA (in descending order of percentage gains),

On the other side Applovin APP, which was up +108% in 2025, led decliners giving back -13.4% of that.

37 SPX components were down -4% or more (up from just 3 the prior week but down from 50 the week before that), with 11 >$100bn in market cap (after none the previous week) in APP, PLTR (also down over -10%), TSLA, INTU, PGR, ADBE, CRWD, PANW, CRM, IBM, NEM, NOW, ACN (in order of percentage losses).

Other breadth stuff:

Flows/Positioning

No Flow Show or systematic positioning report from BoA or DB this week, so just a couple of blurbs from Tier1Alpha this week and update on MMF flows from ICI:

Tier1Alpha as of Friday morning saw gamma as “modestly short, implying the conditions for higher volatility are back in place.”

Overall systematic positioning they see as little changed w/w with net length slightly above the average since 2011.

Vol control exposure and CTA positioning also remain little changed w/w with the latter more fully invested.

And there’s not much scope for buying from vol control in the upcoming week based on what’s falling out of the lookbacks with the largest drop a 0.6% day and after that 0.4%.

But next week will be a different story when we drop a 1.1% day from the 1-month, and, more importantly, 2.7% and 1.6% days from the 3-month lookback, which is “the new rebalancing toggle,” according to Tier1Alpha as 3-month realized volatility remains above the 1-month.

ICI data on money market flows in the week through Dec 31st saw a +$59.9bn inflow which brought their six week total to +$211.7bn.

And after a one week break, Institutions (who hold ~60% of MMF assets), who shed -$10.2bn the prior week, the first decline in 6 weeks, added four-fifths of the total at $50.8bn bringing total inflows over the past 16 weeks to +$447.7bn.

Retail in contrast decelerated to +$9.1bn from +$17.6bn (which was the most since Sept 8th), now +$110.6bn the past 16 weeks).

Total MMF assets ended 2025 at a record $7.73tn.

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

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 the July levels in later October (and in some cases exceeding them (NAAIM hitting the highest in over a year, and a variety of other metrics like II bulls-bears, BoA Bull/Bear indicator, 10-day put/call ratio, etc., hitting the most frothy levels of the year)). Those all fell back though along with the equity drawdown in November, and a couple hit at or near extremes for the year at the end of November. But like clockwork they rebounded along with the equity recovery although only a couple are really anywhere near extreme levels.

AAII bears “moseyed over to the fence” as @Chartfest1 puts it her RealMoney columns:

AAII bulls (those who see higher stock prices in 6 mths, blue line) edged higher for the first time in three weeks to 42.0% from 37.4% the prior week (still down from 44.6% Dec 11th, which was the highest since Oct 8th), but back above the long-term historic average of 37.5% for the 4th week in 5.

Bulls also remained well above the level of the bears (who see lower stock prices in 6 mths, red line) who fell to just 27.0%, the least since Oct ‘24, from 37.4%. Bears fell under the long-term average of 31.0% for only the 5th time since Dec 12th.

So most of those bears bulls went into the neutral camp (yellow line) which shot to 31.0%, the highest since Jan, from 27.8% the prior week, but still juuust under the long-run average of 31.5% for the 75th week in 77 (since July ‘24).

https://aaii.com/sentimentsurvey

NAAIM (investment managers) exposure index (blue line) edged down for a second week after exceeding the 100 mark for the second time this year two weeks ago (which means that the average respondent (investment manager) is levered long equities), down to 92.93% from that 100.70% reading which was just a touch under the 100.83% Oct 29th, which was the highest since July ‘24.

The 4-wk avg (reddish line) also curled down to 96.5% from 97.9% the prior week, 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) turned down after rising for two weeks to 0.60 from 0.61 a week ago, evidencing some marginal increased demand for upside vs downside protection (but it remains well under the 0.71 in late Nov (the highest in a year) and well above 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.

The CNN Fear & Greed Index (blue line) fell back to 44.63, the least since mid-December and rounded up remaining at the very bottom of “Neutral”, after having made it to 57.29 the previous Thursday (“Greed”), the highest since Sep 22nd, still though a world away from the 6 it hit intraday on Nov 20th.

After having four of the seven indicators in Greed/Extreme Greed a week ago, now there’s just one and five in Fear/Extreme Fear (vs six in Nov):

Extreme Greed = junk bond demand

Greed = None

Neutral = market volatility (VIX & its 50-DMA)

Fear = market momentum (SPX vs 125-DMA) (from Greed); stock price strength (net new 52-week highs) (from Greed); stock price breadth (McClellan Volume Summation Index) (from Neutral); put/call options (5-day put/call options) (from Extreme Fear)

Extreme Fear = safe haven demand (20-day difference in stock/bond returns) (from Greed)

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

No Flow Show again this week.

The revamped BofA Bull & Bear Indicator rises to 8.5 from 7.9, not yet to the 8.9 on Oct 1st which was “an extreme bullish level last seen in Feb’18 & Feb’20,” but good enough to again trigger the “contrarian sell signal” “on huge inflow to equity ETFs, rising global stock index breadth, hedge funds cutting length in VIX futures”:

“Bull & Bear Indicator >8.0 = extreme bullishness = contrarian sell signal; median decline in global stocks = 2.7% in 2 months following 16 sell signals since 2002 (Chart 19) with 63% hit ratio (Table 1); max drawdowns in 1 month, 2 months, 3 months after sell signal = 4%, 6%, 9% respectively (vs. max upside foregone <2% - see Table 2)”

And we have extended the record streak of bullishness in Helene Meisler’s weekly poll to a 12th week, after breaking the 10-week streak from early 2021 the previous week. As I said then, “like this streak, that streak was after an extended bull run which carried on from there.”

The bullishness did though decelerate for a second week from the record high of 73.3% two weeks ago to a still fairly bullish 57.4% voting next 100pts higher on the SPX.

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.

The low of the year was 33.2% on May 17th (also a record).

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

Her message this week:

These lines may be moot by the time trading is underway on Monday so the only observation I have is that not much has changed in the charts in the two weeks I’ve been gone. Most charts are still ‘home on the range’. I have thrown a few new ones in like Tungsten (!!!) and have decided to keep XLB and MOO cuz they are on the cusp of breaking out.

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 five 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 first half of January seasonality is only slightly less strong in terms of the median return since 1950 at +1.2% down just a tenth from the second half of December, placing it 5th from the top.

Looking since 1929 the first half of Jan is similarly relatively strong with an average gain +0.72%, the 5th best of all half-months and well above the all-halves average of +0.25%, and the median an even better +1.12% which is 3rd best also well above the all-halves median of +0.59%.

The first half of Jan has also been positive 62.9% of the time, tied for 4th best of all halves and vs the 56% average and 57% median for all halves, while the standard deviation (volatility of returns) is 3.52%, a touch above 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 last week 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.

The most recent part of that summary though remains relevant:

At the start of November it seemed that “concerns about the heavy AI spending, the Fed hawks [feeling] emboldened creating some concerns about rate cuts, rich valuations and very full equity positioning (especially systematic), etc.,” finally coalesced to the point of getting us our long delayed 5% pullback with the absence of any weekend headlines to provide a “stick save”. As I said then, the “good news is the pullback has skimmed off at least the top layer of froth,” meaning we entered the end of November “with valuations, positioning, sentiment, etc., all having moderated to levels that allow for renewed expansion.” And that’s exactly what we saw with one of the best Thanksgiving weeks ever (not that I was expecting that).
Since then things have been more challenging for the cap-weighted index (we’re currently just above the close on Oct 28th) with the AI trade remaining under scrutiny (which I believe is very healthy and will prevent the bubble many are worried about), but even beyond that, the “other 493” (represented by the equal-weighted SPX) are at those levels as well.

And as I said last week:

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 we certainly did get something out of Washington last week with the forced extradition of Maduro, but as I write this Sunday night, markets seem unphased with the SPX +0.1%. So there’s not much from the above that has changed other than the fact that the underlying breath took a step in the wrong direction last week. But after a nearly 20% return, I am not reading much into the action to end the year, and I think this week will give us a better feel for how investors are approaching things at least as we move through January. This week will also give us some important economic data that will help us in that respect as well.

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

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, SLB, CRM, 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, 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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