DataTrek's Nick Colas & Jessica Rabe

US large cap Growth has been besting Value by +2 standard deviations for over a year. We think rotating into the S&P 500 rather than overweighting Growth in 2026 is sensible risk management.

Single B rated US corporate debt spreads over Treasuries are understandably sensitive to market worries regarding recession risk. At present, they are 2.98 percentage points, well below the 2015 – 2019 average of 4.69 points. This market, just like stocks, is very bullish on the US economy.

2/2 ...Sectors with a below-average number of mentions include Health Care, Staples & Utilities, with more than half of S&P constituents in these groups failing to discuss the technology. Those companies that have been highlighting AI tend to outperform those that have not.

@factset.com

1/2 It has been 3 years since the launch of ChatGPT, and 39% of S&P 500 companies still did not mention AI on their most recent quarterly earnings calls...

Fed Funds Futures expect a “hawkish cut” at this week’s final FOMC meeting of the year. Current odds imply the next cut will be in March/April 2025.

Developed economy currencies rallied by an average of +0.7 pct vs the dollar last week, while EM currencies were mixed (average -0.3 pct). The S&P 500 underperformed all major non-US equity indexes.

Wall Street analysts tend to overestimate forward-year S&P 500 earnings by 2 – 3 pct. This suggests that the index is trading for 22.7x – 22.9x likely 2026 earnings.

For the second time in a row, Wall Street analysts have collectively increased their S&P 500 quarterly earnings estimate over the first 2 months of a reporting period. The change is small (+0.5%) but reflects incremental fundamental momentum.

2/2 ...That is enough to both keep the IPO window open in 2026 and reassure investors that we are not in a late 1990s-style bubble, when seemingly every IPO doubled on the first day and went higher from there.

1/2 November was another huge month for venture funding, again driven by AI megadeals. While newly public companies this year have shown mixed returns, there have been a few big winners...

S&P 500 sector correlations to the index are currently below the long run average (0.68 vs 0.80), reflecting strong investor confidence. Based on this metric, the 2023 – present bull market is superior to either the 2019 rally or the 2020 – 2021’s post-Pandemic Crisis rebound.

Thank you!

2/2 ...The only 2 times the Comp fell in Year 4 were due to rate shocks. Year 4 average gains were below the long-run average of +13.3%, except for a stellar fourth double-digit straight annual gain in the late 1990s. We remain bullish on US large cap Tech.

1/2 When the Nasdaq Comp rallies for 3 straight years after an annual loss like in 2022, history since the early 70s shows these annual gains have continued into Year 4 two-thirds (67%) the time...

3/3 ...We remain positive on US large caps because corporate America has delivered unexpectedly strong earnings growth this year in the face of manifold uncertainties. On the macro side, a Fed committed to further rate reductions is a productive backdrop for stocks.

2/3 ...To be bullish here one must assume both a recession-free next 12 – 18 months and continued high levels of investor confidence...

1/3 The S&P 500 trades for 22.2x consensus expectations for 2026 earnings ($307/share), close to its 2020 peak (23.0x) & above its 5-year average (20.0x)...

If every US Big Tech company had to issue $250 bn in new stock to pay for their Gen AI buildouts, this would only cause 5 – 15% dilution to existing shareholders. Such moves would be challenging to explain, but they could be beneficial in terms of assuring eventual success.

Despite April’s market crash, the CBOE Volatility (VIX) Index has averaged a close of 19.2 this year. While not as low as the 2023/2024 annual averages of 16.9/15.6, it's consistent with past bull markets back to 1990. Yesterday’s close of 16.6 further supports our bullish view.

CCC/worse rated US corporate bonds are the twitchiest “coalmine canary” in this market, hyper-sensitive to the possibility of a looming recession. Their current spreads over Treasuries indicate little fear of an imminent economic slowdown.

Thank you!

2/2 ...Moreover, 10-year total returns for the S&P 500 and MSCI China – both concentrated in Big Tech – are +293 vs +61 pct, respectively. Chinese Tech stocks – while a productive trade this year – have not been good long-term value creators.

1/2 Chinese large cap Tech stocks have outperformed their US counterparts this year, but most peaked during the Pandemic Era in Q4 2020/Q1 2021. Many are down double digits since then, vs up double to quadruple digits for US Big Tech...

YouTube video by The Compound The 3 Biggest Investing Lessons of the Year | WDWL

2025 will go down as a Master Class in investing, with 3 lessons for 2026. See what they are by watching our latest video with @downtownjoshbrown.bsky.social on @thecompoundnews.bsky.social below!

youtu.be/tHgA_GNdtes?...

Futures now give the highest odds to 1 Fed rate cut in 1H 2026 and another 1-2 in 2H 2026.

YouTube video by The Compound The 3 Biggest Investing Lessons of the Year | WDWL

These are the THREE biggest investing lessons of 2025 and the most important idea you need to understand about business going into 2026.

Huge thanks to Nick Colas and Jessica Rabe @datatrekresearch.bsky.social for crushing it with us all year.

www.youtube.com/watch?v=tHgA...

The euro peaked versus the dollar in 2008 and is down 28 percent since. It may be a logical replacement for the dollar as a global reserve currency, but its price doesn’t yet reflect such a shift.

Over the last 30 years, S&P 500 operating earnings have compounded annually at +6.7%. Over the last 10 years, that growth has accelerated to +9.4%. This supports currently elevated index valuations.

US 10-year Treasury yields are down 48 basis points YTD, but most non-US long-dated sovereign debt has a higher yield now than at the start of the year. This helps explain the dollar’s weakness, which is fundamental rather than based on structural worries about the greenback.

Thank you for having us on again!