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The first Up/Down ratio for Q4 is 2.63. Once again, this is another new high for the “one-month” ratio measured back to the amazing earnings growth following the 2020 EPS washout. Given the results of the past three quarters, this “contemporary record” storyline in our Up/Down work is feeling repetitive.

Seasonality and the powerful alignment of fiscal support and monetary easing should provide a favorable backdrop.

The commencement of Trump’s two terms were separated by eight years, a global pandemic, trillions in stimulus, and the quiet burial of several macroeconomic and civic assumptions once thought indestructible. While the personalities and rhetoric remain familiar, the economic backdrop, policy constraints, and market sensitivities of 2025 bore little resemblance to those of 2017.

Financial markets mimicked Mother Nature in the fourth quarter, drifting into a kind of hibernation. Style returns were rangebound around zero, and the spread between returns was about as narrow as we can recall. Active portfolio performance shows there wasn’t much to pick from to add significant value.

A small-cap bounce in January is arguably the best-known of all stock market anomalies, but for much of the last decade it’s been a flop. This year, it was back in full force... until it faded. Despite giving back some of its sizzle in late January, the Russell 2000 ended the month with a 4% advantage over the S&P 500—its best January since 2023.

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The Transports saw a huge increase in demand during Covid, as individuals and businesses, alike, stockpiled products. That pressure brought along a spike in capacity just as demand waned—resulting in the freight recession we’ve seen over the last few years. Today, however, there are signs of a recovery.

With structural economic and market changes, and influences of ever-evolving tech advances, years ago we introduced our “New-Era” median valuation metrics (1995-present). For the last decade, we’ve drifted further away from those “New-Era” benchmarks, which compelled us to take a look at today’s stock valuations compared to “New-New” Era median levels based on data from 2018-forward.

Annual style rebalancing triggered a sizable trim to IT exposure in the S&P 500 Value Index, but it is still the largest weight, followed closely by Financials. Revisions in the S&P 500 Growth Index caused its top-heavy concentration to become even more pronounced: Tech and Comm Services comprise 65% of the total weight. If counting the Mag 7 from Discretionary, tech titans make up 71% of the index.

In January, a surge in Japanese Government Bond yields occurred simultaneously with a selloff in the Yen—a sign of intensifying market concern about fiscal stability. Interestingly, collective stress in both the JGB and Yen has yet to spill over into the Nikkei Index, but if history is any guide, it is doubtful that Japanese equities will continue to be immune.

Advances in the S&P 500’s underlying fundamentals marginally outpaced the improvement in price. Our “New-Era” downside-to-median estimate narrowed from -32% to -30%, while the 1957 to date figure was unchanged month-over-month.

After the first month of Q4 reporting, S&P 500 estimated bottom-up operating EPS are now 4.5% higher than at the end of December. This bounce follows the initial script of the previous two quarters, which saw projections jump 2% July and 5% in October. Final figures for both Q2 and Q3 continued to climb as reporting progressed, so we’d presume Q4 to follow suit, increasing somewhat more before earnings season is finished. Also, Q4 has now finally shot above its pre-“Liberation Day” estimate set back in March.

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Wise investors have long understood that fear and pessimism often create excellent buying opportunities, while exuberance and greed often produce an environment that leads to poor future returns. Sentiment is one of the four pillars of our Major Trend Index, and a wide variety of approaches to gauging the mood of investors have evolved over the years. One set of metrics within our Sentiment category focuses on the level of volatility implied in option prices, and our research shows that option volatility is a reliable, contrary indicator of sentiment, which in turn is a useful regime indicator for future returns.

Read the latest MTI update

2025 was a year where discipline mattered. Core delivered equity-like returns with far less risk, Select Industries thrived on a handful of high-conviction thematic winners, and Grizzly held its ground in a very tough environment for short strategies. As we head into 2026, trends remain supportive, positioning is intentional, and portfolio exposures reflect both opportunity and caution in a market still defined by extremes.

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We sold two long-term group holdings last month: Big Communication Services and Systems Software. This continues our shift from growth into cyclical and defensive industries.

Given the convergency of three key risks related to AI, Bitcoin, and private credit, caution is certainly warranted.