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2026: THE YEAR OF GOLDILOCKS?
Last year, I made the case for Goldilocks.
You can scroll down and read it below.
I re-iterated that case in Q4 several times as well, and the indices cruised to new all time highs.
Where we stand today?
I believe Goldilocks is now priced in.
Take a look at this chart of one of my favorite indicators: the Citigroup Economic Surprise Index.
That circle?
That's when Goldilocks was priced in.
It's extremely difficult to find value and opportunities in a broad range of sectors.
I haven't been this bearish in a while.
See my post a few days ago called 'There Were Signs'.
Think you should be re-thinking many of your positions that have worked well since the beginning of the cycle, including the AI trade.
Nov 25, 2024
2025: THE YEAR OF GOLDILOCKS?
What happens when the S&P posts two back-to-back years of 20% returns?
You get another strong year.
The left-tail is inflation.
But, Bessent and Warsh are deficit and monetary hawks.
Trump’s economic team is looking pretty good.
Also, a good test for when you are near a top…
when looking for good stocks at good valuations, you can’t find any.
When our screens don’t turn up many bargains, that is a warning signal.
I don’t see that.
Instead, we see Mr Market putting a different sector of the equity market on sale each quarter which makes my job a lot easier.
I still see plenty of securities and sectors at attractive valuations with earnings growth in financials, healthcare, and Mag 5 type names and international stocks.
There’s no reason the show can’t continue.
Check out what’s working…
Momentum… carried away.
Value is also pricey now.
Aggregate valuations still pricey
and beta is not rewarded
That often means multiple compression
We have had a nice reset in growth stock valuations
But, this usually overshoots
and there are few bargains
The Sydney Sweeney trade is over
The banks had a great run…
Pick a bank.
Large caps selling off on aggressive policy talk and economic populism.
Investment banks saying something very different from my IPO expectations
People have IPO fatigue, and the deal quality and valuations are weak
Industrials have had a great run…
Many are pricey now.
Defense stocks, a part of industrials, have never been pricier.
What about semis?
We have priced in AGI at this point.
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