Economic Overview - The employment report indicates a cooling economy, with a loss of 105,000 jobs in October followed by a modest gain of 64,000 in November, primarily driven by the healthcare sector [1][2] - The unemployment rate rose to 4.6% in November, the highest level in over four years, surpassing the Federal Reserve's projection of 4.5% [2][3] Federal Reserve Policy Implications - The rising unemployment rate may prompt policymakers to ease financial conditions, although the Fed is monitoring a broader mix of inflation and growth data [4][6] - The Fed's current stance remains patient and data-dependent, with no immediate changes expected despite the recent job data [6][7] Leadership Transition and Its Impact - The potential emergence of a "shadow chair" could influence rate policy more than individual jobs reports, with Kevin Hassett and Kevin Warsh as leading candidates for the next Fed chair [8][10] - Hassett is viewed as a growth-friendly candidate likely to support earlier rate cuts, while Warsh is seen as more hawkish but could still cut rates later if economic conditions deteriorate [11][22] Market Reactions and Future Expectations - The likelihood of rate cuts by spring is higher than current market pricing suggests, with traders reassessing expectations based on the evolving economic landscape [8][25] - The distinction between Hassett and Warsh may not significantly alter the trajectory of rates but will influence the timing and manner of potential cuts [24][25]

Core Insights - The equity risk premium (ERP) is currently negative, indicating that U.S. stocks are offering no additional return over bonds on a risk-adjusted basis, which raises concerns about market valuations [1][3][12] - Analysts warn that the market may be priced for perfection, suggesting a potential for disappointment if expectations are not met [2][11] Market Conditions - The S&P 500 has increased nearly 16% this year, following two consecutive years of over 20% gains, creating a bullish sentiment [1] - However, the negative ERP suggests that large- and small-cap stocks are no more attractive than Treasuries or corporate bonds, indicating a rare and potentially overvalued market condition [4][5][9] Historical Context - Historical instances of negative ERP occurred during the late 1990s dot-com bubble and briefly in 2018, both preceding significant market downturns [9][11] - In 2000, the S&P 500's P/E ratio exceeded 30, leading to a 49% decline from peak to trough over two and a half years [10] Earnings Growth Analysis - The current P/E ratio of the S&P 500 is 30.88, translating to an earnings yield of approximately 3.2%, while the 10-year Treasury yield is around 4.16% [14] - Adjusting for expected earnings growth, which historically averages 4% to 6%, the expected stock return could be around 8.2%, resulting in a positive ERP of about 4% [16] Future Earnings Expectations - The S&P 500 achieved an average earnings growth of 13.4% in the third quarter, with expectations for continued double-digit growth in the fourth quarter [18][19] - If future earnings growth is estimated at 10%, the ERP for quality stocks could rise to approximately 9% [20] Investment Strategy - The narrowing breadth of the market indicates that fewer stocks are driving gains, suggesting a need for selective investment strategies [21][22] - Investors are advised to focus on stocks with strong fundamentals and earnings momentum, while being cautious of overextended positions in the market [25][31] Performance Metrics - In the recent earnings season, 42 companies from the Accelerated Profits portfolio reported results, with 31 exceeding analysts' expectations and an average earnings surprise of 39% [28]

Core Insights - The article discusses the decline of the American Dream and the potential for a new investment wave termed "American Dream 2.0" aimed at revitalizing the U.S. economy through significant infrastructure investments [5][27]. Investment Opportunities - The American Dream 2.0 Summit outlines an anticipated $11.3 trillion investment bonanza focused on transforming America into a global powerhouse, with funds allocated for AI data centers, research, and manufacturing [8]. - Celanese Corp. (CE) is highlighted as a promising investment opportunity, with expectations of revenue growth in 2026 after a period of decline, driven by stabilization in the automotive sector and a surge in construction demand [13][14]. - Analysts predict a 17% increase in gross income for Celanese, projecting a return to profitability after two years of losses, with shares currently trading at a significant discount to their justified value [15][16]. - Akamai Technologies Inc. (AKAM) is identified as a hidden leader in the compute space, with analysts forecasting revenue growth due to its transition from a content delivery network to a comprehensive cloud and cybersecurity provider [23][22]. Economic Context - The article contrasts the current economic challenges faced by many Americans with the prosperity experienced by those born in the 1940s, where 90% of children out-earned their parents, compared to only 50% for those born in the 1980s [3][5]. - The nostalgia for past economic conditions is prevalent among millennials and Gen-X'ers, prompting a focus on policies aimed at restoring well-paying manufacturing jobs and investment in American infrastructure [6][27].

Market Sentiment and Midterm Years - The belief that midterm election years are detrimental to market performance is challenged, with historical data showing both positive and negative outcomes in these years [2][3][17] - Investors often focus on negative years while overlooking positive performances, such as the S&P 500's 11% increase in 2014 and 13% in 2010 [3] Earnings Performance - In the third quarter, 83% of S&P 500 companies reported positive earnings surprises, with an average earnings surprise of 6.6% and revenue surprise of 2% [6] - The S&P 500 achieved 13.4% average earnings growth and 8.4% average revenue growth, marking the highest growth rates in four and three years respectively [7] AI Megatrend - The AI sector is experiencing significant growth, with companies like Nvidia securing a $2 billion design deal and Credo reporting over 270% revenue growth [10] - The demand for AI infrastructure is driving market rallies, supported by stable inflation and favorable macroeconomic conditions [11] Investment Strategies - The Power Portfolio, a collaborative investment strategy, has outperformed the market with a 31.6% gain in 2025, significantly exceeding the Nasdaq's 18.5% gain [15][16] - The portfolio has delivered over 30% gains in the last two years, indicating strong investment opportunities in the tech sector, particularly in AI [16] Future Outlook - The market is expected to continue its bullish trend into 2026, driven by advancements in AI and substantial government investments in critical industries [17][18] - Companies are advised to adopt a comprehensive view of market conditions rather than relying on outdated beliefs about midterm years [17]

Federal Reserve Actions - The Federal Reserve cut the fed funds target range by 25 basis points to 3.50%–3.75% in a 9–3 vote, marking the first dissent in six years [1] - Chairman Jerome Powell indicated that this rate cut does not signal the start of a full easing cycle, as the Fed is now in "wait" mode [2] - The updated Dot Plot suggests only one additional quarter-point cut in 2026, with some officials predicting no cuts or even a potential increase next year, highlighting divisions within the committee [3] Economic Outlook - Powell expressed optimism about the economy, projecting growth above trend and a gradual decrease in inflation, with unemployment expected to peak at 4.5% before declining [4] - He noted that inflation could have been in the low-2% range without tariffs, and anticipates a significant easing of inflation in the second half of 2026 [5] Market Reactions - Following the Fed's decision, all three major indexes rose, with the Russell 2000 gaining approximately 1.3%, indicating a positive market response to the rate cut [6] - The 10-year Treasury yield spiked to a three-month high earlier in the week due to comments from Kevin Hassett, a potential Fed Chair replacement, who advocated for data-dependent decision-making rather than a predetermined rate path [7][9] Treasury Yield Dynamics - The 10-year Treasury yield is crucial as it influences borrowing costs across the economy, affects stock valuations, and can lead to a rotation of funds from equities to bonds [10][13] - Powell suggested that the rising yield could reflect expectations of higher economic growth, partly driven by increased productivity from AI [20] AI Economic Impact - A study from OpenAI revealed that AI tools are saving workers 40 to 60 minutes daily, potentially translating to $1.6 trillion in economic cost savings, which is about 6% of U.S. GDP [22][24] - If productivity gains from AI increase to two or three hours saved per day, the economic value could exceed $10 trillion [27] Investment Opportunities - The Power Portfolio, created by investment experts, aims to identify companies that will benefit from the ongoing economic realignment driven by AI and other technological advancements [28][31] - The focus is on smaller, overlooked U.S. companies that are positioned to capitalize on the significant capital flows into AI infrastructure and advanced manufacturing [30][31]

Core Viewpoint - Wall Street traders are anticipating a 90% chance of a quarter-point rate cut from the Federal Reserve, which is expected to support the market and potentially lead to a year-end rally [1][4][6] Economic Sentiment - The University of Michigan Consumer Sentiment survey showed a slight increase in December, indicating consumers are feeling "slightly less miserable" than before, which could signal a potential bottom for stocks [2][3] - Consumer inflation expectations dropped from 4.5% to 4.1%, marking the most significant decline since July [3] Labor Market and Real Estate - The ADP private payrolls report indicated a loss of 32,000 jobs in November, reflecting labor market weakness [4] - There is a noted deflation in real estate, with softening home and rental prices contributing to concerns about deflation rather than inflation [4] Consumer Confidence - The Conference Board's consumer confidence index fell to 88.7 in November from 95.5 in October, representing the largest decline in seven months [4] Market Performance Expectations - Historically, the second half of December has been a strong period for stocks, with average gains of 1% and positive performance 70% of the time [6] - The expectation is for a year-end rally, potentially starting as early as this week [6][7] Bitcoin Market Dynamics - Bitcoin's recent selloff was attributed to excessive leverage among traders, but the market has stabilized as forced liquidations ceased [14][15] - The 50-week moving average is a critical level for Bitcoin; a rejection at this level could signal a bearish trend, while a successful breach could indicate a bullish trend [17][18] Future Projections for Bitcoin - Bitcoin is projected to approach the 50-week moving average near $100,000 by December 2025, with strong macro tailwinds expected to support this movement [20] - The outlook for 2026 suggests that Bitcoin will transition from a speculative asset to a structural growth sector, driven by stablecoin adoption and broader market integration [22]

Group 1 - The upcoming year 2026 is expected to be crucial for stock pickers, as previous successful strategies may not yield the same results due to changing market conditions [2][4] - The analysts at InvestorPlace achieved significant outperformance in 2025, with their recommendations surpassing the S&P 500 by nearly 1,000 basis points [2][3] - The new strategy for Power Portfolio 2026 will shift focus from AI stocks to 11 companies poised to benefit from a significant investment boom driven by U.S. government spending [5][6] Group 2 - The U.S. government is anticipated to initiate an $11.3 trillion investment bonanza aimed at revitalizing the economy, which will be discussed in the upcoming American Dream 2.0 Summit [6][8] - PayPal Holdings Inc. is highlighted as a top stock for 2026 due to its unique position as the first payments platform integrated with ChatGPT, despite not making it into the final Power Portfolio [10][15] - FactSet Research Systems Inc. is identified as an acquisition target with a potential 20% upside over the next three years, driven by increased M&A activity and its low valuation [16][18][20] - Tronox Holdings PLC is noted for its position in the titanium dioxide market, with potential for significant upside if business conditions normalize, although it is considered too risky for the Power Portfolio [26][29]

Rate cuts are likely coming – who will it help?… why the American Dream 1.0 no longer works… evidence of the emerging American Dream 2.0… the critical portfolio action steps to take todayVIEW IN BROWSERAs I write Thursday morning, Wall Street is all but certain we’re going to get a quarter-point interest rate cut at next week’s Federal Reserve meeting.The CME Group’s FedWatch Tool shows that traders put the odds of that cut at almost 90%.But there’s an important question that Wall Street isn’t asking…What w ...

Core Insights - A significant split in the AI landscape has emerged, with major implications for investment strategies over the next 18-24 months [2][6] - Nvidia's dominance in the AI sector is being challenged by Google's TPUs and Amazon's custom chips, which offer lower operational costs [4][11] - The AI market is transitioning from a broad, uniform growth phase to a more selective environment where individual stock performance will vary significantly [8][9] Nvidia and Competitive Landscape - Nvidia has been central to AI development, providing GPUs that have powered large model training and cloud services [3] - Google's TPUs are gaining traction as they are specialized for inference work and potentially cheaper to operate at scale, posing a threat to Nvidia's market share [4][12] - Amazon's new AI chips, Trainium, are also positioned as lower-cost alternatives to Nvidia's GPUs, further intensifying competition [11][13] Investment Strategy Shifts - Investors are advised to reassess their portfolios in light of the new AI divide, focusing on companies that are positioned to benefit from this shift [10][15] - The previous trend of broad AI exposure is giving way to a more selective approach, where identifying winners and losers within the sector is crucial [8][9] - Portfolio adjustments may include reducing concentration in Nvidia while increasing exposure to companies like Broadcom and Marvell Technologies [10] Broader Economic Context - The ongoing transformation in the AI sector is part of a larger economic shift referred to as "American Dream 2.0," which involves significant domestic reinvestment and modernization efforts [17][18] - This transition is expected to create new investment opportunities as capital flows into key sectors, leading to the emergence of new market leaders [18][20] - The shift from human labor to a robotic/AI workforce is anticipated to further alter the economic landscape, impacting investment strategies [19][24]

Market Analysis - The S&P 500 is currently trading just below a critical level of $6,850, which is pivotal for determining future market direction [1][2] - A break and close above $6,850 could lead to new all-time highs by Christmas, while failure to do so may result in retesting November's lows [2][9] - The recent market trend shows a series of lower highs and lower lows, indicating potential bearish sentiment if $6,850 acts as resistance [7][9] Consumer Sentiment - Recent consumer sentiment reports indicate a significant decline, with the Conference Board Consumer Confidence Index dropping from 95.5 to 88.7, nearing a 10-year low [10][11] - The Present Situation Index and Expectations Index also fell, reflecting deteriorating consumer outlook [12][13] - Despite negative sentiment, consumer spending remains crucial for the economy, although rising delinquencies in credit card payments and loans are concerning [14][17] Economic Indicators - Credit card balances have surged by $24 billion, reaching an all-time high, with serious delinquency rates climbing to 7.1% [17][19] - Auto loan delinquency rates are at 3%, the highest since 2010, indicating financial strain among consumers [18] - Student loan delinquencies have increased dramatically, with rates rising to 14.3% in Q3 from 0.8% in Q4 of the previous year [19] AI Investment Landscape - Amazon announced a $50 billion investment in AI infrastructure for U.S. government agencies, marking a significant shift in the narrative around AI from a potential bubble to a strategic priority [24][25] - The U.S. government is increasingly involved in securing dominance in AI and related technologies, influencing market dynamics and stock performance [26][27] - Companies like Intel, MP Materials, and Lithium Americas have seen stock surges of 70% to 400% following government investments, highlighting the impact of federal funding on market performance [27][28] Federal Reserve Outlook - Expectations for a rate cut by the Federal Reserve have increased significantly, with odds rising from 30.7% to 87.4% for a quarter-point cut in December [30][31] - This shift in expectations could influence market behavior around the critical $6,850 level, potentially leading to bullish momentum if the Fed aligns with market expectations [31]