Saudi Arabia is poised to be a standout emerging market in 2026, following years of flying under the radar. The country has a stable macroeconomic outlook, and there are several catalysts that can help drive equity market performanceAnalyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation ...

Core Viewpoint - The finance sector is experiencing a solid start to the Q4 earnings season, with many companies exceeding consensus estimates and providing a stable-to-positive outlook for their businesses [5][7]. Finance Sector Performance - Major banks like JPMorgan, Bank of America, and Citigroup have shown disappointing market reactions despite not having negative Q4 results, indicating a 'sell-the-news' phenomenon after their recent outperformance [2]. - Citigroup shares have outperformed peers and the broader market over the past year, driven by investor confidence in the new management's restructuring plans [3]. - However, shares of Citigroup, Bank of America, and JPMorgan have been declining since the start of the year, with Q4 earnings results contributing to this downtrend [4]. Earnings Growth and Estimates - Total earnings for the 51 S&P 500 companies that reported Q4 results are up 17.2% year-over-year, with revenues increasing by 7.5%. Notably, 88.2% of these companies beat EPS estimates and 72.5% exceeded revenue estimates [5]. - For the finance sector, earnings are up 13.9% year-over-year with revenues rising by 7.0%. Additionally, 90.5% of finance companies beat EPS estimates and 71.4% surpassed revenue estimates [5]. Macroeconomic Outlook - Management teams are optimistic about consumer spending and stable credit quality trends, with a positive outlook for loan demand and investment banking advisory services, despite some policy uncertainties [7]. - The overall outlook remains positive, although there are headwinds related to the administration's credit card plans [7]. Sector Contributions - The tech sector is projected to contribute 36% of the S&P 500's total earnings over the next four quarters and currently represents 42.5% of the index's total market capitalization, highlighting its significant role in the overall earnings picture [16].

Core Insights - The ongoing question for investors in fixed income is when to go long duration, especially with the Federal Reserve resuming rate cuts [2][3] - The macroeconomic environment suggests limited upside for long duration fixed income strategies, with Treasury yields remaining volatile and near 4% [8][9] Macroeconomic Outlook - The U.S. economy is expected to continue on a modest growth path, with inflation remaining sticky but not significantly impacted by tariffs [3] - The Federal Reserve is cautious about further rate cuts, with some members expressing caution regarding another cut this year [3] Treasury Yield Dynamics - The UST 10-Year yield is currently in a fair-trading range of 4%-4.5%, with recent trading as low as 3.93% [9] - Historical yield curve dynamics indicate a potential rise in the 10-Year Treasury yield, making it an unfavorable environment for reallocating to long duration [8] Trading Activity - Trading activity has been volatile, with approximately 100-basis point swings in yields over the past two years [9] - A long duration position implies a belief that the economy is heading toward a recession, with expectations for the UST 10-Year yield to decline to at least 3.6% [9] Fed Funds and UST 10-Year Yield Spread - Following the recent 25-basis point rate cut, the spread between the Fed Funds mid-point and the UST 10-Year yield is around +20 basis points, significantly below the long-term average of +129 basis points [10] - A potential widening of this spread could place the 10-Year yield in the 4.5%-4.75% range [11] Conclusion - Given the historical performance of long duration strategies and the current macroeconomic outlook, it is recommended to hold off on going long duration [12]

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