Equities

For this screener report, we explore opportunities in a CapEx premium divergence trade, a valuation convergence trade, and European Defense Stocks.

It appears that households have been able to spend more than they’ve earned since May by dipping into their swollen brokerage accounts. Bulked-up equity holdings could herald a future where consumption is more sensitive to stock market ups and downs. That’s great in bull markets but could be an unexpected drag on activity when the next bear arrives.

2026 should see another year of gains for the S&P 500, but, as the bull market matures and growth slows, returns will be capped by revenue growth rather than being boosted by expanding margins and multiples. We think Tech can outperform, but leadership will broaden and performance gaps will narrow.

Global liquidity has been the decisive macro variable in 2025, and should stay broadly supportive through most of 2026. We therefore stay neutral equities versus bonds (valuations are stretched), keep a positive bias toward metals (especially gold), and prefer European and Japanese equities over US ones. The key risk is a late-2026 volatility regime shift as overheating fears force a repricing in rates.

MacroQuant recommends a slight underweight in equities, favors a below-benchmark duration stance in fixed-income portfolios, remains bearish on the US dollar, has upgraded oil and copper to overweight, and is bullish on gold.

In Section I, Doug highlights the risks to US consumption if job growth does not soon recover. The US economy has yet to pass its tipping point, however, arguing against defensive positioning for now. In Section II, Jonathan examines whether the AI “scaling laws” are likely to hold. They will over the near term, but cracks are already beginning to form in the narrative of ever-improving AI.

In Section II, Jonathan examines whether the AI “scaling laws” are likely to hold. They will over the near term, but cracks are already beginning to form in the narrative of ever-improving AI.

Contrary to widespread narratives, there is little cash on the sidelines. The aggregate amount of investable funds-to-equity market cap ratio is at an all-time low in the US and very low in other developed markets.

Recession risks in the UK are clearly rising. In this Special Report, we unpack why labor market deterioration, falling wage growth, and normalizing inflation support deeper BoE cuts ahead. We then discuss how to position across gilts, the pound, and UK equities.

Recent economic data have been reasonably firm. We will cut our 12-month US recession probability to 40% from 50% if the Supreme Court strikes down President Trump’s tariffs. This would take our scenario-weighted year-end 2026 price target for the S&P 500 to 6375 from 6200.