Equity markets continue to hold firm, with the S&P 500 at new highs, but leadership is becoming more broadly distributed. Earnings are coming in slightly ahead of expectations, with improving momentum outside the US. Mega cap stocks have lagged year to date, while smaller capitalization stocks and economically sensitive sectors are showing stronger participation as earnings trends improve. Market breadth is expanding across developed and emerging markets following a multi year bottoming process.
The US dollar has broken below key support, providing a tailwind for global equities and commodities. Commodity markets are strengthening after years of underinvestment, while precious metals remain in longer term uptrends but are becoming extended. Credit spreads remain benign, volatility is contained, and defensive sectors continue to show limited leadership, supporting a backdrop of improving participation across regions and sectors.
Key Takeaways This Week:
- Global breadth expanding
Equity markets are starting the year positively, with the S&P 500 at new highs, but breadth is expanding more strongly outside the US across developed and emerging markets after a multi year bottoming process. - Earnings tracking above expectations
Earnings are coming in slightly ahead of expectations, with full year growth now expected to land closer to 12 to 13 percent versus the 7 percent expected entering the quarter, and better earnings expectations emerging outside the US. - Mega caps lagging year to date
The MAG 8 have been among the weakest performers so far this year, while smaller cap securities are performing better due to stronger earnings growth and upward earnings revisions. - US dollar breaking down
The US Dollar Index has broken key support levels, increasing the likelihood of further downside, which is supportive of global equities and commodities and relevant for international investors. - Commodities accelerating
Commodities are strengthening, with copper, steel, and energy showing notable improvement, while gold and silver remain in long term bull markets but have become extended, prompting some near-term tactical profit taking. - Risk signals remain benign
Credit spreads are benign, volatility remains within a bull market range, and defensive sectors show little leadership, supporting an offensive positioning stance at this stage of the cycle.