Note: I am travelling with limited equipment and internet access. Postings will thus be sporadic.
DEFLATING INFLATION!
US Inflation has further dropped to 1.20% today. Main drivers of this latest in a series of disinflationary coolings were: – Food – mostly Eggs – Household durables – particularly housekeeping supplies – Alcohol & tobacco – mostly alcoholic beverages
While the US debt crisis intensifies
~26% of US federal debt is set to mature within the next 12 months, one of the largest portions this century.
By comparison, the peak was ~29% in 2020, when interest rates set by the Fed were at 0%. Between 2010 and 2020, this percentage remained below 20%.
Currently, interest rates stand at 3.75%, with the market pricing in 2 cuts this year. This means ~$10 trillion in debt must be refinanced at significantly higher interest rates over the coming year.
This comes as the US Treasury has shifted toward issuing shorter-dated bonds to minimize interest costs in the near term. Who is going to buy all of this debt? (@KobeissiLetter)
EARNINGS WATCH
From LSEG IBES:
64 companies in the S&P 500 Index have reported earnings for Q4 2025. Of these companies, 79.7% reported earnings above analyst expectations and 12.5% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 78% of companies beat the estimates and 16% missed estimates.
In aggregate, companies are reporting earnings that are 7.0% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.4% and the average surprise factor over the prior four quarters of 7.6%.
Of these companies, 68.8% reported revenue above analyst expectations and 31.3% reported revenue below analyst expectations. In a typical quarter (since 2002), 63% of companies beat estimates and 37% miss estimates. Over the past four quarters, 71% of companies beat the estimates and 29% missed estimates.
In aggregate, companies are reporting revenues that are 1.0% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.7%.
The estimated earnings growth rate for the S&P 500 for 25Q4 is 9.2%. If the energy sector is excluded, the growth rate improves to 9.6%.
The estimated revenue growth rate for the S&P 500 for 25Q4 is 7.3%. If the energy sector is excluded, the growth rate improves to 8.1%.
The estimated earnings growth rate for the S&P 500 for 26Q1 is 12.4%. If the energy sector is excluded, the growth rate improves to 13.3%.
The 64 companies having reported had earnings up 17.1% on revenues up 8.0%. Beats were widespread.
FYI, the Russell 2000 is at 22.4x forward EPS expected to jump 54% over the next 12 months! Also note that the R2000 P/E is calculated after eliminating losing companies. Convenient since some 40% of the R2000 companies are losing money ((S&P 500 = 6%).
The S&P 600 only includes profitable companies. Ed Yardeni shows that their 16.5x P/E is at its historical median. Can they grow earnings 12.5% in 2026, when being large seems to provide several advantages (e.g.: AI, tariffs)?
From Callum Thomas:
Election Cycle Seasonality: I don’t know what’s more concerning about this chart — the fact that seasonally mid-term years tend to see downside, volatility, and ranging in the stockmarket… or the fact that it’s only 2-years until the next Presidential election!
Source: @RyanDetrick
Mid-Term Seasonality During Bulls and Bears: here’s an interesting follow-on, my conditional seasonality chart shows that even in a rising market (years where the market closed up for the year), you still tend to see a bit of extra volatility and ranging [the green line] all the way until Q4.
The other interesting statistic from this analysis is that mid-term election years have historically not had a great track record: across 15 mid-term years since 1964, 8 were up years and 7 were down [i.e. markets closed the year down 47% of the time] — this compares to all years where the market closed down 16 times and up 46 times [i.e. down 30% of the time, and down 19% of the time in all years excluding mid-terms].
So just on the statistics, the reality is a 47% historical probability of down in a mid-term year vs 19% in all other years is a statistical edge for the bears.
Source: Chart of the Week – Bear Market Seasonality
Meanwhile, as documented previously, sentiment is running hot — and here’s the latest sentiment snippet showing speculative splurging into equity ETFs.
Source: @chigrl via @DonMiami3
Valuations vs Profit Expectations: this is a good follow-on because it shows how we are sitting at extremely elevated levels of valuation — but also extremely elevated levels of profitability. The bulls will say this is good, it’s expensive for a reason. The bears will say this is bad it’s expensive for a reason… and specifically that the profitability expectations might be just as overinflated as the valuations.
Source: Jurrien Timmer at Fidelity via Sandbox
While on profit margins, some costs are rising rapidly:
Ed Yardeni:
Metal prices got another shot in the arm at the start of this year, when President Donald Trump proposed setting military spending at $1.5 trillion in 2027, up from $906 billion this year, citing “troubled and dangerous times.” He did so in a January 7 Truth Social post: “This will allow us to build the ‘Dream Military’ that we have long been entitled to and, more importantly, that will keep us SAFE and SECURE, regardless of foe.” In the same thread, he claimed that tariff revenue would be sufficient to fund the military boost, pay down the national debt, and provide a “substantial Dividend to moderate income Patriots.” (We doubt that, especially if the Supreme Court soon declares that Trump’s tariffs are unconstitutional!)
Trump called for the massive surge in spending days after a US military operation successfully captured Venezuela’s leader, Nicolás Maduro. This past week, the President negotiated a framework deal that would grant US sovereignty for American military bases in Greenland, deemed necessary for national security and the construction of the Golden Dome, an anti-missile defense system. The President recently said that an “armada” would arrive close to Iran in the waters of the Persian Gulf or the Strait of Hormuz. It will probably get there by the end of this month.
The Committee for a Responsible Federal Budget has warned that Trump’s proposal could add nearly $6 trillion to the national debt over the next decade. No wonder that the 10-year US Treasury bond yield has been edging higher this month. (We are on alert for an attack on the US by the Bond Vigilantes, who have been busy in Japan in recent months.)
Also, no wonder that precious metals prices have continued to soar so far this year. The price of gold is at a record high just below $5,000 per ounce. We are still targeting $6,000 by the end of this year and $10,000 by the end of 2029.
Ed believes that the bond vigilantes might turn their attention to the US after Japan…
Democra$$y
Recently:
Elon Musk recently donated $10 million to a super PAC supporting Republican Nate Morris in the Kentucky U.S. Senate race. This donation, made in January 2026, is his largest to a single federal candidate, excluding Donald Trump.
Other recent financial involvement in elections:
- Kentucky Senate Race: Musk contributed $10 million to the “Fight for Kentucky” super PAC, which backs tech entrepreneur Nate Morris for Mitch McConnell’s former seat. The large, unlimited donation to a super PAC (which operates independently of the campaign) has reignited debates over the influence of wealthy donors in elections.
- 2026 Midterms: This donation signals Musk’s intention to be a significant player in the upcoming 2026 midterm elections, aiming to help Republicans defend their majorities in Congress. He has made approximately $42 million in political contributions since June 2025 to various GOP PACs.
- 2024 Presidential Election: Musk was the single largest individual political donor in the 2024 election cycle, spending over $290 million (primarily through his “America PAC”) to support Donald Trump and allied Republicans.
