Economic data continues to demonstrate resilience, coming in stronger than consensus estimates across both the United States and global markets. This strength persists despite labor data remaining relatively soft, suggesting that the economy is experiencing a continued “jobless growth” phase where output expands without corresponding employment gains.

The nomination of Kevin Warsh as the next Federal Reserve Chair signals the potential for continued monetary policy accommodation in the coming year. While we view his nomination as a positive for risk assets, we do expect a steeper yield curve to result.

The “broadening out” theme within equity markets continues to gain momentum as market leadership diversifies beyond traditional winners. Non-US equities are demonstrating year-to-date outperformance, while within US equity markets, smaller-cap stocks are beating their larger counterparts and value stocks are outperforming growth stocks.

Fourth quarter earnings season has proven robust, with the S&P 500 tracking toward double-digit earnings growth. While technology sector companies are leading this earnings expansion, increasing estimates for AI capital expenditures are triggering concerns among investors regarding sustainability and returns on these substantial investments.

Software stocks have experienced significant sell-offs driven by fears that AI disruption could fundamentally alter their business models and competitive positioning. We view this as a fair re-rating of the sector, as the increased uncertainty surrounding these companies’ future prospects warrants a higher risk premium.

The observations above are based on data from Bloomberg, Citi, and Factset, as shown in the attached summary of Monthly Market Insights. The full report is available to clients upon request.