Inside Markets — Tactically Bullish

We keep a tactically bullish near-term outlook given positive seasonal fund flows and wide-open buyback window into the week of 12/23. However, the tactically bullish near-term outlook also requires ongoing positive macro data, earnings growth and relatively supportive Fed policy. If fundamental drivers remain relatively unchanged, it’s reasonable to assume the present momentum remains intact until Q4 earnings season starts in mid-January. We expect strong Q4’24 results but see increased likelihood that companies will offer less-transparent forward guidance based on a need for more policy clarity in Trump’s first 100 days.

Outperforming equity themes since the election include those that are more insulated from global growth and tariff risks. Financials are at the top of the list given the potential for regulatory changes, stronger capital markets, tax reform and potentially steeper yield curve. Despite post-election outperformance, the Financials sector remains under-owned given that investors spent the last 3 years avoiding the group based on higher interest rates, rising CRE risks and SIVB collapse in Q1’23 that made regional banks un-investable. Utilities are another sector that should be well insulated from global growth and policy risk given that 98% of revenue is derived from domestic sources. Traditionally, Utilities have been little more than a defensive bond proxy, but generational power demand has given the group some secular growth potential. The post-election environment has also favored rotation into software over trade-sensitive semis. During Q3 reporting season several core software names also cited AI traction in stronger Q4/FY’25 guidance.