Calm after the storm: with confidence in the third cut of the year by the Fed on Wednesday restored, markets had a quiet week. Earnings and outlooks from Oracle and Broadcom on Wednesday and Thursday, respectively, could offer a catalyst for the broader market. It looks as though the world economy has fared better than expected in the face of the new US Tariffs. The biggest tail risk is the US Economy falling into a recession (25-30% chance in 2026), resurging inflation, revenues/earnings not matching forecasts, the unfolding of the AI capex trade, the Fed not delivering on its easing cycle, a surge in long bond yields coupled with a USD crash, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 8th – 12th December 2025

Economic data highlights of the week

Mon: JP GDP (3Q25), DE Industrial Production (10/25), US Factory Orders (9/25), US Nonfarm Productivity (3Q25), US Unit Labour Costs (3Q25)

Tue: AU RBA Interest Rate Decision, US ADP Employment Change Weekly. US JOLTS Job Openings (9/25)

Wed: CN CPI (11/25), CN PPI (11/25), UK BOE Governor Bailey Speaks, EU ECB President Lagarde Speaks, CA BOC Interest Rate Decision, US Fed Interest Rate Decision, FOMC Economic Projections

Thu: CH SNB Interest Rate Decision, UK BOE Governor Bailey Speaks, US Initial Jobless Claims, US Trade Balance, US Fed’s Balance Sheet

Fri: UK GDP, DE CPI (11/25), FR CPI (11/25), SP CPI (11/25), IN CPI (11/25)

Performance Review

Source: Google

InflectionPoint reports:

* Calm after the storm. Following a week of very solid performance, which reset the mood, last week was mostly based on slow, calm progress. What could have been the biggest news turned into a non-event, as Fed Chairman Powell refused to comment on US Monetary Policy in his speech last Tuesday. And markets went on pretty much their own way, driven by the latest rate cut expectations and by the possible news coming out of the White House regarding the appointment of the next Fed Chairman (almost certain to be Kevin Hassett). Even Oracle, defended by some brokers, managed to have a decent bounce, but soon there will be a showdown once again, as the company will report next Wednesday, followed by Broadcom on Thursday. I suspect that the potential stock moves will be huge, either way it goes; but if the report is positive (which is something I’m looking for), then the fears about AI being overvalued will be put to rest for some time, and this can be a catalyst not just for tech stocks but for the whole market, coupled with the third cut of the year (which is heavily discounted but which will be nice to finally see on paper). And after that, I guess we will turn the page, and look over at 2026, with new revenue and earnings estimates, and new multiples. I lament the confusion on the missing employment data (and I am sure I’m not alone in this), and possibly we must wait until early January to understand where employment and consumer confidence actually are. As you know, I rarely, if ever, comment on politics, but I’m increasingly concerned by the failed attempts to put an end to the war in Ukraine, with the possible (albeit extreme) conclusion that Europe will be left in the cold by the US because its real competitors are China and Russia (and let’s not forget India). At the moment, it seems like we have to live with this issue for a long time, until something happens on one side (Moscow) or the other (Kyiv). Financial markets are trading as if this were business as usual, but this is something I do worry about going into next year.    The economic forecasts continue to be good, and if there is no recession, rate cuts are equities’ best friend. It is still very important that the independence of the Fed is preserved, as a guarantee of the US’s own credibility. Recent examples of rates being set by the government (such as in the UK in the 1990s) didn’t produce a great outcome. Returning to the economy, the most important data to watch will change: less inflation (with the latest CPI figures slightly better than expected, even though they were at 3%), and more jobs. The more general risk is related to a game of musical chairs with AI capex. It is difficult to assess at which stage we are in the development of AI, but if I have to guess, I would say we are in the third inning. Sundar Pichai is more bullish, thinking that we will see the real potential of AI in 10-20 years. As it can touch many more sectors than just communication, which was optical networking’s specialty, I think that the technology will be much more resilient and last for a longer period of time. The overall feeling is that earnings throughout the year were much, much better than investors thought, and the fear of the slowdown didn’t quite materialise – so far. The USD lost some of its earlier gains during the week and is now just trading above 1.16. Keeping equities to buy (with the famous 3% weekly stop), keeping US bonds to hold, and European bonds to buy (with the notable exception of France). Valuations matter: Japan has really impressed with its performance under new PM Sanae Takaichi, and it would be well worth considering to include the Asian country in portfolios, but I still recommend hedging the JPY. 

* GDP forecasts for 3Q25 seem to be good, with the Atlanta and New York Fed finally in agreement on a positive direction. The current P/E ratio of 22.4x is above the average P/E ratio of the last 5 years at 20.0x and the 10-year average at 18.7x. David Kostin believes that the multiple can hold over the next 12 months; it is the same assumption I had back in 1999, when the multiple was 24x. That multiple lasted for the good part of almost two years, and despite the fall in 1H00, technology stayed strong through the summer, until the Intel preannouncement in September sealed their demise and gave way to 2 years of bear market. One of the major differences of the current cycles relative to the dot.com boom is that then many companies were thriving on expectations of future sales and no earnings, now companies, even startups (if we can call Palantir in that way), do have tangible revenues and earnings, so the market, whatever happens, is on a much sounder footing now than then. Furthermore, then the Fed was hiking rates, and had reached the peak by the end of 2000, with the famous out-of-meeting jumbo cut on January 3, 2001, in response to the rapid deterioration of the economy due to the dot.com crash. Were AI to crash, we could probably expect more of the same. Anyway, this time around, i) rates are lower and ii) the Fed is a tailwind, not a headwind.

*  The Federal Reserve made the second cut of the year in October, as widely forecasted, and reduced the rate to 3.75-4.00%, even though a huge discussion now centres on what will happen in December, after a huge swing in forecasts: the cut was on, then it wasn’t, and maybe it’s back on once again. Chairman Powell, as mentioned, did not share any incremental thoughts in his speech last Tuesday, but the majority think that the third cut of the year is in the bag. The forecast currently prices in the third cut of the year with an 86.2% chance, with rates ranging from 3.50% to 3.75%, with only a 13.8% chance that the US Central Bank will stay put. This would match Goldman Sachs’ own forecast of three cuts in 2025, once per meeting. If we look at December 2026, at the moment the forecast sees rates at 3.00-3.25%, hence with 2 more cuts during the next year, but everything is subject to change once the new Chairman will be in place. Be cautious of aggressive Fed cuts, as they may signal an impending recession; non-recessionary interest rate cuts are generally welcomed by equities. We need (lower) yields and (higher) earnings to support some of the highest multiples since my heyday (the fated 1999-2000), but it is increasingly difficult to get these in the US. You can look forward to these in Europe, even though the European Central Bank might finish its easing cycle in 2025. 

* Yields on US 10-year Treasuries have reached 4.13%, and were higher last week, in line with European government bond yields. While in 1999 they were even higher, and the Fed was hiking, not easing, we definitely need yields to return below 4% to have a more constructive scenario, albeit gradually and not through a crash. We seem to be getting there, although I cannot yet recommend the US Debt on their public spending plans. The 2025 S&P 500 bottom-up earnings estimate has continued its strong bounce to 270.79 and is ahead of the original forecast by Goldman Sachs of $268 per share, while being well clear of the revised top-down estimate of $262. In 1Q25, earnings were strong; more of the same, so far, for 2Q25. 3Q25 has followed in sync; I cannot comment on GDP yet, but earnings were plentiful once again, firmly in double digits, also lifting the averages for 2025 and even 2026. I remain optimistic, particularly on technology (the main driver for the S&P 500). Estimates for 2026 also seem to be on the rise and well above David Kostin’s forecast of $280 per share, representing a 7% growth from his revised forecast of $262 for 2025. If we applied the same growth to his original forecast of $268, we would get a target of $286. He has now acknowledged that his forecasts can be two-sided, showing a possible upside relative to when they were first made. 

Source: FactSet

* The US GDP closed 2Q25 with a reading of 3.8%, according to the third and final estimate. The Atlanta Fed GDPNow model starts its forecast for 3Q25 in positive territory, with a current forecast of 3.5%, down from 3.5% last week, and as usual, ahead of the Blue Chips consensus, which is currently around 2.7%, and moving upwards. The New York Fed’s Nowcast model has a current forecast of 2.31%, stable from last week. I believe it is prudent to make an average of those two forecasts to get to the real number; it is particularly good that these are now converging. Introducing a forecast for 3Q25, with earnings expected to climb by 13.5%, compared with a forecast of 7.9% as of September 30th, and with revenues growing by 8.4% vs 6.3% as of September 30th. For 2025, earnings growth is forecasted at 11.9% vs 10.6% as of September 30th, with revenues coming in at 6.9% vs 6.1% as of September 30th. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (October 2026) 21.44%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise, given such a forecast. The current level is not too far from what economists are currently predicting: a 25% chance of a recession in the next 12 months.

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 3Q24 is now ending. Here’s a list of companies reporting this week. Highlights include Oracle (Wednesday, After Close), and Broadcom (Thursday, After Close).

Source: Earnings Whispers

Market Considerations

Source: Carson Investment Research, FactSet, ISABELNET.com

Source: I/B/E/S, Toyo Keizai, STOXX, MSCI, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Goldman Sachs Global Investment Research, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 6.9% (6.1% on September 30th), and earnings growth estimates for 2025 are predicted to grow by 11.9% (10.6% on September 30th), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 7.1% (6.6% on September 30th) and earnings to grow by 14.5% (13.8% on September 30th). As mentioned, the Fed has cut its rates by 100bp in 2024, 50bp in 2025, and will continue easing. Apart from the cut from quite high levels, which will probably help make these lofty multiples seem more bearable than offering a real stimulus to the economy, it will be important to see the extent to which central banks are willing to cut rates and their timeframe.  

Three highlights this week. First, we have a chart from Carson Investment Research, which analyzes the pattern of the S&P 500 this year. The index had more than a 15% correction early on, but went on to close (at the time of writing) with double-digit returns. This happened only 4 times since 1950: in 1982, 2009, 2020, and 2025. Great news for next year, as the expected return is once again in double digits. The second chart, from Goldman Sachs, compares forecasted bottom-up earnings growth across markets with their own forecasts. The renowned US Investment Bank is more pessimistic than the consensus on US and European earnings. This is very important and worth checking – if true, it could prompt more easing from the Fed (the ECB has almost run out of space), but it would definitely be better if earnings continue to go according to the consensus. So far, so good. Sometimes, cuts early on don’t prove to be correct, as happened this year. In any case, 2026 should be another year of growth, rate cuts, and no recession. The third chart, again from Goldman Sachs, looks at Hyperscalers’ Capex, which will have a lower rate of increase from this year. Will this bring a compression in the multiple? Stocks are expensive no matter how I look at them, but I am thinking more of a dilution as earnings hopefully continue to grow, than at a dramatic reduction at any given point. 

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing was wrong with the company at the same time. Timing and risk management are key. I remain optimistic in the long term; I have faith in the new CEO, but to follow the Oracle means filling very, very big shoes.  The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second. In general, no stock can outperform all the time; some volatility has to be expected. Those who performed better earlier may not perform so well later.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East: this will dominate the news for a while. Any escalation would be negative for the markets.  

I now recommend a long position in equities and a neutral position on US bonds. For EU Bonds, I advise going long (with the notable exception of France), while I still suggest putting together a portfolio that focuses on the safety of German Bunds, which are to be preferred in my view, given increased yields and reduced spreads. Are 70bps more worth swapping an AAA security for a BBB+?  

There are five main headline risks to what is otherwise a constructive view for 2025 and 2026: i) revenue/earnings not matching forecasts, particularly in technology; ii) any damage to the economy and trade done from Trumponomics, tariffs, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); iv) a negative Fed shock if it does not meet the market’s expectations on easing; and v) valuations, which are nearing levels only seen once before (at least during my lifetime!). 

Japan earlier in November reached an all-time high for the Nikkei 225 after the election of a new political leader for the leading party, the LDP. The choice was between Sanae Takaichi and Shinjiro Koizumi, and the first one prevailed. Takaichi was a protege of the late Shinzo Abe and now champions loose monetary and fiscal policy. The leading index shot up the week after her election, on the perspective that her pro-growth agenda would revive Japan’s economy. Her election, however, doesn’t bode well for the JPY and for JGBs. Already, an adviser has said that October is too soon for an interest rate hike, which is music to the ears of BOJ Governor Kazuo Ueda, who is dovish. Remember that Japan, as well as Europe, has a valuation much more compelling (=lower) than that of the US, and could be a useful way to diversify, as UBS was advising not so long ago. managed to reach new highs last week. I am now very positive on the country, although I would definitely hedge the JPY. The BOJ almost certainly will have to raise rates in 2026, possibly as soon as in January, but if the increase is gradual, next year the strong performance could continue.

Portfolios

Finally, I want to introduce three portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 24.1% in 2 years, with a Sharpe Ratio of 1.1

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 30.0% in 2 years, with a Sharpe Ratio of 0.8. Obviously, the devaluation of the USD had a big impact as all stocks are priced in EUR.

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 45.9% in about 1 3/4 years and has outperformed the FTSE MIB Index by 1260 bp in this timeframe, with a Sharpe Ratio of 1.4

https://www.wikifolio.com/en/int/w/wf00ipjpeq 

My Japanese Equities Portfolio is presently in test phase.

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice or simply want more information, please contact me at giorgio.vintani@inflectionpoint.blog

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and see you next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.