Microsoft stumbles on lower Azure growth and higher AI spending; all companies that are spending without tangible returns are punished. The Fed stays on hold and says that its confidence in the US Economy has improved. President Trump appoints Kevin Warsh as next Chairman of the US Central Bank. Earnings make further progress, reaching double digit growth for the 5th quarter in a row. Next week there will be the January labour report, while the BoE and the ECB are both expected to be on hold. The biggest tail risk is the US Economy falling into a recession (20% 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 2nd – 6th February 2026

Economic data highlights of the week

Mon: CN Caixin Manufacturing PMI (1/26), DE Manufacturing PMI (1/26), EU Manufacturing PMI (1/26), UK Manufacturing PMI (1/26), US ISM Manufacturing PMI (1/26), US Atlanta Fed GDPNow

Tue: AU RBA Interest Rate Decision, FR CPI (1/26), US JOLTS Job Openings (12/25)

Wed: JP Services PMI (1/25), CN Caixin Services PMI (1/25), DE Services PMI (1/26), EU Services PMI (1/26), UK Services PMI (1/26), EU CPI (1/26), EU PPI (12/25), US ADP Nonfarm Employment Change (1/26), US Services PMI (1/26), US ISM Non-Manufacturing PMI (1/26)

Thu: DE Factory Orders (12/25), UK Construction PMI (1/26), UK BoE Interest Rate Decision, UK BoE Governor Bailey Speaks, EU ECB Interest Rate Decision, US Initial Jobless Claims, US Fed’s Balance Sheet

Fri: NZ – Holiday, IN RBI Interest Rate Decision, DE Trade Balance (12/25), US Nonfarm Payrolls (1/26), US Average Hourly Earnings (1/26), US Unemployment Rate (1/26)

Performance Review

Source: Google

InflectionPoint reports:

* Wow, what a week! On the surface, looking at the numbers, it seems like it was dull – which could not be farther from the truth. With Meta going up almost 10%, and Microsoft facing its worst fall in 6 years, down by the same amount, it looked like the fundamentals of the market were shaken to the core, until Apple managed to restore some balance. Apart from all the rumours on OpenAI, which remains private and unprofitable (and the market does not like that), investors want companies which are spending to build their AI features to show a clear path to significant returns from their lofty investments. That was the case of Meta, and you guessed it, it just didn’t work for Microsoft, plagued by relatively low (38%!) growth in its Azure platform. But next week is more of the same on the earnings front, with Alphabet and Amazon. In the aftermath of the mixed results on Wednesday, all companies that are seen as spending without immediate returns (obviously Oracle, but joined by a range of AI and cybersecurity plays), were punished. And yet earnings, somehow, did shine, bringing growth estimates for 4Q25 to double digits once again. I have been saying that the market, near term, cannot count on more support from the Fed (more on that later), and therefore earnings and guidance are of paramount importance. I was really impressed by the market resilience last Wednesday, which seemed a classic day of huge losses (and which got me to be less optimistic than usual), but ended up shy of any severe damage. In other news, President Trump appointed Kevin Warsh to be the next Chairman of the Federal Reserve. It was probably the best choice the President could make, even though the respected economist is seen not as dovish as other possible contenders. This was reflected in the weird week for the USD, which ended slightly up, after having breached 1.20 against the EUR early on. On top of that, the Secretary to the Treasury, denied that the US are trying to bolster the JPY, prompting the fall of the Asian Currency. Eventually, while the President did comment that he’s not worried by the fall of the USD, the next day Scott Bessent restated this Administration’s policy as that of a strong dollar. The Fed itself left interest rates unchanged, and said that they have a bit more confidence in the US Economy. It is widely expected that the US Central Bank will continue to be on hold until the June meeting, which will be the first headed by Warsh, even though it had two dissenters (Waller and Miran) who would have wanted to cut rates in January. Next week we will have the always important January labour report, plus two central banks – the BOE and the ECB – which are going to stay on hold. 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, although as we have seen from Meta and Microsoft so far, very strong spending continues in the buildout of their infrastructure. 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 gained a little ground and is now trading around 1.185. 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, notwithstanding the possibility of an intervention which was floated by the PM ahead of the snap elections on February 8. 

* GDP forecasts for 4Q25 are good, with the Atlanta and New York Fed finally in agreement on a positive direction. The current P/E ratio of 22.2x is above the average P/E ratio of the last 5 years at 20.0x and the 10-year average at 18.8x. As the multiple held throughout 2025, I believe that it should hold over the next 12 months, if the economy performs similarly and there are no major geopolitical displacements; it is the same assumption I had back in 1999, when the multiple was 24x. That multiple level 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 start-ups (if we can call Palantir in that way, and looking forward to its next report on Monday, After Close), 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 was on hold last week, as widely expected, with two dissenters, and kept the rate to 3.50-3.75%. Chairman Powell did say that the US Central Bank was now in a ‘wait and see’ mode. It is widely expected to be on hold throughout the remaining tenure of the current Chair. There are 67.8% chances that the FOMC will cut rates again at the June 17 meeting, the first one without Powell and with the Kevin Warsh in his place. If we look at December 2026, at the moment the estimates sees rates at 3.00-3.25%, hence with 2 more cuts during the year. Be cautious of aggressive Fed cuts, as they may signal an impending recession; non-recessionary interest rate cuts are generally welcomed by the equities market. 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 have finished its easing cycle in 2025. 

* Yields on US 10-year Treasuries have reached 4.24%, and were mostly up last week, while European government bond yields were down. 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. Regarding earnings, I remain optimistic, particularly on technology (the main driver for the S&P 500). Ben Snider, who has taken up his post as Chief US Equity Strategist from legend David Kostin, has a bullish forecast of $305 per share for the S&P 500 by the end of the year, with a target price of 7,600.  At the moment, the bottom-up forecasts for 2026 are slightly ahead of his bullish target, with the consensus based around $295. Earnings for 2026 are rising to a level of $311.12 per share, while for 2027 they are seen at $359.06. In both cases, the earnings’ progression puts both of them on a higher level than just one year ago.

Source: FactSet

* The US GDP closed 3Q25 with a reading of 4.4%, 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 4.2%, down from 5.4% last week, but still a very remarkable level and as usual, ahead of the Blue Chips consensus, which are around 1% and rising slowly. The New York Fed’s Nowcast model has a current forecast of 2.74%, 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 4Q25, with earnings expected to climb by 11.9%, compared with a forecast of 8.3% as of December 31st, and with revenues growing by 8.2% vs 7.8% as of December 31st. In 1Q26, earnings are expected to grow by 11.7% vs 12.9% as of December 31st, with revenues growing by 8.4%, vs 8.2% as of December 31st. For 2026, earnings growth is forecasted at 14.3% vs 15% as of December 31st, with revenues coming in at 7.3% vs 7.2% as of December 31st. Introducing a new forecast for 2027, earnings growth is forecasted at 15.8% vs 15.2% as of December 31st, with revenues coming in at 7.4% vs 7.3% as of December 31st. 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 (January 2027) 16.03%. 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. Goldman Sachs recently lowered its forecast to just 20%. 

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 4Q24 is now under way. Here’s a list of companies reporting this week. Highlights include: Alphabet (Wednesday, After Close), and Amazon (Thursday, After Close). 

Source: Earnings Whispers

Market Considerations

Source: Carson Investment Research, FactSet, ISABELNET.com

Source: MarketDesk, ISABELNET.com

Revenue growth estimates for 2026 are forecasted to grow by 7.3% (7.2% on December 31st), and earnings growth estimates for 2026 are predicted to grow by 14.3% (15.0% on December 31st), so the future looks bright. Introducing forecasts for 2027, which sound again very positive, with revenue to grow by 7.4% (7.3% on December 31st) and earnings to grow by 15.8% (15.2% on December 31st). As mentioned, the Fed has cut its rates by 100bp in 2024, 75bp 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.  

Two highlights this week. First, we have a chart from Carson Investment research, which follows up on a theme I talked about last week: ‘As goes January, so goes the year’. Carson estimates that with a positive January the overall performance of the index could be as much as +16.9%, with an 87% correlation. The outcome is very, very different with a negative performance: a negative return of -1.8%. The second chart, from MarketDesk, puts the spotlight on the USD, which last week breached 1.20 vs the Euro. The Dollar Index is currently trading on a 4-year low; further lows could exacerbate markets and push the long end yields even higher. Something to look at closely, even though with Kevin Warsh at the helm of the Fed, further breaches should not be imminent (barring any expected geopolitical outcomes).

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 60bps more worth swapping an AAA security for a BBB+?  

There are five main headline risks to what is otherwise a constructive view for 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. 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. I am now very positive on the country, although I would definitely hedge the JPY, even though the PM hinted at possible intervention, also echoed by the Federal Reserve of New York asking for quotes on Yen crosses as soon as last Friday. The BOJ almost certainly will have to raise rates, but if the increase is gradual, in 2026 the strong performance of the Topix could continue. Let’s see if the upcoming elections on February 8th will give the PM and her LDP a majority able to govern the country.

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 24.8% 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 26.2% in 2 years, with a Sharpe Ratio of 0.7. 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 59.5% in about 1 3/4 years and has outperformed the FTSE MIB Index by 1950+ bp in this timeframe, with a Sharpe Ratio of 1.7.

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

My Japanese Equities Portfolio is up 3.8% in about 3 months.

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 feel free to drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and I look forward to seeing 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.