Macroeconomics: Data Improving
- Solid economic data in the US. Inflation sticky but under control, consumptions above expectations and sentiment improving
- Limited EU and Swiss data confirm a bettering of production and confidence
- Chinese exports still solid and Q4 GDP at 5.0%
Microeconomics: Q4 ‘25 Started Strong
- 7% (33) of S&P 500 companies reported, 79% positive EPS surprise (78% past 5 years) and 67% positive revenue surprise
- Q4 2025 YoY EPS growth of 8.2% (10th consecutive positive Q)
- For Q1 2026, 2/5 negative EPS guidance, 3/5 positive EPS guidance
- Banks started off solidly, with 17/23 above expectations, 1/23 in line, 5/23 below
- TSMC (semiconductors’ bellwether) reported better earnings and revenues with solid outlook
Theme 1: Tariffs (and Greenland)
- President D. J. Trump has decided to impose an additional 10% tariff (raising the total to 25%) on U.S. imports from 8 European countries (DK, NO, SE, FR, DE, GB, NL, FI) starting February 1, 2026, if not “complete and total purchase” of Greenland is finalized
- These new tariffs are likely to be imposed under the International Emergency Economic Powers Act and could be blocked (under the IEEPA) by the U.S. Supreme Court, which is likely to rule (against) before the end of February 2026
- Risks: further tariff escalation, market impact, NATO Alliance
- On the positive side, this could be a wake-up call for Europe. EU lawmakers called for a suspension of the trade agreement the EU reached with the United States (≈$670bn or 18% of total exports) last year and Europe is already moving to diversify their economic partners (e.g. Mercosur trade deal)
- Market impact: Likely negative but could be a good entry point for investments in European Equities
Theme 2: US Financials
- Loan demand has reached a trough last year in June and has increased every month since (with the exception of November);
- The US Treasury yield curve has steepened since Nov 2024. The 2-10 year spread has further increased since Oct 2025
- New issuance of bonds (Corporates from $1.4tr in 2023 to $2.2tr in 2025) and equities (IPOs from 154 in 2023 to over 300 in 2025) soared, particularly in the last 6 months of 2025
- Delinquency rates have fallen since Q4 2024 and are now below 1.5% (close to 10-year lows) with high recovery rates
- The forward earnings of the S&P 500 Diversified Banks industry is at a record high and S&P 500 Financials have the lowest PE ratio of all sectors (16.4x vs. 22.2x the index)
- Solid Q4 2025 expected, in line with the first indications
- The sector index has the lowest YtD performance (-0.8%) mainly due to President Trump’s initiative to cap credit card interest rates (risk) at 10% from ca. 22.3%
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