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January 12, 2026

Thoughts of the Week

Maybe we should not have chosen a casino photo for an investments related newsletter. But I will try to explain the rationale. First, some healthy gambling among friends-and-family always takes place during the New Year's holidays, at least where I come from, and hence I did not want to be totally out of fashion. And for sure, some parts of the financial markets have started behaving like casinos, attracting speculators and gamblers for the punt of the day, as precious metals colorfully demonstrated in late December. Last, but not least, a seasoned roulette player carefully thinks how to allocate best his chips across the table in order to increase his probabilities to win, "just like" investors allocate cash to assets, the optimal combination of which will provide the best returns.

The 2026 "game" has begun. The first week was rather positive for most asset classes, in a clear continuation of the 2025 trend. Whether this tend will continue is anybody's guess, of course. The largest bet on the table is the AI theme and its beneficiaries. The companies associated with the necessary infrastructure (i.e. data centers, power generators, semiconductors, cable manufacturers) have been enjoying a relentless run for the last two years or so. This year's main risk for these companies is a potential slowdown of capex spending by the mega Tech companies and although there are no visible signs of it yet, we should make note of it.

Despite the S&P500 being up for the year, 5 out the Magnificent-7 are negative year-to-date. Such an occurrence is worth mentioning because these 7 stocks (Nvidia, Apple, Microsoft, Amazon, Alphabet, Tesla and Meta Platforms) have risen to currently comprise about 35% of the S&P500. A passive investment in the index is primarily a bet on these very few stocks and it might not be the best option for this year, despite the fact that these few companies continue to provide the bulk of the index's earnings growth, as we mention further below. What has worked for the last years is not a guarantee for future performance.

We share the view that the market could soon turn its focus on other AI beneficiaries, which are the companies who will use AI to improve their efficiency and eventually their operating margins. These include companies such as financials and healthcare, as well as other service-oriented companies (travel & leisure, consulting, business services providers etc.). This theme of "improving operating margins" vs. "deteriorating operating margins" , which is what is already being witnessed in parts of the US Technology sector, due to extreme capital expenditure, could also mean that Europe and Emerging Markets can again outperform the Tech-heavy S&P500. For years we have known that these two super-regions suffer from low margins while their US peers have been exemplified as best-in-class in terms of operating efficiency and margins. This might be about to change, and AI is the culprit.

In this sense, the US Q4 earnings season which is about to start, assumes great significance. Since the summer, expectations together with stock prices have risen, primarily in the Technology sector, which could be a source of disappointment. The US banks are always the first to start, as of tomorrow, but the big week is January the 26th when the mega-caps will have their own day with investors, eager to see them beat-and-raise. Just to show how divided the US market is, the 6 largest Technology companies are expected to have grown their earnings in Q4 by 22%, while the rest 494 names are expected to have grown by a meagre 4%. As mentioned, operating margins for the big-Tech will be important to watch as capital spending has continued to increase exponentially.

What caught our attention

December inflation in the Eurozone was slightly better than expected. The headline number fell to 2% (or 1.96% to be exact) while the good news were that core CPI which excludes food and energy fell more than expected to 2.3%. For two years or so, price growth in categories such as wages, rents, insurance premiums had been holding core inflation closer to 3%, but these service-type items seem to be rolling over, the same way as consumer goods have for some time now. There seems to be no inflation threat in the Eurozone for the foreseeable future, barring a major geopolitical shock.

The US labor market has clearly cooled down, but still far from a recession. The December non-farm payrolls rose by 50k, lower than expected, while the JOLTS job openings number fell to 7.1mn, which matches the lowest level since September '24 and the lowest since the pandemic. The three-month average of the non-farm payrolls is now negative and unemployment has risen to 4.5%. Although this is still a relatively low figure, the trend seems to be for higher unemployment in the coming months, which should trigger a FED reaction, already discounted by both the equity and the bond market.

Maduro's capture and Iran's mini revolution are also on our radar. The US administration clearly wants lower oil prices and has given the green light to the likes of Chevron to invest in Venezuela's vast reserves. However, US companies are reluctant to invest billions of dollars to extract oil at current prices, while the Iran situation complicates matter even further. Holding Energy companies at current levels seems like a good idea, not just for dividend-oriented investors but also as a hedge for turmoil in the Middle East.

Finally, the week starts with news of a criminal investigation into FED's Chairman. Mr. Powell is being accused for misleading the Congress with respect to the 2.5bn $ renovation of the FED building, but essentially it is more pressure by the Trump administration on him to resign before May. The FED's independence will be a theme this Monday morning, which could again last for a few hours, but this time there are actual subpoenas for a hearing, issued by the Department of Justice and not just tweets by Trump.

Markets reaction

Global equities started the year on a very positive note, as the last days of December were rather disappointing. The US indices rose by 2% on average, with special note for the small capitalization index Russell 2000 which rose by 5% last week. Europe was also strong and managed to slightly outperform the US, with a 2.5% weekly gain on average. In terms of sectors, Technology underperformed in the US (+1.3%), but was the best sector in Europe (+7%) as semiconductor names such as ASML and Infineon rallied. Defense names also rallied after Venezuela's events and as Trump said that he is willing to increase defense spending by 500bn$ by 2027. Consumer-related stocks caught a bid towards the end of the week.

The bond market was mildly positive. The US lackluster labor market data and the benign inflation data in the Eurozone brought buyers back, and the US 10yr fell to as low as 4.10% before returning to 4.15% and the German equivalent fell to below 2.80%, before returning to 2.82%. Overall, the year has started better than it finished in 2025, for EUR government bonds.

Precious metals have been on a roller-coaster since the melt-up of mid December. Speculation and leveraged positions have increased significantly, and according to the latest data the Chinese retail has joined the party in hoards. Now, this can be very positive as significant flows make prices explode as it happened in December, but the flip side is that leveraged positions are quickly liquidated as it happened during the Christmas week, when Platinum and other metals fell by more than 15% in a day. News about the FED's Chairman criminal probe will support precious metal at the start of this week.

The dollar has strengthened during this first week. The EURUSD tried to trade past 1.1750 towards the very important resistance of 1.1800/1.1850 which we had highlighted since last summer, but failed again. It ended up trading closer to 1.1600 towards the end of the week. Again, news about the FED's Powell are going to push the dollar weaker again, in the short-term.

Chart of the week:

Will 2026 be the year when the European consumer spends ?

The above chart, provided by Eurostat, shows the saving rate of a sample of countries and the EU average, or in other words the percentage of the disposable income that is being saved and not consumed or invested. As we can see there was a big spike during the pandemic, which is normal as travel/leisure and many business were in lockdown for an extended period, but then people started spending "like crazy" which brought the savings rate down by end of 2022. However, we see that especially since the Ukraine invasion and the inflation spike, EU citizens have been hoarding cash again and now the savings rate is higher than the pre-pandemic period. Such excess savings provide optimism that there is "firepower" and ability to spend if confidence improves further. As inflation expectations in the EU are now anchored around 2% and as Germany engages in an expansionary fiscal policy, one could definitely envisage consumer spending to pick-up significantly in 2026. This will bode well for consumer-related companies and especially in the autos, luxury, home-improvement, travel & leisure industries to name but a few. If part of the savings find their way also into equity investments, this will bode well for the broad European stock markets.

Disclaimer

• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : Eurostat