TACO time (... again) !

January 26, 2026

Thoughts of the Week

The Americans love acronyms and last year they came up with TACO: Trump Always Chickens Out. This was dubbed after a severe sell-off in US financial assets caused panic among his administration and his voters, and he eventually had to back down from the extreme tariffs he had announced. At this point, I will make the bold prediction that this word will evolve into a commonly used verb in the immediate future, in the same sense that we google , we tweet, we xerox and once upon a time we hoovered.

So, last week Trump tacoed again. On Monday night and after a mini sell-off in the dollar, the treasuries and the equity market, he decided to remove the tariffs related to Greenland and publicly stated that military force is ruled out. This is a typical behavior of a bully. When bullies face weakness they continue their aggressiveness, but when someone stands up to them they usually run away. And in the case of the US, it is really easy to stand up if you are their largest creditor and one of the largest international owner of their financial assets (currency, equities and bonds). We are talking about Europe, of course.

The US is running a record fiscal deficit, which means that they need international capital to finance their government. And their President thinks that he can coerce and blackmail his largest creditors without any consequence. Well, a reminder of the "sell America" theme, which has already started since early last year, was sent to him last week. He surely realized that Europe, China and the rest could decide to go "nuclear". Or in other words to massively sell US assets, of which they have amassed trillions and can choke the US government from much needed money. The "Sell America" threat is big enough, that should put some limits to his (otherwise) uncontrollable arrogance and aggressiveness.

But damage has been done. The US is not anymore the trusted ally for Europe, not even Canada and for most Emerging Markets, with China the most prominent example. And the 2025 signs could evolve in a multi-year trend, in which case the, already happening, de-dollarization of international trade accelerates and international investors appetite for US assets diminishes.

What caught our attention

The US November PCE Deflator rose to 2.8%, as expected. This is the inflation metric that the FED targets to make decisions, although given the recent government shutdown, its latest reliability is put to a test. According to economists, there is a downward bias in this number as for the missing October data the calculation agency calculated the geometric average of the September and November CPI price levels, in order to come up with an estimation. In any event, with the PCE close to 3% vs a target of 2%, the FED is most probably not going to cut rates this week (Wednesday).

The Eurozone Composite PMI was unchanged at 51.5, albeit lower than expectations (51.9), as weaker services (primarily reflecting France) offset stronger manufacturing. The January PMI is the first data point for the first quarter and it now stands below the Q4 average of 52.3, which points to some easing in activity. However, we should note that future business expectations rose broadly and strongly (+3.7 to 61.1). As such, the details are more positive than the headline suggests.

Japanese bond yields spiked, as snap elections were called for early February. The new PM is pushing for significant government spending to boost the economy, at a time when the public debt of Japan is already very high. A few weeks earlier we had warned that Japan should be carefully watched during the first half of the year at least, as the once-in-a-generation change in inflation dynamics and rising interest rates can cause volatility in foreign exchange, bond markets and eventually equities.

The US Supreme court expressed skepticism on the US administration's push to remove Mrs. Cook from its FED governor position. As a reminder, President Trump tweeted that he wants the governor out immediately, because of alleged irregularities with respect to a mortgage she obtained before becoming a FED official. The supreme court's unwillingness to side with the government, until her case is tried in courts, is a very positive sign, especially now that the FED's Chairman is also under Trump's attack. The FED's independence is fundamental for international investors to maintain (what is left of) their trust to the US system.

Netflix and Intel lowered their guidance and shares sold off. Interestingly, Netflix beat estimates both on revenues and earnings, but provided lower guidance for its operating margin for 2026. As we have said numerous times lately, Tech-related companies' operating margins will be under the microscope this year because no matter what the revenue growth is, if cost growth has outpaced it, this will lead to lower earnings' growth. Intel was a different story, as it downgraded next quarter's revenue guidance, citing supply constraints as the reason. This week we are going to receive results from Apple, Microsoft and Meta Platforms, among others.

Global fund managers are the most bullish since July 2021, according to January's Bank of America survey. Growth optimism jumped and cash levels sunk to a record low 3.2%. BofA's Bull & Bear Indicator surged to a "hyper‑bull" 9.4, as investors held the least equity-correction protection since January 2018, according to the survey of 96 participants with $575 billion in assets under management. This is usually a contrarian indicator.

Markets' reaction

Global equities were under correction, despite Trump's U-turn. The S&P500 fell by 0.5% while Nasdaq (-0.1%) managed to outperform with a late-week rally in semiconductor names. Energy (+3%) and Materials (+2%) rallied further, while Financials (-2.5%) was the worst sector. Europe was down by 2% on average, as consumer discretionary (-2%) continued to be weak for a second week in a row. Healthcare (+1%) was the best performer, while Energy (+0.2%) also provided some protection, a sector we highlighted last week as a potential good addition to portfolios.

The bond market was volatile with yields ending the week marginally higher. The US 10yr yield rose to 4.30 but fell on Friday to 4.25%, to finish the week unchanged, while the German equivalent rose to 2.90%.

Precious metals continued to attract buyers and speculators. Gold is about to break 5000$ and Silver broke finally above 100$. Platinum was also strong, a whisker below 2800$.

The dollar sold off, as the "sell America" trade has hit the currency which was already in a downtrend since last year. The EURUSD traded as high as 1.1830, with the 1.1850 area representing a very important level. The USDCHF fell close to its record low (record high for the CHF) at 0.7800.

Chart of the week:

Technology continues to drive S&P500's EPS growth.

Ahead of the US Tech results coming up, we show in the above chart the expected profit (EPS) growth of the different sectors in the US, for Q4 2025. As can be clearly seen, Technology is expected to post a 25% rise while half of the rest sectors are expected to have negative growth and the other half a meagre 5-6%. Given the extreme weight of Technology and especially the mega-caps, the expected growth at the index level is a very respectable 8.5%. However, this extreme polarization shows that the future prospects of the S&P500 rely almost exclusively on Technology continuing to provide superior EPS growth. As we have said several times, the impact of huge capital spending without any pick up in revenues associated, coupled with depreciation charges rising could lead to operating margin erosion, and hence lower EPS growth for Technology in 2026. This would be the biggest negative surprise no one is talking about, yet.

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.

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• Sources: Chart of the Week : KSH /FactSet