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The most important charts and themes in markets and investing…
1) Reversal of Everything
The biggest secular trend of the last decade has been the complete and utter dominance of large-cap stocks in the US, led by seven large-cap stocks.
However, in 2025, we see a partial reversal of this condition with international shares recording their best performance since 1993.
Outperformance internationally has continued so far in 2026 and we have also seen outperformance in small-cap stocks ($IWM +4.2%), value stocks ($IWD +2.7%), and REITs ($VNQ +2.7%). Meanwhile the S&P 500 (-0.6%), growth stocks ($IWF -3.1%), and Mag 7 ($MAGS -4.7%) are all down on the year. It’s only 20 days into the year, but so far everything has been the opposite of everything.
The relative weakness of the Magnificent Seven over the past year has been offset by the strength of two of its members: Google and Nvidia. 5 of the 7 stocks in the Magnificent Seven have actually underperformed the S&P 500 since the start of 2025, a very different picture than in 2023-2024.
And Apple, long the world’s largest company, is now down 1% since the start of 2025. Nvidia and Google have surpassed Apple as the global market capitalization leaders.
2) A Labor Market with Low Hiring and Low Fire
This continues to be one of the most confusing labor markets in history.
There are currently many signs that indicate low hiring rates, including:
- The US added an average of 20K private sector jobs per month over the last 3 months of 2025 (ADP data), which is 90% lower than the last 3 months of 2024 (200K jobs/month).
- The US lost an average of 22K jobs per month over the last 3 months, the third month in a row with a negative 3-month moving average.
- The total number of jobs in the US increased by 0.4% over the past year, the slowest growth rate since March 2021.
- There are currently 685K more Unemployed than Job Openings in the US. Excluding the coronavirus recession in 2020, this is the widest spread we’ve seen since 2017.
While hiring has clearly slowed, we haven’t seen a spike in layoffs:
- The US Unemployment Rate at the end of this year was 4.4%, down from a revised 4.5% in November 2025 (previously 4.6%) and still well below the historical average of 5.7%. Year-on-year wage growth in 2025 reached 3.8%, well above expectations of a 3.6% increase.
- US Jobless Claims have fallen to their lowest level in 2 years, indicating fewer people are filing for unemployment insurance.
3) The CPI’s Big Lie
The big lie about the CPI: inflation in the US is at 2%. Anyone who’s lived in the real world for the last five years knows that the numbers are much higher than that.
The US Inflation Rate (CPI) at the end of 2025 was 2.7%, the 58th consecutive month above the Fed’s target level of 2%.
US Consumer Prices have increased at 4.5% per year over the last 5 years and have increased more than 24% in total.
US Producer Prices have increased 4.7% per year over the past 5 years and have increased more than 26% in total.
4) Powell’s Final Stand
The last time US inflation was this high was in 1997 when the Fed Funds Rate was above 5%.
Currently it is at the level of 3.50-3.75% after the Fed cut interest rates by 175 bps in 2024-2025.
However, it seems that this figure is not low enough. President Trump continues to call for “much lower” interest rates, hurling insult after insult at Jerome Powell…
And last week, US prosecutors confirmed they were investigating Jerome Powell over his testimony before Congress.
Jerome Powell has 3 meetings remaining as Fed Chair: January 28, March 18, and April 29.
Bond markets are now pricing in no rate cuts at the meeting, with the first cut in 2026 coming after Powell’s term as chairman ends in May.
I believe attacks on Powell will only increase, but the data does not justify additional easing.
Powell must be in control. This was his last attempt to maintain the Fed’s independence.
5) More Fares and More TACOs?
The S&P 500 fell 2.1% yesterday, its worst day since last October.
What is the reason for the decline?
Another tariff threat from President Trump, this time against 8 European countries (Denmark, Norway, Sweden, Finland, France, Germany, England and the Netherlands). If implemented, there will be an additional tax of 10% on top of the existing rate, which will start on February 1. And if there is no deal to buy Greenland by June 1, additional tariffs will rise to 25%.
Putting aside the absurdity of this situation, the question is whether this is just a bluff from President Trump as we saw time and time again in 2025.
Because if this really happens, then the TACO (“Trump Always Chickens Out”) trade will eventually occur again with a sell-off due to the news of the threat of tariffs and an increase after the threat is eliminated or eliminated.
But before that happens, we may have to see a deeper decline in the stock market (currently the S&P 500 is down just 3%) or a rise in Treasury bond yields (the 30-year has risen to 4.9%, the highest since last September).
Bosses at Polymarket only estimate a 20% chance of a Greenland acquisition before 2027. Why are the chances so low? Because Denmark and Greenland have expressed their strong opposition to the sale and President Trump needs congressional approval for the sale, which is a difficult thing to do. In a midterm election year where the number one issue is affordability, it seems doubtful that the American people and their representatives will support spending hundreds of billions or more on foreign acquisitions that provide no direct benefit to their daily lives.
6) Some Interesting Statistics…
a) Gas prices in the US have fallen to $2.91 per gallon, the lowest level since March 2021. The price is 43% below the highest price in June 2022 ($5.11/gallon).
b) The S&P 500 Dividend Yield ends in 2025 at 1.15%, the lowest level since 2000.
c) The S&P 500 has returned an average of 10% per year since 1928 despite an average annual drawdown of -16%. There is no gain without the occasional downturn, no reward without risk.
d) The average total return of the S&P 500 is 10% per year but the stock market has performed within 2% of that figure in 4 of the last 98 years.
e) The End of an Era…
$1 invested in the S&P 500 in 1964 = $455 today.
$1 invested in Berkshire in 1964 = $60,883 today.
And that’s all for this week. Thanks for reading!
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosure here.
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