Key Takeaways from Strategas Research Areas

Investment Strategy

Jason Trennert, Chairman, Chief Investment Strategist

• Current concerns about 2025 capex and hiring stem from trade policy uncertainty and the gap between the July passage of the One Big Beautiful Bill and next year when the bill’s stimulus will largely come into effect. These concerns (plus the government shutdown) have likely created an economic “soft patch” in 4Q25. Economic risks should moderate in 2026 as OBBB incentives for capital and consumer spending take hold. While we anticipate choppier market action in the wake of a Q4 soft patch, easier monetary policy and fiscal stimulus will likely keep us out of recession territory.
• The rally will likely continue unless the 10-year Treasury yield breaches 4.5% (a level at which the market has struggled).
• The market is expensive by several metrics, but we think strong corporate profits have digested these elevated multiples. For Q3, S&P 500 earnings per share were up 13.5% year over year with revenue at a robust +8% y/y. Historically, the economy tends not to get in too much trouble when earnings growth is roughly twice the rate of GDP.
• Consensus estimates for 2026 revenue and profit growth moved higher (to +6% and +14% y/y) from an already healthy outlook. We see positive follow-through from corporate activity next year, albeit at slightly lower levels; we are estimating S&P 500 operating EPS between $285 and $290 (+9% y/y) next year vs. the consensus estimate of $305 (+14% y/y).
• We continue to focus on five major themes: 1) Cash flow aristocrats, 2) Artificial intelligence, 3) Industrial power generation, 4) Deglobalization, and 5) a 2026 consumption wave from OBBB stimulus, the World Cup, and America250. 

Economics

Don Rissmiller, Chief Economist

• Growth. Timely U.S. data have already shown rolling weakness in housing and manufacturing. There is further downward pressure on activity in 2025 from the tariff shock and government shutdown in Q4. True, there is significant fiscal stimulus for consumers in the pipeline, but this is mainly a 2026 story. We are using a 35% chance of a U.S. recession, 50% soft landing, and 15% upside surprise in 2025. For 2026, our odds are a 20% chance recession, 60% soft landing/expansion, and 20% upside.

• Inflation. The 2022 wave of U.S. inflation now appears to be over (inflation expectations still look anchored). But history suggests that once inflation gets going, a second wave tends to build over the next several years (87% of the time, globally). We’re in the lull between waves thus far. Fortunately, supply chain problems related to tariff implementation have not been significant yet. Domestic rents also remain in a slowing trend.
• Policy. 2024 saw lower monetary policy rates, justified first by inflation coming down and reinforced by cracks in the employment situation. The Fed’s goal should be to get monetary policy back to a neutral setting, in our opinion. That requires several more rate cuts, but the FOMC does not appear to be in a rush in Q4. The lack of government data due to the shutdown may be causing some policymakers to move cautiously.

• Risks. The fiscal support that allowed prior growth have not been cost-free. The U.S. federal budget deficit remains large and while there’s no emergency, the deficit threatens to crowd out other economic activity (though this does not appear to be happening yet). Fixing this abruptly would risk an economic stop. Alternatively, inflation could return over time if inflation expectations become unanchored due to repeated shocks.
• Hope. Productivity (more output per hour) can conceptually help alleviate a second inflation wave. Too much money chasing too few goods can be stymied by producing more goods. While there is promise on this front from technological advances, we would like to see growth in profits of both the producers of new technology such as AI and the users of that technology at the same time.

Technical Strategy

Chris Verrone, Head of Macro And Technical Strategy

• The recent unwind in high beta stocks (i.e., higher growth/volatility) is rotational and more a reflection of crowded positioning and weak hands, rather than some ominous economic message. We of course hold this view (and all views) lightly, as we know the market can change its mind fast, but we don’t want to forget that the majority of global markets remain in uptrends, Bank stocks remain the leadership almost everywhere we look, and recent weakness has been more rotational than outright distributive—a positive sign in our book.
• After running hot for nearly 7 months, anything in the aforementioned “high beta” category has been hit over recent weeks…notably, the peak in the “beta” factor has rarely coincided with the peak in the market over the last 30+ years.
• 20-day lows are actually contracting for both Discretionary and Financials (neither sector getting worse the last two weeks), while new highs are expanding for both Healthcare and Energy, in step with the market’s rotational spirit. Among the more recent leadership stories, Healthcare is in the strongest technical position with internal trends continuing to improve and (like Energy) enjoying the advantage of a very low bar of expectations. 

• Within Tech, we distinguish between overbought/extended stocks correcting (e.g., Semis) and multi-month or even multi-year top formations (e.g., legacy Software). The implications for each are different. We’d be more open to buying oversold conditions for the former as they develop over the coming weeks/months.
• Bitcoin and Private Capital stocks are two blemishes – the extent both rely on a narrative and a healthy liquidity backdrop to work, their prolonged absence from right side of the tape remains noted.
  
  
• Commodities are firming, with the Bloomberg Commodity Index breaking out this week to multi-year highs on the back of Base Metals and Natural Gas. Notably, we’ve observed a bounty of “real economy” breakouts to our east – Chinese Aluminum and Steel stocks are flying, the Aussie Materials sector has broken out (along with Aussie short rates), and even the European Basic Resources group has turned positive in our model.

Equity Derivatives

Brandon Kobelt, Head of Equity Derivatives Research

• Nervousness has returned in equities, with the VIX above 20 and the VXN above 25, as the S&P 500 and Nasdaq 100 show weakness led by selloffs in the Mag 7 and AI-related names.
• With renewed nerves, volatility skew has steepened versus the extreme flatness seen before earnings season, signaling that the prior call-chasing exuberance has faded.
• Although most of the earnings season has been solid, many stocks have seen difficult price action after delivering strong results. Of the six Mag 7 that have reported, all beat both revenue and earnings (except Tesla), but Amazon is the only name with notable upside since reporting Q3 earnings.
• The current backdrop features Tech/AI weakness and an increasingly hawkish Fed tone on the prospect of a December rate cut. Major events to watch into year-end include Nvidia’s earnings on November 19, the December 5 jobs report, and the FOMC rate decision on December 10.
• Despite the nervousness, we would keep in mind that since April 21, 2025, the S&P 500 has gained about +30% with a max drawdown of only −3% as of this writing.