Will International Stocks Outperform U.S. Again in 2026?

Jeffrey Buchbinder (00:00):

<Silence> Hello everyone, and welcome to LPL Market Signals. Jeff Buchbinder here with my friend and colleague Kristian Kerr to talk international today. Kristian, how are you?

Kristian Kerr (00:11):

Very well, plenty of plenty of headlines to discuss here. So should be more than enough to talk about then.

Jeffrey Buchbinder (00:21):

Yes. Maybe we'll have to reserve a special podcast for just policy announcements this week. We can do that next week because boy is there a lot there. But we're going to focus on international and earning season. So here you see our agenda. It is Monday, January 12th, 2026 as we're recording this, solid week for stocks last week, despite all of these, what I call domestic and foreign policy, whirlwinds, <laugh>. And boy, there's a lot of it. Number two, can international equities lead again? Of course, they led in 2025, so we'll spend a good bit of time talking about that. And then next earnings preview. That's the topic of our Weekly Market Commentary for this week. Looks like there's a really good chance, I don't want to call it a lay, but a really good chance that earnings will grow double digits again and keep that streak going.

Jeffrey Buchbinder (01:17):

Then we'll close with a preview of the week ahead, and there are certainly some important economic data points in addition to a lot of earnings to follow this week in the financial sector. So we'll start with the recap here. I mean, I've got a list, I'm sure I left some things out here, but a list, Kristian, of all the policy news we got last week, right? We know we got the news in Venezuela. We know the president has told Fannie and Freddie to buy 200 200 billion mortgage backed securities. We have single family home restrictions, institutional asset managers. This is a threat anyway. Institutional asset managers may not be able to buy single family homes. We have a jobs report of course on Friday, and then we have the defense whipsaw, I call it. So you have initially it was reported that the defense companies wouldn't be able to issue dividends or do share buybacks, and that caused those stocks to drop. But then President Trump followed that up with his plans to try to increase defense spending by 50%. That impossible, I'll say. But certainly the arrow is pointing up on defense. So that's my list of all the news from last week. You may want to add to that.

Kristian Kerr (02:49):

Yeah, I'll throw in, credit card fee caps, the EPA uncertainty that was supposed to come out Friday. taking stakes in energy companies would be another one. Greenland obviously this morning or over the weekend, the news about kind of the DOJ investigation into some fed members, that's oh, and Iran as well, right? We've got that's kind of fallen the back burner. So, yeah, I mean, quite a few things to talk about and try to figure out kind of their impact on markets.

Jeffrey Buchbinder (03:27):

Yeah, I mean, clearly the market was fine with all that stuff last week, although some of these things came out after Friday's closed. But S&P 500 up 1.6%, the it was risk on, because the net the Russell 2000 was up almost 5% last week. The NASDAQ outperformed two up 1.9%. So call it risk on a little bit more a cyclical value type of week than a growth week. You see in consumer discretionary isn't, isn't the cyclical value part of it is and that led, but you had industrials up two and a half percent. You had materials up almost five. We've talked a lot about commodities in a, certainly a seemingly a cyclical bull market. And energy did pretty well. So is that market sniffing out stimulus that's coming soon? Kristian? Is it something else? I mean, the economy, the job support seems to be hanging in there pretty well.

Kristian Kerr (04:27):

Yeah, I mean, I mean, listen, the broadening out, I think it's something we've, we've been talking about maybe looking for. But yeah, no, I also wonder, just from a, there was a lot of, negativities surrounding the economy, I think, late last year coming in. This started this year, look at the data and it's holding up fairly well. So maybe that's part of this as well, is that, kind of the, the more negative expectations were perhaps a little bit too negative. And markets are kind of sniffing that out a little bit. I would think that's kind of been helped, been part of the driver of the cyclical rally. So yeah, I mean, I think there's a few ways we can look at it, but then, did, trying to parse through all these headlines and how that impacts, I mean, I think it's still very early days.

Kristian Kerr (05:15):

I try not to buy in too much into the first few weeks of tradings because you, there's a tendency to get moves in both directions at the beginning of the year. I think a lot of that is driven by the fact that, every institutional manager in the world just had their P&L reset to zero. So there tends to be a little bit more angst at the start of the year. And typically, I like to, give it a few weeks to kind of see where the real, the real trends are developing. But, certainly the broadening out that we're seeing is, is, is good to see, and we'll see if it has if it has legs, and it's not just kind of a first a first week of real trading kind of phenomenon. And there's something more to it.

Jeffrey Buchbinder (06:00):

Yeah. And a lot of people are going to ask about each of these policy announcements and, how much are they going to affect the market? Well, it's important to just look at the impact on earnings. So clearly, lower mortgage rates can help the housing market. So when you look at some of the winners last week, you see some, some housing names that makes sense. Clearly, if credit card lenders can't charge as much in late fees, they're not going to make as much money. That makes perfect sense, right? So that is an earnings impact, right? But some of these foreign policy announcements are risks are really not going to impact earnings for the S&P 500. So they're probably not going to be big market movers. Now, the Fed independence challenges, add that to the list, right? The, the charge, I guess, or it's actually not, not even charges, it's, it's just an inquiry or an investigation, I guess, into Fed Chair Powell that he made some misleading remarks about the renovation of the headquarters. I think it's all just kind of noise, but we did see precious metals rally on that, Kristian. So maybe I'll go to the next page and we'll see the precious metals index was up 5.8% over the last five days. That is a big move. Clearly concerns about the Fed are going to help precious metals thoughts there.

Kristian Kerr (07:25):

Yeah, I mean, listen, the silver went to new all time highs today, kind of, I think on, at least seemingly on the back of that investigation used, knows some dollar weakness in a response as well. I mean, I think, here's the thing with a lot of this stuff, markets have gotten very short term oriented over the last few years and, and kind of, I think a lot of these things are quite important. The one I'll talk about a lot, the spec to metals is what happened with the, the Russia invasion of Ukraine. If you looked at it from a short term lens, it didn't matter. And then clearly, since that happened, we saw dramatic changes in the gold market with respect to, eastern hemisphere, central banks, basically needing to find other reserves.

Kristian Kerr (08:11):

So I think, with a lot of this stuff, you have to think, okay, is it a near term impact or is it a long-term impact?, I think if we were to see something change materially with Iran with what happened last week in Latin America, I mean, these are things that could have long-term impacts that I think eventually could impact earnings. we're seeing it with some of the, the mining stocks with what's going on with the gold market. You trace that back theoretically to what, what happened, in the Ukraine in 2022. So, I think there is kind of a timeframe aspect to this that we do have to think about. These things are important. It's just will the market trade on it immediately, or is it kind of more of a multi quarter, even potentially multi-year type of impact? And that's, that's really, really the, the caution that I would throw out there sometimes, is we want to dismiss some of these things and not being significant, and they can have kind of knock on effects that will that, that will impact markets over time.

Jeffrey Buchbinder (09:07):

Yeah. And certainly if U.S. energy companies can operate in Venezuela freely and comfortably, and they can triple their oil production over there, that's very meaningfully economically, right? So yep, it'll take years to get there. But that is a, obviously a not just a geopolitical risk, that's sort of a theoretical risk. It is, it's a real fundamental, it could have a real fundamental impact over time. In fact, we certainly hope it does. Maybe you could see something similar in Iran, but there we're talking about years again or longer. So let's keep moving here as your S&P 500 chart, Kristian and I mean, I don't know if it's too early to call it a breakout, but I mean, we're holding up pretty well in trading today on Monday. So I mean, do you think we've seen enough to call this a breakout, or do we have to maybe stay above it for a couple more days?

Kristian Kerr (10:07):

Yeah, I mean, I think we've, that 7,000 levels really kind of a psychological kind of number that we're watching. It's just above, technically where the breakout point is. But I think that's probably the level you want to see us get traction over to get, to get more excited about kind of a more impulsive move higher. I'd also say, if you look at other indexes like the, the Nasdaq or the NDX and NASDAQ 100, it's still kind of in that consolidation triangle type thing. You'd want to see that kind of, joining, joining into that move, assuming we do get through 7,000, that said, I know a lot of technicians are excited about kind of the Dow theory trigger that we got last week. So, Dow making new highs transports confirming that as well.

Kristian Kerr (10:53):

So there's, there's a few positives going on here, but you,, for me, just specifically on the S&P, yeah, I'd want to see us kind of get a sustained leg, above 7,000 to get, to get more excited about something more impulsive here to the upside. Again, I tend to be a little more cautious around the start of the year because, because I know there's a propensity to have a few moves both ways. So if we can get through there, kind of right out the gates and kind of stay above there, I think that's really technically positive. Something that I think most technicians are probably looking for here.

Jeffrey Buchbinder (11:27):

Yeah. As we're recording this chart, I priced this this morning and we are down a little bit, 6974 is where we're trading right now. So that is not far <laugh> from the 7,000 levels that'll be an important technical test. That's a good point. But certainly you got to, you got to break through these recent highs first, and we're in the process, hopefully of doing that. All right, let's turn to international. And I think this is a question that a lot of you're asking because international did so well last year. And Kristian, as, these, these things tend to go in long cycles. This is just 2025 performance of some international benchmarks against the S&P 500. But as you'll see in a bit, when you have, I mean, this trend of international underperforming has been going on for quite some time.

Kristian Kerr (12:23):

Oh, yeah, yeah. I just want to show here, how, how stark the outperformance was last year. just taking kind of some of the, the, the key benchmarks. So, MSCI basically all world ex U.S. Ethos, so developed markets emerging markets, and, they were, they were up, up towards, 30 plus percent versus the, the U.S. had a, had a great year, up around 18. The S&P was so, it was just a, it was a good reminder that, I think going in the last year, probably the most consensus trade on the planet was that the U.S. would, would outperform just given that we were in, years of doing so.

Kristian Kerr (13:07):

And a reminder from an asset allocation perspective, why you have international in portfolios, because you can't get years like that where they can kind of help, with, with giving you some, some other kind of return stream. So just, an important aspect, from an asset allocation perspective that this's not uncommon to get this, it's just, we've been in a very kind of unique period I think post pandemic and probably even going back to, as far back as just after the GFC really. And we'll talk a little bit about, about that. But if you want to go to the next chart, Jeff, the, I think this shows what kind of you were, you were alluding to.

Kristian Kerr (13:48):

So this goes back to 2014, and I'll talk about why that's significant, but, think of it in over the last 12 years. So this is basically a chart of MSCI world ex U.S. versus the S&P 500. So, when this chart's moving down, it means international broadly is underperforming the U.S. and there's really, in the last 12 years, there was, last year there was 2017, and there was 2022 where, where, where we saw international outperform. So, if you talk to kind of old hands in the market, they would, they would say, kind of what you were suggesting is that when you get a period of international performance after a long period where, where they've struggled to keep up with the U.S. you tend to get kind of more than a one year move.

Kristian Kerr (14:35):

That hasn't really been the case over the last 12 years. We have been getting these kind of one-offs. And, I think the main reason for that is, is the U.S. dollar. I think that's really the significant, piece to the puzzle here as to whether we're going to get, a multi-year period of outperformance international or not. And I think we go to the next chart, Jeff. It's like the, that's really what I, what I'm trying to highlight is, so that's that same chart versus, versus the U.S. dollar index. The U.S. dollar index is a, basically a basket of, the dollar against several developed market currencies. But it gives you a good idea of, what the dollar's doing. And again, the reason why I chose that 2014 period is you can say, the dollar really bottomed in 2011 post GFC, but really started, started to get going in 2014, had kind of a secondary low and really started to move up.

Kristian Kerr (15:30):

You can see that kind of on the left side of this chart where we had kind of that big impulsive move higher on the dollar, and what happened that kind of kicked off this trend of international underperforming versus the U.S. And I was talking about kind of on the last chart where it was 2017, 2022 and last year what really drove that, well, 2017 was kind of that countertrend decline in the dollar at the start of this, at the start of this multi-year up trend. So kind of had that first move down from that. And, lo and behold, that coincided with international performing the U.S. that year. But we were in the midst of a longer term bull market in the dollar cyclical bull market. And as that kind of restarted to the upside, again, we, we saw it only be kind of a one year aberration and 2022, a lot of people might say, well, that was, that shows, or that, the dollar was pretty strong that year, and how come, how come the, international equities were able to outperform?

Kristian Kerr (16:27):

But really, if you kind of look in close to 2022, that's where the dollar kind of really peaked out. And that was, so far the high of the cycle, but we had kind of dramatic weakness towards the end of the year. Remember that's where the, that fall, that's when the S&P bottomed equity indexes around the world bottomed, really you could say driven by, the fed through their tightening policy, start to break things. we saw kind of interest rate crisis of, of some sort within, within the U.K. and that kind of forced the Fed to start backing off at least in terms of guidance on, in their policy. But we saw kind of dramatic weakness in the, in the dollar towards the end of that year.

Kristian Kerr (17:08):

And that's really what helped propel that modest outperformance by the end of the year from international. And last year, obviously we had the kind of the worst first half in the dollar index since the 1970s. And if you look, if you look closely on that chart, the international performance that we got came really in the first half of the last year and kind of went sideways for most of the second half of the year. So we're really driven by that, by that dollar weakness. So really what I'm trying to, show here is that if we're going to get kind of a multi-year move or outperformance from international equities versus us, it's probably going to hinge a lot on whether, on whether the dollar is, is entering kind of a cyclical bear market. And we'll talk about some pasts of that, but, I thought it'd be good to maybe look at the dollar index here and kind of where we are to try to answer that question.

Kristian Kerr (17:57):

So this, so this next chart kind of shows that long term trend channel in the dollar. So this is the, basically the upcycle that we've been in since 2011. really, like I said on the last chart, really started to get going in 2014. And, it's been a pretty steady move. Higher, some, some back and forth some backflow along the way. But, this you can argue is why we've seen kind of this U.S. exceptionalism trade, pan out. And if you look at where we are now, and we've kind of been, up against these levels for, the better part of a year is we've kind of testing that long-term trend channel. And I think if we're to see this break definitively, that would be the case or that would be kind of the catalyst to argue that, hey, we could be entering a period of more pronounced international performance within equities versus the U.S.

Kristian Kerr (18:55):

Because you would start to have that bear market, that dollar bear market kind of tailwind which, which would help kind of see that potential outperformance. So we're up against a pretty critical threshold. That green line on this chart is the it's the 40 week moving average is a weekly chart, but basically a two day, roughly equivalent with on the, on the weekly. And we actually last week managed to close above it, came off this morning with some of that news that we got. So we're kind of at, at big levels in terms of whether we're, we're finding a bottom against this big support or whether we're going to go challenge it. And, like the chart shows we actually went through that big support last year and then came right back.

Kristian Kerr (19:35):

So, the more times you test the level, the higher the chances of you breaking it. So I think we're really, really critical, critical points here. probably want to see us get back over kind of 101 in the dollar index to suggest that we've maybe found lows up against this support. every time we've gotten back up, the 101 area the market's sold off. So I think that's a pretty clear key level. And I would say, right around 97 in the, in the dollar index around those old lows, 9697, you see us take that out then that would argue that we're starting to see a more material breakdown in the dollar which, which would point to more potential international performance in the in the, in the year and possibly years ahead.

Kristian Kerr (20:17):

And kind of to, to show kind of my point here, this next chart is the I took the dollar versus MSCI world ex U.S. versus the S&P going basically in the 2000, the 2008 timeframe. And really the important area to watch is like 2002. And essentially what we saw here is kind of in the late nineties, early two thousands, we had a, we had a very kind of similar situation. You can make the case, we had kind of a dotcom, tech driven bull market, most, we consider it a mania, but you had a lot of money flowing in the U.S. you saw the dollar moving higher. And then when that broke and similarly, that broke a very, a very kind of important trend line. In 2002, we started to see the dollar enter a cyclical bear market that lasted about six years.

Kristian Kerr (21:04):

And when that happened, see on the chart in 2002, that really started a six year period of the rest of the world outperforming, outperforming the U.S. And I think that's really what we need to see here. If, if we are going to get this multi-year move that I think a lot of people are looking for, and then I think we've been missing is, is that dollar component of it. And, that's I think what's been very different going back to 2014, is that, we've been in a very, very clear cyclical bull market in the dollar. So, in order for that to change, I think you need to see some, some dollar weakness start to manifest itself. And again, we're at pretty critical levels, but we were to see us break down 96, you could start bringing in the potential.

Kristian Kerr (21:47):

We get something along the lines of 2002 to 2008, where, where it's a, it's a period where you're going to get that dollar weakness being a tailwind for international equity, something I'm watching very closely and just wanted to flag, here at the start of the year, because I know it is kind of one of the more important questions investors have been having as we as we start 2026, is whether this this trend that we saw last year is going to just be a one year aberration, or is it really the start of something more significant? So, keep very close eyes on the on the dollar here is, I think that will help us answer that question in the in the weeks and months ahead.

Jeffrey Buchbinder (22:26):

So Kristian, I get that it's technical where you want to watch that support level, but are there certain policy developments or frankly, anything else that you think has the potential maybe fundamentally yeah, to drop the dollar by five 10%, which could, cause a repeat of the international out performance that we saw in 2025?

Kristian Kerr (22:52):

Yeah, I mean, I think, I think few things, yeah, I mean, I think what, we came in this morning and saw the dollar kind of on the, on the back foot on some of this news. kind of the question I think a lot of investors have is kind of what we're seeing with some of these policy initiatives is that bring about a, sell the U.S. trade just kind of a kind of a maybe trying to do too many things from a policy perspective that sees kind of maybe people lose a little bit of confidence in the dollar. I think that's, that's definitely kind of a big one just given all the, all the policy headlines that we've been seeing over the, the past week or so.

Kristian Kerr (23:28):

That would be the, the clearest one to me. But then, really foreign exchange is driven a lot by interest rate differentials. If you look at some of the, some of the currencies like, the Australian dollar for example, markets there are, are expecting, the RBA to start hiking fairly aggressive here this year. So you start getting a big spread in terms of interest rate differentials between the rest of the world and the us. that'd be another thing to watch closely here. markets are starting to price that in a little bit. So that would be a, that'd be another thing too to be looking about looking for. And then lastly, growth. If we were to see kind of growth materially pick up in the rest of the world, I think that would be another, fundamental rationale for why you would expect the, the dollar to come under a little bit of pressure.

Kristian Kerr (24:16):

because It really has been the U.S. kind of, leading things over the last decade or so. So if you start seeing the rest of the world kind of take over that mantle, that's kind of your classic, dollar bear market rest of the world currency, bull market type scenario. So, those are things I'm thinking of. But, it's first and foremost technical, the narratives will come, but if we do see the, the price action, that would be, that would really bring my focus to this idea that we could get kind of a multi-year move in out performance of international equities versus, versus the U.S. is something that I'm very closely watching because I think we're at, we're at levels one way or another.

Kristian Kerr (25:01):

Then again, it could go the other way. say the dollar does turn around here, there's plenty of, if a lot of the things that the administration is trying to do that could, that could see a lot of capital flow in the U.S., That's ultimately what drives FX rates is, is more and money moving into that region versus another one. That's, that's kind of what creates demand for the currency. So, if some of these initiatives are successful, you could see a lot of money coming into the United States that could be a very clear, bullish catalyst for the dollar as well. So, from my standpoint, let the price action dictate and then, and then, and then we can figure out what the, what that narrative ends up being. But kind of where I'm at right now,

Jeffrey Buchbinder (25:43):

Yeah, certainly the pace of AI adoption and, how much enthusiasm we get for the AI rollout in the U.S. That'll be a factor as well. So a lot to watch there. One, one last thing though, I'll add it's not true for em, but EFA developed international equities, has very little tech. So another way that international can outperform is if U.S. Tech does not do well, that's not our expectation, but that is a big a big delta there. I think the MSCI EFA index weight in tech is somewhere around 7% in the S&P 500. It's about 34 <laugh>. So big difference. Big difference. So tech really matters in this, in this race as well. Yeah,

Kristian Kerr (26:35):

So in Jeff, like, that's kind of what kicked off things in, that 2002, 2008 timeframe, it was, we'd gotten the term lower, the, the.com bubble had burst. So, that's really what, what helped kind of reverse those, reverse those flows in oh two. so something that, again, another, I don't necessarily, that's not our view, but, if you're looking at possibilities here, what could change things certainly, and that, and that had a big impact on markets in general. it wasn't just about international, it was, it was, value did very well during that timeframe. It kind of changed the dynamic of the markets. We went from very, very high growth focus to more value focused commodity.

Kristian Kerr (27:21):

Commodity sectors did very, very well. things like materials did, did very well in that timeframe. And you saw kind of tech become a lower part of the S&P 500 more commodity sensitive names became a bigger part, saw big move in an oil services during that time, for example. So it has the chance if this were to happen, it could, it could dramatically change the complex a little bit versus what we've gotten used to over the last, call it 10, 12 years.

Jeffrey Buchbinder (27:52):

Yeah. Something to watch for strategic investors. Yes, right? That's maybe not a call you'd make for this year, but there is a lot of rotation possibility here for sure as this AI build out progresses. So thanks for that Kristian, really interesting stuff. I know a question a lot of you're asking, it's rebalancing time or for some of you anyway, so see, international does so well, a lot of, you're very light there after the underperformance for so many years, so maybe a good time to reassess that exposure. So turning to earnings again, this is the topic of our weekly market commentary. I think the main headline is that the double digit earnings growth streak's going to continue in all likelihood. Consensus is 8% right now, and based on recent history, it looks like even 13, 14% is very realistic.

Jeffrey Buchbinder (28:51):

In fact, last quarter companies beat by seven points. The average over the last couple years is right around there. It's even a little bit higher. So there's really no reason to worry. We don't think about some sort of economic inflection point. The economy is doing fine. I mean, we know Q3 GDP was excellent and generally speaking, the data suggests it's been maybe a very gradual slowdown, but still steady growth. You've got a weak dollar. Speaking of the dollar, again, that's a tailwind for earnings. And then you have this massive AI investment that we know didn't just all of a sudden stop in Q4. In fact, it's been, it's been accelerating, if anything. So you got this, these really big tailwinds, we don't even have stimulus really affecting this yet. From the one big beautiful bill act, which is going to be, several well close to 300 billion of stimulus in 2026 that's coming for Q1, 2, 3, 4.

Jeffrey Buchbinder (29:56):

But just looking at Q4 of last year it's really hard to envision anything worse than low teens. Here's the MAG seven earnings growth estimate for Q4, it is 19%. So, it could potentially quadruple the rest of the market. The Mag seven has been blowing away estimates now for many quarters. So you're probably going to get something in the high twenties here when all the numbers are in. And, the 5% that the rest of the market is expected to do, probably could get close to 10 when you factor in upside, but there's still going to be a pretty big gap. So for those thinking that this should be the year of value, because this gap is going to close, we're not quite there. That's something we're watching but we think it's too early to, to overweight value here in anticipation of a narrowing rings gap between the mag seven and the 4 93.

Jeffrey Buchbinder (30:53):

But still, these are really strong growth numbers from most of the market, frankly by the way, the tech sector alone is going to be probably like 89, 80 5% of the earnings growth in the quarter. It's really unbelievable how much impact that has. Here's your profit margin charts just going up and up and up. The fact that corporate America has been able to grow margins, expand margins despite tariffs is really impressive. And so if margins were up in Q3, we think there's a good chance they'll be up in Q4. And then once all these tariffs are digested, or at least we think they will be, then it'll be even easier to push margins higher. So, and this doesn't even really include much of a margin benefit from productivity due to AI investment. We don't really have a ton of that just yet. That's going to be a very long term trend.

Jeffrey Buchbinder (31:50):

But I mean, a little bit of a tailwind in 2026. So we have a lot of confidence that we're going to see more margin expansion ahead, and that actually is one of the reasons why our earnings estimates for 2026 are probably a little conservative. So Kristian, as, there's a, it's kind of a tradition here at LPR research that we put out our annual outlook, and then within a month or two <laugh>, there's something that's not quite right. So here I would say that our earnings forecast, which I felt pretty good about, like the whole team probably felt pretty good about when we put it, put it out there. But then as you see in this chart, this shows you consensus estimates for 2026 the top line and consensus assessments for 2025 on the bottom. Look, look what's happened over the last few months.

Jeffrey Buchbinder (32:36):

That 2026 estimate has just keep, it just kept climbing and climbing. So, it was more in the low three hundreds when we put our earnings estimate out there of two 90. Now it's 309. And increasingly again, as the AI investment gains steam we may be a little low. So I like the idea of having a bit of a cushion in case something goes wrong. And we certainly have seen against so many policy changes. Some of them are earnings negative if they happen, it's nice to be a little bit below the street to have to have cushion against some risks. So 290 and 2026 seems very reasonable. That's high single digits consensus is more in the mid-teens. That seems a little bit rich. But if you're, if you're growing if you're spending as much as companies seem to be spending on AI and that starts to bear fruit in 2026, Kristian, maybe, maybe low to mid-teens earnings growth this year is possible, what do you think stimulus is helping?

Kristian Kerr (33:44):

Yeah, for sure. I mean, listen, and we kind of go through this, yeah, I look at it more on a quarterly basis, but every quarter it seems, the street's always a little bit light on, on, what these companies are going to do. And I think that's been a big, a big driver of the moves we've been seeing since at least the lows in 22. So, it, a lot of it makes, it makes sense to me. I think where it gets where it gets challenging is when you get the hurdle gets to be very, very high, right? Like, that's typically, I view it more from like a behavioral aspect. You start getting really, really high hurdles. Then, then it's, you're kind of due for maybe having a period where kind of market's got a bit too optimistic. But right now everything seems fairly reasonable. And if anything, I think the, the hurdles are too low at the moment. So, I think a lot of what you say makes, makes sense here, Jeff.

Jeffrey Buchbinder (34:37):

Yeah. And remember that earnings estimates tend to come down about 10% from where they're first published. Yeah. Which, happens about 18 months in advance. And then once you get into the calendar year, so obviously we're in 2026, we're not reporting earnings for any of 2026 yet, but we're in 2026. The average reduction in estimates is somewhere around 5% in the calendar year. So, if you take 15 bucks off of this somewhere in the mid two nineties, that's not too far away from where we are. So we think that's where you should be thinking about right now as a potential earnings number. And again, the stimulus from the one big beautiful bill act is big. It's like 130 billion in consumer tax cuts and other savings for consumers. It's a little bit more than that. Something like 40 billion in business tax incentives.

Jeffrey Buchbinder (35:34):

So that's going to flow through to earnings. It's one of the reasons why we put industrials on our shopping list. We think the industrial sector is going to be a really interesting sector to watch this year as that stimulus starts to come through. And even though the job market's slowing, and we've been a little bit cautious on consumer discretionary, those tax savings numbers are pretty big. So watch that sector maybe it's closer to an overweight than an underweight but we're still neutral consumer discretionary. So those are two sectors to watch. In addition to tech, which you always have to have to watch. It's just such a big part of the market. So we start off with the banks this week. JP Morgan Tuesday is a biggie. And then gosh, another 11 S&P 500 names in the financial sector reporting this week. So it's a big week for earnings. In addition we get the CPI and retail sales. So any thoughts on those data points here, Kristian?

Kristian Kerr (36:38):

Yeah, CPIs probably the, the big one for me this week is after the wild number we got last month I think the market's going to want to see, if there's any sort of normalization in that. So I think that's big and, and quite frankly, I think all the other things that we talked about, kind of these, these policy initiatives are going to be what, what drives it. But certainly tomorrow our, yeah, tomorrow's inflation number is going to be going to be probably the fundamental macro event of the week in my mind.

Jeffrey Buchbinder (37:13):

Yeah, there's some wonkiness to the, I guess the data collection over the last couple of months. So yes, there, there might be some noise in that number, so maybe don't, if it is a touch hot. I mean, frankly, based on a lot of the other data we've seen, we do think we're in a period where there's just a little bit more inflation than, than, than we want to see. So maybe that'll come through in that number hard to say. But it's, it's really going to be, January, February CPI numbers will before you sort of have a pure number, I think. And, retail sales is, it's the holiday getting closer to the holiday shopping season, right? So that's going to take on some importance. We've already seen, I guess a couple of pre announcements from retailers. They'll probably be more but all indications are that we had a decent holiday shopping season in terms of overall sales, kind of up in the neighborhood of 4% year over year.

Jeffrey Buchbinder (38:11):

So again, not, not necessarily a reason to recommend buying consumer discretionary names right now, but you've got the stimulus coming and holiday shopping was, was okay. So that is what we're watching for the week ahead, although I'm sure there'll be more policy surprises, that seems to be the trend <laugh>. So buckle your seat belts, but at this point we have not seen reasons to change our asset allocation from where it started the year. So thanks Kristian for the great comments on international and the dollar. Really important to watch those currencies when you're talking about international investing. And then again, weekly market commentary on LPL.com on earning season preview which should be a good season. It's hard to know whether the stock market's going to really react to it, but should be solid numbers from corporate America again. So with that we'll go ahead and stop. Thanks everybody for listening, as always, to another edition of LPL Market Signals, and we will be back with you next week. See you then and take care. See you next time.