When we put together seasonality, which is typically very good in November and December, combined with neutral positioning by institutional investors and earnings estimates being revised higher, this creates a good backdrop for risk-taking. Cyclicals and high beta stocks continue to outperform defensives and low beta names, suggesting a continued drift and chase higher.

While the S&P 500 hit an all-time high, a significant percentage of stocks are down materially, pointing to a soft patch in economic activity and a benign growth environment. The hope lies in policy support in 2026 and more attractive valuations outside the big names.

It's difficult to predict returns based on breadth indicators. The AI mega-cap stocks dominate the S&P, and their earnings volatility makes predictions challenging. The market environment favors stock picking now.

Low quality stocks have led the market, reflecting strong risk appetite, but history shows these trades do not last forever. Speculative high beta and no-revenue companies have rallied sharply, fed by liquidity, but reversal risk exists.