Weekly Research Briefing: Mostly Green Except for the Occasional Velociraptor

@RenMacLLC: The "breadth bear" case is impaired. S&P 500 Equal Weight hitting fresh highs confirms this isn't just a mega-cap story. When the average stock participates, the floor rises.

@EarningsScout: 3Q 2025 S&P 500 officially ended last night. All 500 co's have released results for either their August, September or October quarter ends. Here are the updated scorecards. EPS growth was +10.56% on +8.55% sales growth. Rock solid.

Turning it up to $300+. Ben Snider raises our 2026 S&P 500 EPS forecast by 9% to $305 against a backdrop of solid GDP growth, a weaker dollar, and alongside GS equity analyst forecasts for continued earnings strength among the largest technology stocks, as laid out in "US Equity Views: Economic acceleration and AI adoption should support solid S&P 500 EPS growth in 2026 and 2027." Focus on: revenue growth of 7% and margin expansion of 70 bp. And for 2027, we now forecast a further 10% increase in earnings to $336/share.

What's under the earnings hood? Mega-cap Tech should contribute a bit less to earnings growth in 2026 than it did this year. But AI-driven productivity gains will permeate across the S&P 500, lifting S&P 500 EPS by 0.4% in 2026 and 1.5% in 2027.

“Everyone around the table at the FOMC agrees that inflation is too high and we want it to come down, and agrees that the labor market has softened and that there is further risk. Everyone agrees on that. Where the difference is, is how do you weight those risks and what does your forecast look like and where do -- ultimately, where do you think the bigger risk is?” – Fed Chair Jerome Powell

@lisaabramowicz1: Yield curves are steepening in the US as traders price in more rate cuts, with the gap between 2 and 10-year yields widening to the most since April.

“And so we had thought that our charge-offs this year would come in around 3.6% for credit card...In fact, as I said, we’re actually expecting charge-offs now to be about 3.3%, a combination of a better macro-environment but also the fact that we are, you know, clearer about the impact of delayed charge-offs and feeling pretty good about the underlying financial health of the borrowers in our portfolio, which means if you look forward, just think about that as the starting point is call it shifted lower 30 basis points.” – JPMorgan Chase & Co Head of Strategic Growth Marianne Lake

“We haven’t seen anything at this point that would lead us to believe that there’s any sort of credit cycle or any softening. We watch it very, very carefully.” – American Express CEO Stephen Squeri

Plans to buy a New Vehicle decreased to 39% vs. 43% in December 2024. It is down significantly from the recent peak of 45% in July and is lower than four previous Decembers.

@lisaabramowicz1: The quits rate in October's JOLTS report came in at 1.8%, the lowest since May 2020. While the number of job openings increased, it seems that workers don't have much confidence to leave behind steady employment.

@LizAnnSonders: December Empire Manufacturing Index down to -3.9 vs. +10 est. & +18.7 prior; new orders 0 vs. +15.9 prior; shipments -5.7 vs. +16.8 prior; avg. workweek +3.5 vs. +7.7 prior; prices paid +37.6 vs. +49 prior; 6m expectations +35.7 vs. +19.1 prior; employment +7.3 vs. +6.6 prior

While Apollo has also judged AI as a potential opportunity for software companies, the group’s top leadership has decided to actively cut its exposure, believing that it should not be making directional industry bets.

“Technology change is going to cause massive dislocation in the credit market,” said Marc Rowan at a recent conference. “I don’t know whether that’s going to be enterprise software, which could […] benefit or be destroyed by this. As a lender, I’m not sure I want to be there to find out.”

Apollo has been rapidly cutting its lending commitments to the sector as a means of trimming risk through the course of the year.

Apollo entered 2025 with many of its private credit funds holding roughly 20 per cent exposure to software groups, but has cut that concentration by almost half, Rowan told some investors in private meetings at a Goldman Sachs conference on Wednesday, said a source who attended.

Apollo’s goal is to soon have its overall software exposure in its credit funds dip below 10 per cent of their net assets, Rowan told the investors. Internally, it has reviewed software companies to assess their potential risks from AI.

“In the last quarter, we handed over close to 400 megawatts of data center capacity to our customers. We also delivered 50% more GPU capacity this quarter than Q1...In terms of the results for Q2, we had another excellent quarter of execution. Remaining performance obligations, or RPO, ended the quarter at $523.3 billion, up 433% from last year and up $68 billion since the end of August, driven by contracts signed with Meta, NVIDIA and others as we continue to diversify our customer backlog...We now expect fiscal 2026 CapEx will be about $15 billion higher than we forecasted after Q1.” – Oracle EVP Douglas Kehring

After five decades of selling enterprise software, Oracle has amassed a lot of very large customers. But never before has the company’s fate hinged so closely on just one.

A lot has happened in the three months since the world learned of Oracle’s deal to provide $300 billion worth of artificial-intelligence computing services to OpenAI. That was just one in a string of expensive deals signed by the ChatGPT parent, which currently generates less than $20 billion in annual revenue…

The biggest surprise turned out to be the wrong kind. Oracle spent a record $12 billion in capital expenditures in the November-ended quarter, which was far higher than the $8.4 billion Wall Street was expecting. It also boosted its full-year capital-expenditure forecast from $35 billion to $50 billion. Oracle’s downtrodden stock lost another 12% in after-hours trading Wednesday.

An annual capex bill of $50 billion might seem light relative to what some of the other big tech companies are sending out the door. But that equates to 75% of Oracle’s projected revenue for the current fiscal year, a staggering amount considering that capex has averaged about 17% of annual revenue over the past five years.

Despite being a small part of the economy, the AI data center build-out has quietly become a key driver of growth this year. While many households have not felt this boom directly, they are likely to feel its knock-on effects, particularly in their utility bills.

As the chart shows, electricity inflation tracked CPI over the past decade, but in the last five years it has accelerated ahead. This shift reflects a surge in demand, driven partly by broader electrification but increasingly by power-hungry AI infrastructure. Data centers have existed for years, but AI facilities are far more energy-intensive: a single AI search can consume around 10 times more energy than a basic web search. After growing about 0.5% annually over the two decades through 2020, conservative estimates project that electricity demand will grow more than thrice as fast this decade. On the supply side, although the administration has declared an “energy emergency,” paving the way for more fossil fuels and even nuclear power plants, these projects will take time to come online.

Meanwhile, consumers could face higher near-term inflation as there’s a risk of a repeat of what auto insurance did in 2023-24: despite its modest weight, it became a sticky source of inflation. Electricity has a similar weight and, like auto insurance, is subject to regulatory pass-throughs that allow higher costs to be passed on to consumers.

The competitive positioning among leading model developers has shifted notably over the past year. Although OpenAI's GPT models had historically led most public benchmarks, LMArena data indicates that Google's Gemini surpassed GPT earlier this year, reflecting how incremental architectural changes and data improvements can meaningfully influence rankings even within a single release cycle (Exhibit 6). As LMArena aggregates large-scale, head-to-head human evaluations across thousands of prompts, we believe movement at the top of its leader board is a reliable signal of model usefulness and popularity among consumers.

“When people say that whether AI is an opportunity to drive significant increases in efficiency and what it’s going to do potentially to headcount. It is extremely significant. And anyone who doesn’t say that is just either doesn’t know what they’re talking about, most people do, but they’re afraid to say it. because no one wants to stand up and say that we should have -- we’re going to have lower headcount in the future. It’s a difficult thing to say. Now it doesn’t mean that it’s going to happen next year, and it doesn’t mean that it’s going to happen in every area of the company, right?” – Wells Fargo & Company CEO Charles Scharf

@KevRGordon: Time's people of the year are the architects of AI

Alan Greenspan’s phrase, mentioned earlier, serves as an excellent way to sum up a stock market bubble: “irrational exuberance.” There is no doubt that investors are applying exuberance with regard to AI. The question is whether it’s irrational. Given the vast potential of AI but also the large number of enormous unknowns, I think virtually no one can say for sure. We can theorize about whether the current enthusiasm is excessive, but we won’t know until years from now whether it was. Bubbles are best identified in retrospect.

While the parallels to past bubbles are inescapable, believers in the technology will argue that “this time it’s different.” Those four words are heard in virtually every bubble, explaining why the present situation isn’t a bubble, unlike the analogous prior ones. On the other hand, Sir John Templeton, who in 1987 drew my attention to those four words, was quick to point out that 20% of the time things really are different. But on the third hand, it must be borne in mind that behavior based on the belief that it’s different is what causes it to not be different!

Today’s situation calls to mind a comment attributed to American economist Stuart Chase about faith. I believe it’s also applicable to AI (as well as to gold and cryptocurrencies):
"For those who believe, no proof is necessary. For those who don't believe, no proof is possible"…

Since no one can say definitively whether this is a bubble, I’d advise that no one should go all-in without acknowledging that they face the risk of ruin if things go badly. But by the same token, no one should stay all-out and risk missing out on one of the great technological steps forward. A moderate position, applied with selectivity and prudence, seems like the best approach.

Investors that have lived through the 2008 Global Financial Crisis and the late 90s tech bubble are programmed to be wary of industries with high growth. This sensitivity was exploited by the media which has had a negative bias on the Alt managers. However, private credit is not a black box and the underlying credit trends in the public and private BDCs remain solid while the two large corporate defaults (First Brands, Tricolor) were bank-originated (not asset manager) and HPS’s default was fueled by fraud in the non-sponsored market. We remind investors that private credit LTVs are low, spreads are rich, and these portfolios are generally overweight sponsored deals and non-cyclical industries.

Switzerland is heading for a record year for mergers and acquisitions, with deals spanning industries despite a surging franc that has made its companies some of the most expensive targets in Europe.

New data shows that Swiss groups have been involved in M&A activity worth more than $163bn so far in 2025. Deals targeting Swiss companies also hit their highest level since 2018.

“It was a very good year, and with some significant deals being announced,” said Olof Engelbrekts, head of investment banking for Switzerland at Bank of America.

The flurry of deals has continued despite currency moves, with the Swiss franc up 14 per cent against the dollar since January and slightly stronger against the euro.

Global transaction values have risen around 40% to about $4.5 trillion this year, data compiled by Bloomberg show, as companies chase ultra-ambitious combinations, emboldened by friendlier regulators. That’s the second-highest tally on record and includes the biggest haul of deals valued at $30 billion or more.

“There’s a sentiment in boardrooms and among CEOs that this is a potential multi-year window where it’s possible to dream big,” said Ben Wallace, co-head of Americas M&A at Goldman Sachs Group Inc. “We’re at the beginning of a rate-cutting cycle so there’s anticipation that there will be more liquidity.”…

“When you look around and you see your peers doing these big deals and taking advantage of the tailwinds, you don’t want to be left out,” said Maggie Flores, partner at law firm Kirkland & Ellis LLP in New York. “The regulatory environment is in a position that is very conducive to dealmaking and people are taking advantage of it.”

“And the other thing that we’re just recently seeing, which is a bit of a change, and this is just this quarter, is we’re starting to see increased activity with strategic middle market buyers and M&A. They’ve really been on the sidelines all year because of tariffs. You know, private equity was transacting, and large deals were getting transacted. We haven’t seen a lot of bank deal funding for middle market M&A, and that’s kinda just picked up this quarter, which bodes well for next year.” – PNC Financial Services Group CEO William Demchak

First Eagle Investments has agreed to acquire Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) for $175 per share in an all-cash transaction valuing the company at approximately $473 million, according to a press release statement. Diamond Hill, which currently has a market cap of about $318 million, has been profitable over the last twelve months with a healthy return on equity of 27%.

The purchase price represents a 49% premium over Diamond Hill’s closing share price on December 10, 2025, and a 44% premium over the company’s 30-day volume-weighted average price. Notably, the offer price closely aligns with InvestingPro’s Fair Value estimate, suggesting the acquisition appropriately values the company, which has been trading at a low P/E ratio of just 6.8 and near its 52-week low of $114.11.

Following the transaction, Diamond Hill will maintain its Columbus headquarters and continue operating under its existing brand with no changes to its investment philosophy or process. The deal is expected to enhance First Eagle’s footprint in traditional fixed income, an area of significant growth for Diamond Hill in recent years.

For most Americans, the universe of stocks they can invest in is rapidly shrinking. The number of public companies in the U.S. is half of its peak in the late 1990s.That’s not a problem for the rich.

The ultrawealthy are able to buy and sell shares of the buzziest private companies via invite-only transactions long before they list their shares on public stock exchanges.

That’s created a two-tier market. One tier is a private club of sorts, where a privileged group can obtain shares of companies still in their early growth stages. Everyone else is left with older, slower-growing names. The dynamic is exacerbating the wealth disparity in the U.S., as the growth in the net worth of the richest Americans is far outpacing all other income groups.

Some policymakers and economists see this as an existential threat to the U.S. economy. The most powerful critic is the chairman of the Securities and Exchange Commission, Paul Atkins. Atkins is trying to entice more companies to go public and trying to open up access to private markets to a much wider group of investors.

Young companies like Intel and Apple decades ago sold shares to the public to raise money to hire employees, build factories and fund development of new products, Atkins says. “Insiders got returns, obviously, but the public really shared in those,” Atkins said. “Nowadays it’s completely reversed.”

SpaceX, the rocket and satellite maker run by Elon Musk, told employees on Friday that it would buy insider shares in a deal that would value it at around $800 billion, and said that it was preparing for a potential initial public offering next year.

In a letter to employees and other shareholders, Bret Johnsen, SpaceX’s chief financial officer, said the company and investors planned to buy $2.56 billion of shares from stockholders at $421 a share, nearly double its previous internal share price. Mr. Johnsen also alluded to a possible public offering in the letter, which was obtained by The New York Times.

“Whether it actually happens, when it happens, and at what valuation are still highly uncertain, but the thinking is that if we execute brilliantly and the markets cooperate, a public offering could raise a significant amount of capital,” he wrote.

The offer to buy shares from employees would make SpaceX the world’s most valuable private company, outstripping the A.I. company OpenAI, which is currently valued at around $500 billion. If and when SpaceX goes public, it would likely be one of the largest ever public listings, and an enormous wealth creation event for shareholders.

It normally takes a lot more than three companies to create an initial public offering boom. But if those three companies are SpaceX, OpenAI and Anthropic, Wall Street may soon find itself in the middle of an IPO boom for the ages.

In one of the first clear signs that some of the most valuable private tech companies have set the wheels in motion to go public, the Financial Times last week reported Anthropic had appointed lawyers to lay the groundwork. That puts it a step ahead of OpenAI, which is also considering an IPO. Reports in recent days, first by Bloomberg, suggest Elon Musk’s rocket company SpaceX is also gearing up to go public.

It’s not hard to see why. Private equity investors have provided huge amounts of capital for these companies, but they have their limits. OpenAI has raised $41bn of equity this year and will need much more before turning a profit. SpaceX is reported to be planning to raise more than $30bn in an IPO.

They would fill a useful niche for public market investors. As pure-play model builders, OpenAI and Anthropic would provide a new way for Wall Street to bet on artificial intelligence. And SpaceX, which accounted for more than half of all rocket launches last year, would be unrivalled as a wager on the future space economy.

If all three go public at roughly the same time, possibly next year, it would be an extraordinary moment for Wall Street. The headline numbers would be head-spinning. SpaceX is hoping to be valued at $800bn in its latest private share sale, while Anthropic is targeting $350bn. OpenAI’s most recent share sale was at $500bn.

Eli Lilly said its next generation weight-loss drug retatrutide helped people lose up to 28.7% of their body weight after more than a year of treatment, significantly more than what existing drugs can provide…

Retatrutide is in the same general category as Novo Nordisk’s Ozempic and Wegovy and Lilly’s own Mounjaro and Zepbound. It works by mimicking three gut hormones, which helps regulate appetite and can increase a person’s energy expenditure.

Lilly conducted a Phase 3 trial of retatrutide in patients with obesity and knee osteoarthritis, and who didn’t have diabetes. The baseline body-mass index of patients was at least 35 at the start of the trial, a relatively high level of obesity. They were given weekly shots of the drug or a placebo for 68 weeks.

Those taking the highest dose of retatrutide lost an average of 71.2 pounds, or 28.7% of their body weight.

In comparison, the highest dose of Lilly’s Zepbound has been shown to help people lose an average of 22.5% of body weight, and the average weight loss for Novo Nordisk’s Wegovy is under 20%.

Goldman Sachs: As we move into the second half of December, seasonality improves with a median return since 1950 of +1.3% up from just +0.3% for the first half, 4th best for all monthly halves.