Last week: Equity rotation (SME, EM, EU); Japan elections; Q4 earnings releases (US banks); US Inflation (CPI)
WEEKLY TRENDS
Equities rotation continued last week, with SMEs, EM and somewhat EU stocks all in favour vs Mag7 in 2025. Russell index is up +6.5% YTD, EM +4% and EU50 up 3% vs Nasdaq and S&P500 at +1%. Japan’s early elections (early Feb) has boosted the Nikkei (+7% YTD) as current PM should reach a 70% validation vote
Semi conductors producers are also in favour with BE semi (+6% WoW), ASML (+7%), ASM (+6%), Applied Mat (+8%), and defense nuclear linked stocks also since Jan 1st (Rolls Royce Holdings up +7% YTD and Leonardo +15%)
Meanwhile and despite strong Q4 earnings, US banks got hit by Trump’s latest measure to cap the credit cards interest charges to 10% (JPMorgan down -3% WoW, BofA -4%, Wells Fargo -6%) while BlackRock was up +8% WoW and so was Goldman Sachs with +3%
US CPI for December posted limited rebound (US Treasuries yields went up by 5bps)
Silver hit a new ATH and Oil was first up then got sold off as Trump responded to Iran
Note that Luxury items stocks like LVMH and Kering start to be impacted by Gold and Silver surges last year. New Q4 earnings releases will follow.
M&A: Kloeckner (+32%) is to be bought by Worthington Steel; Oxford Biomedica (+13%) is to be bought by Swedish EQT fund
Bank analysts: UBS (JPM ‘o/w’ target ₣43), Nokia (JPM ‘o/w’ target €6.50), SocGen (MS ‘o/w’ target €83), ASM Int (MS ‘o/w’ target €800), ASM Holding (MS ‘o/w’ target €1400)
Rates
US curve steepening (2-10 years) stable at 63bps
HY corp. spreads lower: US at +271bps (-5); EU at +258bps (stable)
Commodities
Oil price slightly higher (+0.5%)
Gold price higher (+2%) despite a stronger USD (+1%) - Silver hit the $90 level last week, unprecedented (the Shanghai premium is at +9.5%)
China
$1.2trn historic 2025 trade surplus (a 20% jump from 2024)
US
Dec CPI (+2.7% as expected) Core at 2.6% vs 2.7% expected (ground beef +15%, coffee +20%, bananas +6% while eggs –21% from a year ago)
Under the watch
Top 2026 IPO (SpaceX $1trn+ in Q4; OpenAI $1trn in Q4; ByteDance $500bn; Anthrop\c $300bn in H2; Databricks $150bn in Q2; Stripe $100bn in H ; Revolut $80bn; Canva $50bn in H2)
Nota Bene
Japan 30 year bond yield (JGB) at 3.50% its highest level since 1990s.
Critical Metals Corp (CRML) is up +135% YTD
Markets currently expect a 70% chance that Trump’s tariffs will be modified by the Supreme Court rather than eliminating them
Trump threatened to impose new 25% tariffs on countries that trade with Iran
Central Bank rate decisions: FED/FOMC (28 Jan), Minutes (18 Feb)
WHAT ANALYSTS SAY
BlackRock: US earnings broadening strength
Lazard: Are 'quality stocks' set to make a strong comeback?
MSCI: Private markets in 2026, constrained liquidity, valuations under pressure and a return to fundamentals
BlackRock Investment Institute, 12 January 2026
Author: Wei Li, Global Chief Investment Strategist
The U.S. corporate earnings season is key after the S&P 500 posted a third straight year of double-digit returns in 2025, while international markets from Spain to South Korea also delivered strong results.
The AI buildout and easing tariff concerns kept economic growth resilient, helping U.S. earnings beat expectations in the third quarter, as we expected. We think earnings can keep delivering, partly as the U.S. stocks driving earnings growth broaden out. The gap between the magnificent seven mega cap stocks like Nvidia and the rest of the S&P 500 is narrowing as the other 493 see earnings improve – the first theme we’re watching.
Yet the Magnificent seven are still delivering strong earnings growth – and have consistently beat expectations in recent years, so that gap may not narrow as much as the consensus implies. We still prefer tech broadly as earnings growth looks healthy and poised to broaden, both within the U.S. and globally.
S&P earnings and profit margins have also proved more resilient to tariffs than many investors expected. Consensus expectations for the Magnificent seven have been revised upward to show 20% earnings growth in the fourth- quarter versus a year ago and then holding up at 19% in 2026. That compares with 6% for the other S&P 493 in the fourth-quarter and 15% in 2026. Such earnings strength is why U.S. tech stocks depended less on investors pricing in higher valuations for gains last year relative to Europe and other regions.
From the U.S. “reciprocal tariff” lows in April, the MSCI USA slightly outperformed the MSCI index of global stocks excluding the U.S. in 2025 and outperformed the same index in local currency terms by six percentage points. Second, mega forces and lower Fed policy rates are helping boost cyclical sectors linked to stronger growth, like industrials and materials. This reinforces how we are not in a typical business cycle and mega forces are trumping the traditional macro in driving returns – one of our 2026 Global Outlook themes.
Sectors including industrials and materials sit at the intersection of these mega forces: the construction and energy required in the AI data center buildout; the power grid upgrades and infrastructure investment in the energy transition; and increased defense spending tied to geopolitical fragmentation.
Our third theme: Potential productivity gains from AI could break the usual pattern of earnings estimates typically starting high and being revised down as the year progresses. We like financials in both the U.S. and Europe, with the U.S. benefitting from stronger dealmaking activity and lighter regulation.
We find that financials is one of the sectors talking the most about AI productivity benefits in earnings calls. The healthcare sector is a laggard that we think is ripe for potential productivity improvements and innovation, with 80% of U.S. healthcare companies guiding earnings expectations higher. We’re closely watching earnings for evidence of AI-related productivity gains and new profit pools forming.
Bottom line: We stay overweight U.S. equities and pro-risk on the AI theme. We eye opportunities in sectors beyond tech like healthcare that benefit from AI innovation and see mega forces supporting some key cyclical sectors like industrials.
Lazard Frères Gestion, 16 January 2026
Authors: Thomas Brenier, Managing Director, Head of Research and Investment
Are ‘quality stocks’ set to make a strong comeback?
Their recent underperformance can be explained in particular by political uncertainties surrounding the healthcare sector in the United States and the market's appetite for riskier stocks in recent months.
Over the past 18 months, stocks in the MSCI Europe Quality Index have underperformed the market average.
These ‘quality stocks’ include companies from various sectors (notably pharmaceuticals, industrials, consumer goods and technology) that are characterised by high returns on capital, low debt and less volatile earnings.
Their recent underperformance can be explained by various factors, including political uncertainty surrounding the healthcare sector in the United States and the market's appetite for riskier stocks in recent months.
Quality stocks are structurally traded at a premium to the market, justified by their financial profile.
With a P/E ratio of 18.8x as at 13 January 2026, compared with 15.8x for the average MSCI Europe stock, this premium is now only 3 points, close to its lowest level in recent years.
Historically, the premium on quality stocks had reached similar lows at the end of 2013 and the end of 2016.
This was followed by a period of revaluation and outperformance of these stocks over the next two years.
In 2014-2015, the MSCI Europe Quality index rose by 37.0%, compared with 22.9% for the MSCI Europe index (outperformance of 14.1%).
In a different market configuration, from 2017 to 2019, the MSCI Europe Quality Index rose by 4.3%, compared with 0.6% for the MSCI Europe Index (outperformance of 3.7%).
Without predicting a repeat of this pattern, the ‘quality style’ could be well positioned to return to stronger momentum.
MSCI, 16 January 2026
Authors: MSCI, Private Capital in Focus
Private equity: liquidity remains the main sticking point
Despite an attempt to return to normal at the end of 2024, private equity distributions remained weak in 2025, even reaching new lows in unlisted real estate. In this context, continuation vehicles have emerged as a key mechanism for managing liquidity. Their relative weight has increased significantly since 2021, illustrating the growing use of secondary transactions by managers.
However, MSCI points out that these structures, which are still largely unrealised, will have to prove their ability to generate sustainable performance and meet institutional investors' expectations in terms of portfolio management and cash flow visibility.
Value creation: the end of the multiple illusion
The study highlights a structural change in the drivers of value creation in buyout transactions. Between 2022 and 2025, revenue growth became the main contributor to performance, far ahead of multiple expansion, which had dominated the 2020–2021 period.
This shift reinforces the link between distributions and economic fundamentals: the ability to generate cash now depends more on real growth and margin improvement than on market conditions. In an environment of persistently higher interest rates, any slowdown in activity could directly impact exit valuations.
The rapid rise of semi-liquid funds raises questions
Private credit remains a driver of inflows, but its dynamics are changing rapidly. Semi-liquid funds – sometimes referred to as ‘evergreen’ funds – are capturing a growing share of inflows, with an estimated annual outstanding amount of $74 billion in 2025. This rise reflects the opening of the market to new investor profiles seeking flexibility.
However, MSCI warns that this liquidity is partly illusory. Redemptions are limited, valuations are based on internal estimates and the underlying assets remain fundamentally illiquid. This model has not yet been tested in a stressed environment.
Growing pressure on credit valuations
After two years of high interest rates, signs of tension are mounting in private credit. Loan impairments have increased since 2022, now affecting a significant portion of senior and mezzanine loans. While interest income still offsets losses, MSCI believes that 2026 could be a decisive test of the sector's resilience, particularly in the event of an economic slowdown or a slower-than-expected decline in key interest rates.
A new cycle is beginning for private markets
According to MSCI, private markets will enter a more mature and demanding phase in 2026. Performance ‘on paper’ remains solid, but the ability to convert this value into liquidity is becoming a key issue. In this context, investors and managers will have to deal with more complex trade-offs between return, risk and liquidity.
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