Job growth has gone soft, yet unemployment has barely budged. Fewer jobs, but nobody’s catching the boot. In past years, low job growth would’ve sounded economic alarms. Today, it’s closer to noise. The reason for that change is worth understanding, so we developed a better metric: the Employment Diffusion Index.

Despite a long list of worries, the economy is healthy and the risk of an imminent recession is low. Market-based measures are favorable, and the war-driven confidence shock has largely dissipated.

The latest data proposes that the acute phase of the early 2026 private-credit contagion has been restrained so far, but the stress is still real. While FSK showcases how a credit cycle can be properly managed, the 777 failure is a sobering reminder of the systemic vulnerabilities deeply embedded in this space.

Today’s spiking Courage/Fear Ratio reflects optimism borne of an extended market run and AI mania. Yet, history tells us that the path forward is likely to test the mettle of levered bulls, and a full tilt toward Courage at present may be straddling the line between bravery and foolishness.

Consumer sentiment has hit a recent low, yet cyclical stocks are trading at relative highs. Investors have not yet begun to position for a bearish or recessionary environment.

S&P 500 earnings, excluding Financials and Real Estate, grew 66% year-over-year, a result that wouldn’t be surprising coming out of a deep recession, but is almost incomprehensible in the middle of an economic expansion.

S&P 500 Q2 estimated bottom-up operating EPS continues to move higher as reporting comes to a close. The current figure of $100 stands at a mind-boggling 23% above the final “pre-reporting” estimate logged at the end of June. The resulting vertical line on our Q2 snail trail seems almost laughable. YOY EPS Growth is now nearing an amazing 50%. This feat is even more impressive given the fact that the look-back comparison was not a severe downturn. In fact, Q2-25 was a strong earnings quarter (+11% YOY).

Read this week's Major Trend. 

Read this week's Major Trend.

Read this week's Major Trend. 

The second quarter of 2026 experienced tremendous returns, ranging from 8% for large value up to 26% for small growth, with the nine style boxes recording an average return of 17%.  The differences in style box returns are of such a scale that they had a meaningful impact on the performance of active portfolios across the styles.

Read this week's MTI.

The KOSPI Index crash from its June all-time high has been as breathtaking as its meteoric upsurge beginning in 2025. Korean retail investors are the biggest contributors and victims of the volatility. In fact, they have a long history of spectacular speculative misfortunes.

In contrast to most factor ETFs, Momentum is a chameleon with the potential for drastic allocation shifts. Since 2013, every sector has experienced a dip to a near zero weight in the SPX Mo index, while at some point, six of 11 made up 25-67% of the weight.

The Russell 2000’s July collapse (-3%) was the first time since its ’25 low that it trailed SPX by more than a percentage point. A single month settles nothing. But it was enough to send us under the hood, where a couple of things caught the eye: breadth and lack of staying power.

Trading rather cheaply on some metrics, small caps have space for improvement even if the S&P 500 holds up. Still, given the index’s vast earning power amassed from the AI data-center boom, we are not ready to call a major turn in the large-cap/small-cap horse-race just yet.

S&P 500 >30% earnings growth occurred only two other times since 1990—both were rebounds out of severe downturns. Today’s expansion is propelled by a narrow list of firms exposed to the AI data-center theme; an eventual loss of confidence in such AI outlays could prove disastrous for earnings and stock prices.

In an unusual twist, one of the cheapest industries today is part of the hottest theme piloting the bull market higher: The world’s leading memory chip companies can be purchased at P/E multiples less than 7x earnings.

S&P 500 Q2 estimated bottom-up operating EPS have rocketed 19% higher since the start of June. This extends the trend of rising EPS projections that we’ve documented the past year-and-a-half. Yet, the magnitude of this revision is like nothing we’ve seen before—just last quarter, we were blown away by Q1’s 11% surge. EPS growth, combined with flat performance the past few months, has taken a material bite out of some of the generationally high multiples that have hung over this market the past few years.

Read this week's Major Trend. 

Read this week's MTI update

Read this week's MTI update

Read this week's update.

Elevated readings in Citi’s U.S. ESI have lately been regularly accompanied by disappointing market returns. Our study of 27 past instances finds that “good-news-is-bad-news” episodes have tended to be self-correcting. Strong economic surprises eventually become harder to beat, and the ESI rolls over.

The dot-com era was mostly a public-market event, while the AI boom has been largely funded through the balance sheets of hyperscalers and private capital. That distinction is quickly eroding. Once quietly contained on private balance sheets, the risk is now going public.

Growth’s P/E gap between trailing and forward EPS is over 10 points—historically high and challenging the 1999 peak. One’s opinion about Growth depends heavily on whether they are looking backward or forward in their P/E calculations.

What is the link between these two intellectual giants who essentially pioneered their respective fields? The recent S-1 filing by SpaceX in support of its IPO is our connection between these two world views.

The decision to lever up reflects the convergence of several behavioral finance hot buttons; today’s 54% absolute margin debt growth, and 26% excess margin debt growth over the last 12 months both exceed the historical trigger points.

Several leading AI models were engaged to generate personalized investment advice meant to meet the suitability standards required of professional advisors; their results were underwhelming, and yet, enlightening.

Read this week's Major Trend.

Read this week's Major Trend.

Read this week's Major Trend. 

Read this week's Major Trend. 

The CPI numbers are largely in-line with consensus. Our inflation scorecard suggests higher inflation pressure remains going forward.

Read this week's Major Trend. 

The biggest macro story in May was the sharp rise in G5 10-year bond yields.

A recent paper by Kritzman and Turkington addressed this timely issue and gave a refreshingly simple conclusion: Concentration may look unsettling, but historically it has not been a reliable predictor of poorer returns or higher risk.

In May, “Flight S&P 500” covered an amazing chunk of miles flying on just one engine: Info Tech’s tremendous 16% gain, which overshadowed pervasive losses in eight of the other ten sectors. Semiconductors and tech hardware accounted for three-quarters of the index’s upside in May. YTD, over one-tenth of the SPX gain is attributable solely to Micron (more than any other firm).

If AI is the darling of Wall Street, major packaged food brands may be the most hated theme of the day. Record-low EPS growth, record-low LTG rates, record-low P/E multiples, and record-low relative prices are priming this group for a classic contrarian opportunity.

AI-infrastructure outlays stand like a Giant Sequoia in the dense forest of economic activity; the accelerated buildout is masking softer conditions across the rest of the economy. Figures for S&P 500 capex and GDP growth are being distorted by a narrow group of AI beneficiaries.