No, Virginia, there wasn’t a 2025 Santa Claus rally. It came down to the final few ticks, but the last five trading days of 2025 plus the first two trading days of the new year goe in the books as a lump of coal.

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Any hint of an Equal Weighted S&P 500 resurgence ignites a spark of optimism in active managers’ hearts. An EW run similar to the Tech Bubble aftermath doesn’t seem too farfetched. The downside? A bear market would probably be involved.

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Sentiment, traditionally a contrary gauge of stock performance, was acutely bullish entering 2025—the 3rd most optimistic level in history, and therefore worthy of concern. Nevertheless, SPX’s 2025 return logged the 3rd best outcome for a year starting with such elevated confidence.

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With recent extremes, both in underperformance and relative valuation, it feels like Low Vol could be near a turning point. At the very least, the margin for error is wider for this space than it has been in quite some time.

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We’ve had five consecutive years with momentum performing better among small caps than large caps. One reason for the sizable difference in 2025—and what may be concerning—is that the bulk of last year’s gains were driven by speculative, unprofitable companies (which are disproportionately small cap).

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SPX pulled off a rare three-peat in 2025, returning +15%-plus for three consecutive years. What often follows is much higher volatility. Yet, strong returns alone do not cause major volatility events. Today’s bigger risk is the unprecedented convergence of three long-running themes: AI, Bitcoin, Private Credit.

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When we first published this work in 2011, the Bridesmaid’s alpha, both for asset classes and sectors, looked almost too good to be true. Since then, the performance edge for each has narrowed significantly—it’s still meaningful, but no longer magical.

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Last year’s Energy results earns an entry in the Cheapskate blooper reel, the sector will tie its personal best for the most consecutive years of underperformance against the S&P 500. However, this year’s delegate, Financials, offers a rare bright spot; it is the only Cheapskate sector to have beaten the S&P 500 during the last decade—pulling off that feat four times.

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The index’s monthly win streak looked as dead as Disco as November progressed. Then, SPX rallied to close the month with its best five-day run since mid-May to attain a 7th consecutive monthly win. In the majority of prior cases, the index proceeded to post above average results for the next three- and six-month periods.

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As we tickle the October high, the present bull has already achieved something quite special. This iteration has posted the largest price gain (+93%) of any bull market that wasn’t born in a recession.

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Whenever the market’s thematic leadership hits an air pocket, it is instructive to discover where investor interest shifts. In November, those evacuating big tech found refuge in the Health Care sector, which staged a remarkable comeback from its extended weakness this summer.

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While stretched valuations in AI-related names were widely cited as the trigger for the mid-November stock market hiccup, a more convincing explanation lies in the plumbing of the financial system.

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Contrarian investing is difficult; from both an emotional and implementation standpoint, but our disciplined industry-scoring process periodically endorses segments that glaringly conflict with consensus (and our own) views. When an industry at odds with the conventional narrative materializes as highly-rated, it often turns out to be one of our more successful portfolio allocations.

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In late September, our Very Long Term Momentum algorithm reversed higher after being on a downward track since 2024. There have been just ten other cases of this since 1957, and it has often been a stock market trap. Not an official signal, but worth watching.

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S&P 500 performance is being propelled by its disproportionate concentration in the Magnificent Seven stocks, while the Russell 2000’s leadership is powered by unprofitable small caps, thereby resulting in breadth of quantity, not quality.

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November ushers in a tropical breeze for risk-seeking investors. The six-month stretch from November through April has proven to be an exceptionally profitable time, particularly for those exposed to factors, such as size, value, and volatility.

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As AI-growth heavyweights keep pushing the S&P 500 to new all-time highs, value investors have been completely left out. Usually, buying high-quality value names is the best defense, but that has been a disaster in the current cycle. Junky value is substantially outpacing quality value.

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The return landscape has been good for a passive “own-everything” asset allocation policy. Our hypothetical “All Asset No Authority” (AANA) portfolio has seen a few more cylinders firing this year. In fact, YTD, none of AANA’s asset class constituents have negative performance.

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FOMO is in full gear and—unlike the meme-stock mania of 2021—it’s been underpinned by an extremely compelling storyline: The seemingly limitless possibilities of artificial intelligence.

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Officially, as of September 30th, five of our eight bellwethers have confirmed the latest S&P 500 high. That’s typically good enough for the boat to stay afloat—and looks healthier than at February’s high.

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