What if the worst three-year manufacturing stretch since the Great Depression is finally ending? That's the question gripping markets this week as transportation stocks surge to new highs and inventory levels hit multi-year lows.

The data is fascinating. For three consecutive calendar years, manufacturing new orders have contracted. The only other time this happened in 75 years of recorded history was during the brutal 1980-1982 period that included two recessions spanning 22 months. Yet somehow, equity markets have powered higher, defying the underlying weakness in goods production and distribution.

Now something appears to be shifting. Transportation companies are finally confirming what the industrial sector has been signaling. After bouncing along 2021 highs for most of 2025, the transports have decisively broken out. Since last quarter's earnings, 93% of stocks in the transportation sector are higher. Company management teams are talking about lean inventories and solid demand.

But here's where it gets interesting. How sustainable is this turn? Are we witnessing the start of a genuine economic acceleration, or is this another false signal in a fragile freight market? The answer matters enormously for equity positioning, commodity exposure, and sector allocation in the months ahead.

This week, we're diving deep into what the transportation breakout really means, why inventories are at critical levels, and which companies stand to benefit most if this trend continues. We're also examining why gold just hit fresh record highs despite a stronger dollar, what's really happening in the oil market beyond the Iran headlines, and why certain companies might be worth watching as earnings season accelerates.

The setup heading into the final weeks of January is intriguing across multiple asset classes. Let's break down what happened last week and what we're watching closely in the days ahead.

The S&P 500 slipped 0.37% last week, closing at 6,940, as markets digested a complex mix of geopolitical developments, early earnings reports, and shifting Federal Reserve expectations. Despite the modest decline, the index demonstrated remarkable resilience, quickly recovering from intraday weakness and maintaining its pattern of forming higher lows.

Early in the week, the S&P 500 pushed to a fresh record high of 6,986 on January 12th before encountering selling pressure that drove the index down to 6,885 by January 14th. This 100-point decline came amid escalating tensions between the US and Iran, with markets briefly pricing in a 90% probability of military strikes. The pullback proved short-lived, however, as the index bounced sharply off uptrend support.

From a technical perspective, the market's behavior last week was textbook. The decline to 6,885 represented a healthy test of support levels, allowing momentum indicators to reset after becoming stretched. The daily bottom Bollinger Band shifted higher to 6,811, reinforcing the strength of the underlying uptrend. Meanwhile, the daily RSI bounced cleanly off the 55 level, which has historically provided reliable support during sustained advances.

Market breadth remained constructive throughout the week despite the headline volatility. While the index chopped around in a relatively tight range, underlying momentum stayed positive. Dip buyers continued to emerge at key support levels, preventing any sustained breakdown. This buying behavior suggests market participants remain confident about the fundamental backdrop and willing to add exposure on weakness.

One notable development was the reaction to comments from President Trump regarding his potential Federal Reserve Chair selection. When Trump suggested he might keep Kevin Hassett in his current White House role rather than nominating him as the next Fed Chair, markets experienced a brief intraday decline. The odds of Hassett becoming Fed Chair dropped sharply from 40% to just 16%. Yet the market absorbed this news relatively well, recovering most of the initial losses.

This resilience speaks to an important shift in market psychology. Rather than getting spooked by headline risks or policy uncertainty, investors have increasingly adopted a 'buy the dip' mentality. Each pullback has been met with buying interest, creating a self-reinforcing pattern that has supported the market's advance from the October lows. Whether this behavior continues depends largely on earnings results and economic data in the weeks ahead.

Fourth quarter 2025 earnings season is now underway, with approximately 7% of S&P 500 companies having reported results. The early returns have been encouraging, though it's still far too soon to draw definitive conclusions about the quarter.

Of the companies that have reported thus far, 79% exceeded earnings per share expectations while 67% beat revenue forecasts. These beat rates are running slightly above historical norms, suggesting corporate performance remains solid despite various macroeconomic headwinds. The blended earnings growth rate currently stands at 8.2%, marginally below the initial expectation of 8.3%, but essentially in line with projections.

Looking forward to the first quarter of 2026, early guidance has been modestly positive. So far, three S&P 500 companies have issued positive earnings guidance compared to just two companies providing negative guidance. This represents a more optimistic tone than we typically see at this stage of the earnings cycle, when companies often tend to set conservative expectations.

Beyond the S&P 500, several smaller companies have provided remarkably strong guidance that caught the attention of market participants. These pre-announcements suggest pockets of exceptional strength in certain industries and could represent interesting opportunities for those willing to take on additional risk in smaller capitalization names.

The overall tone from management teams has been measured but generally constructive. While companies aren't providing overly bullish outlooks, there's also been a notable absence of widespread caution. This balanced approach from corporate leadership teams aligns with an economy that continues to grow, albeit at a moderate pace, rather than one facing imminent challenges.

One important factor to monitor as more companies report is the reaction to earnings beats. In recent quarters, even solid results have sometimes been met with muted or negative stock price reactions as investors focused on forward guidance and margin pressures. Whether this pattern continues or shifts could provide valuable signals about market sentiment and valuation comfort levels.

One of the most significant developments last week came from the transportation sector, which has decisively broken above its 2021 highs after years of consolidation. This breakout carries important implications for the broader market and economic outlook.

Since reporting earnings last quarter, an impressive 93% of stocks in the transportation sector have moved higher. This broad-based strength represents a stark departure from the sector's performance throughout much of 2025, when transportation stocks struggled to confirm the gains being made by industrial companies.

The context for this breakout is crucial. For three consecutive calendar years, manufacturing new orders have contracted on an annual basis. This prolonged weakness has occurred only once before in over 75 years of recorded data, during the 1980-1982 period that encompassed two recessions totaling 22 months. By this measure, the past three years rank as one of the weakest stretches for the US economy since the Great Depression.

What makes the current situation particularly noteworthy is the relationship between inventories and new orders. For four consecutive years, inventories have exceeded new orders in the manufacturing sector. This has never happened before in the nearly 40 years since inventory data became available in 1988. The only comparable period was 2008 during the Financial Crisis, and that single year of excess inventories was quickly followed by a surge in new orders.

The shipping industry has felt this weakness acutely. Companies have been operating in what can only be described as a freight recession for an extended period. However, recent commentary from industry leaders suggests conditions may finally be improving. Management teams are noting that inventories have been drawn down to lean levels and demand is starting to pick up across multiple service categories.

One major shipping company described the freight market as 'fragile,' which initially spooked investors. However, the full context of these comments was more nuanced. Management was essentially saying that capacity has exited the market to such a degree that even a modest uptick in demand could create a supply squeeze and lead to a very different pricing environment than what the industry has experienced over the past several years.

Importantly, the same company noted that customer inventories are quite lean at present, and demand has been solid through the holiday season and into early January. If this demand strength continues, it could mark an important inflection point for both the transportation sector and the broader economy. When companies need to order new goods to replenish lean inventories, it creates a positive feedback loop that benefits manufacturers, shippers, and the overall industrial economy.

Last week brought a mixed batch of economic data that painted a complex picture of the US economy. December CPI inflation came in at 2.7%, matching expectations and holding steady from the prior month. Core CPI, which excludes food and energy, printed at 2.6%, slightly below the anticipated 2.7%. These figures suggest inflation remains elevated but not accelerating.

The producer price data told a different story. November PPI inflation jumped to 3.0%, above expectations of 2.7%, while Core PPI also rose to 3.0%, exceeding the 2.7% forecast. This uptick in producer-level inflation could eventually feed through to consumer prices, though the lag time and magnitude of any pass-through remains uncertain.

Federal Reserve expectations have shifted notably more hawkish in recent weeks. Markets now assign a 66% probability that the Fed will not cut interest rates at all through April 2026, and there's a 95% chance the central bank pauses at its upcoming January 28th meeting. This represents a significant change from just a few months ago, when additional rate cuts were viewed as highly probable.

Several factors have contributed to this hawkish repricing. The mixed inflation data, combined with resilient economic activity and strong equity markets, has given the Fed less urgency to ease policy further. Additionally, ongoing political developments and questions about Fed leadership have added another layer of uncertainty to the outlook.

A criminal investigation into Fed Chair Powell generated headlines last week, raising concerns about central bank independence and whether political pressures might influence monetary policy decisions. While the details and implications of this investigation remain unclear, it has contributed to elevated uncertainty around Fed policy in the months ahead.

Despite the hawkish shift in market expectations, we believe the most extreme scenarios may be overpriced. The Fed has consistently emphasized its data-dependent approach, and while near-term policy is likely on hold, the trajectory beyond the next few meetings remains uncertain. Economic conditions can change quickly, and the Fed has demonstrated its willingness to adjust course when warranted.

The technical setup for the S&P 500 heading into this week appears constructive following last week's pullback and recovery. We believe the recent price action has created favorable conditions for a continued advance toward the 7,000 level.

Last week's decline from 6,986 down to 6,885 allowed key momentum indicators to reset after becoming stretched. The daily RSI pulled back from elevated levels and found support at approximately 55, a zone that has consistently provided a floor during this uptrend. This reset gives the market room to move higher without immediately encountering overbought conditions.

The daily Bollinger Bands have also adjusted in a way that supports further upside. The bottom band has shifted higher to 6,811, indicating that support levels continue to rise as the uptrend matures. Meanwhile, the top band now stands at 7,007, slightly above our 7,000 target, suggesting there's ample room for the index to extend its gains before hitting technical resistance.

Importantly, the low of 6,885 achieved on January 14th represents a higher low compared to previous pullbacks. This pattern of higher lows and higher highs remains intact and is characteristic of healthy uptrends. As long as this pattern continues, the path of least resistance appears to be higher.

From a sentiment perspective, the market has demonstrated impressive resilience to various headline risks. Geopolitical tensions that briefly pushed oil prices sharply higher were quickly absorbed. Questions about Fed leadership created only temporary pressure. This behavior suggests that market participants remain comfortable adding equity exposure and are viewing pullbacks as opportunities rather than threats.

The fundamental backdrop also remains supportive of higher prices. Corporate earnings are coming in above expectations, large technology companies continue to signal robust capital expenditure plans, and economic data, while mixed, shows no signs of imminent deterioration. These factors combine to create an environment where modest pullbacks are likely to attract buyers.

We expect a sustained move above 7,000 could materialize as soon as this week, particularly if upcoming earnings reports continue to exceed expectations and economic data remains stable. The formation of the higher low at 6,885 appears to have been the final consolidation before the next leg higher. Therefore, we maintain a bullish stance on the S&P 500 with a 7,000 target and 6,700 stop-loss.

This week marks a significant acceleration in earnings season, with several noteworthy companies scheduled to report results. The volume and quality of reports should provide much better insight into corporate health and the trajectory of earnings growth.

One area of particular interest is companies operating in sectors that have shown recent relative strength. Gold mining stocks, regional banks, aerospace and defense companies, and metals and mining firms have all demonstrated positive momentum. When companies in sectors with strong underlying trends report earnings, they often have a higher probability of delivering positive surprises that are met with favorable stock price reactions.

Conversely, certain sectors continue to face challenges. Restaurant stocks, in particular, have struggled significantly, with weak consumer spending patterns weighing on results. Utilities have also shown relative weakness despite their typical defensive characteristics. Companies reporting in these challenged sectors may face tougher comparisons and more skeptical investor reactions.

An interesting dynamic to watch this week involves companies with elevated short interest. Several firms reporting earnings have seen short positions build to near record levels in recent weeks. When companies with high short interest deliver positive surprises, the resulting short covering can amplify the stock price reaction, creating outsized gains.

The consumer staples sector provides an example of this dynamic. After an extended bear market, staples stocks have rallied strongly since early January, with much of the move appearing to be driven by short covering. Several companies in this sector report earnings this week, and if results come in better than feared, additional short covering could push prices even higher.

Beyond individual company results, we're also monitoring broader trends in guidance. As mentioned earlier, the ratio of positive to negative guidance has started 2026 on a constructive note. If this trend continues as more companies report, it would signal that management teams are gaining confidence in their business outlooks, which would be a positive sign for the market overall.

Macroeconomic data releases this week include December housing starts and building permits, personal income and spending figures, PCE inflation data, and initial jobless claims. These reports will provide additional context on the health of the economy and could influence market expectations around Federal Reserve policy.

One wildcard that could impact markets this week is the possibility of new tariff announcements. Over the weekend, discussions around trade policy have intensified, and markets remain sensitive to any developments on this front.

We saw this dynamic play out previously, when tariff announcements created significant volatility and temporarily dampened corporate guidance. Many market participants are now looking for a repeat of that pattern, expecting similar announcements to create similar market reactions.

However, we think assuming a direct repeat is unlikely to be the right framework. Markets have already experienced this scenario and have had time to adjust expectations. The element of surprise that contributed to the initial volatility is no longer present. Additionally, companies have had time to develop contingency plans and adjust their supply chains in response to trade policy uncertainty.

That said, new tariff developments could still create near-term unpredictability in price action. Even if the ultimate impact is more muted than previous episodes, the headlines themselves can drive short-term volatility as algorithms and momentum traders react to news flow. This unpredictability may cause some companies to once again adopt a more cautious tone in their guidance for the coming quarter and year.

From a technical perspective, recent price action in the S&P 500 has shown distribution on most breakouts despite strong breadth. This means that while more stocks are participating in the advance, there's been selling pressure at higher levels. This distribution creates the potential for a larger downside move if a negative catalyst emerges.

Specifically, the current pattern could be characterized as an ascending triangle, with support around the 6,500 level for the S&P 500. If new tariff announcements trigger a risk-off move, a break below this support zone could lead to a more substantial decline. Therefore, while we maintain our bullish stance based on the fundamental and technical backdrop, we're also prepared for the possibility of increased volatility and are conscious of the risks associated with policy developments.

WTI crude oil for March 2026 delivery closed the week 0.89% higher at $59.29 per barrel, though this modest gain masks the significant volatility that characterized trading throughout the week. Oil prices experienced dramatic swings as markets grappled with escalating tensions between the United States and Iran.

Early in the week, crude surged toward $63.00 as protests flared up inside Iran and President Trump signaled the potential for military action. On Monday, Trump announced that any country conducting business with Iran would face a 25% tariff, dramatically raising the stakes. Market-implied odds of a US military strike on Iran climbed to nearly 90%, driving a sharp risk premium into oil prices.

However, the geopolitical premium proved short-lived. By Thursday, Trump indicated that Tehran's crackdown on protesters was easing and that discussions with Iranian officials would continue. He called off any immediate plans for military strikes, and rhetoric between the two nations appeared to calm. Reports suggested that Arab allies had intervened behind the scenes to prevent a major escalation.

As tensions de-escalated, much of the week's gains evaporated. Oil prices fell back below the psychologically important $60.00 level, and the risk premium that had been priced into the market dissipated quickly. This pattern mirrors what we observed with the situation in Venezuela, where the swift capture of President Maduro led markets to discount the impact of US operations that are seen as quick and contained rather than prolonged conflicts that might disrupt oil supplies.

The rapid reversal in oil prices following the peak of the Iran tensions reinforces an important point about geopolitical risk premiums in the current environment. Markets have become increasingly skeptical about the duration and magnitude of supply disruptions from geopolitical events. Unless a situation clearly threatens to create sustained supply losses, the risk premium gets priced out relatively quickly once the immediate threat passes.

Beyond the headline-driven volatility, the fundamental backdrop for crude oil remains decidedly bearish. Multiple factors continue to weigh on prices, and we believe these structural forces will ultimately prove more important than transient geopolitical developments.

On the supply side, the market continues to look oversupplied despite OPEC+ production management efforts. The eight OPEC+ members that have been implementing production increases have already added more than 2.7 million barrels per day back to the market. This represents approximately 2.5% of global supply entering a market that's already dealing with demand concerns.

Saudi Arabia, historically the swing producer within OPEC, appears to be adjusting its strategy. Reports indicate that the kingdom may reduce its December crude pricing for Asian buyers to multi-year lows due to ample supplies. This pricing action signals weakening demand from key Asian markets and intensifying competition among producers for market share.

Russian oil exports continue to flow to top buyers China and India despite US sanctions, adding to the supply overhang. The effectiveness of sanctions in curtailing Russian production and exports has been limited, with various workarounds and alternative payment mechanisms allowing trade to continue at meaningful volumes.

Perhaps most significantly from a medium-term perspective, President Trump has explicitly and repeatedly advocated for lower energy prices. His stated goal of achieving $2.00 per gallon gasoline creates an implicit ceiling on crude oil prices. The administration appears willing to encourage production increases and may actively resist any meaningful rally in energy markets, viewing lower prices as beneficial for consumers and the broader economy.

This political overlay represents a structural headwind that could cap upside attempts for an extended period. When an administration makes affordable energy a priority, it typically translates into policies that favor increased domestic production, reduced regulatory barriers, and diplomatic efforts to ensure adequate global supply. All of these factors point toward a well-supplied market.

From a technical standpoint, WTI crude is showing a bearish configuration that aligns with the fundamental picture. Last week's price action tested the upper boundary of the recent trading range before being firmly rejected, and this rejection has opened the door for a move back toward the lower end of the range.

Oil reached an intraweek high of $62.36 on January 14th as the Iran tensions peaked. This level came with a cross above the daily top Bollinger Band at $60.86 and a rejection at approximately 65 resistance in the daily RSI. These technical signals suggested the rally was overextended and vulnerable to reversal.

The subsequent decline saw prices break back below $60.00 support, a level that had provided a floor on multiple occasions in recent weeks. The daily RSI also broke below its uptrend support around 55, confirming that momentum has shifted to the downside. The daily bottom Bollinger Band has now dropped to $55.40, providing a technical target for the current move.

The failure to hold $60.00 is particularly significant from a market psychology perspective. This round number has served as an important reference point for traders, and the breakdown suggests that buyers are less willing to defend that level aggressively. As long as prices remain below $60.00, the technical momentum favors further weakness.

Looking ahead, we see a clear path for a sustained move lower this week. The combination of fading geopolitical risk premiums, persistent fundamental oversupply, political pressure for lower prices, and deteriorating technical indicators all point in the same direction. We believe crude oil is setting up for a test of the $56.00 area in the coming days.

Therefore, we are now bearish on WTI crude with a $56.00 target and $63.00 stop-loss. This setup offers an attractive risk-reward profile given the confluence of fundamental and technical factors supporting lower prices.

Natural gas prices for March 2026 delivery closed the week 1.51% lower at $2.70, though the intraweek action was more volatile than this modest decline suggests. Prices have been caught between growing storage concerns and lingering worries about cold weather, creating a tug-of-war between bearish and bullish forces.

Thursday's weekly storage report from the Energy Information Administration weighed on prices significantly. Natural gas inventories for the week ended January 9th declined by 71 billion cubic feet, falling short of both the market consensus expectation for a 91 Bcf draw and well below the five-year average draw of 146 Bcf. This smaller-than-expected decline reinforced concerns about ample supply.

As of January 9th, natural gas inventories stood 2.2% above year-ago levels and 3.4% above their five-year seasonal average. These elevated inventory levels signal that supply remains comfortable relative to demand, even as we move through the heart of the winter heating season. This has been a persistent theme for weeks now, keeping a lid on any sustained rally attempts.

However, the recent price action has created an interesting setup from a contrarian perspective. Natural gas experienced a sharp surge in late December on expectations of colder weather, but those gains have been almost entirely erased. The March 2026 contract is now trading nearly 15% below February levels following the recent rollover, suggesting the bearish case has been fully priced into the market.

From a technical standpoint, prices have been trapped in a steep downward trending channel since late December. The decline accelerated into $2.60 support on January 15th, pushing the daily RSI below 30 for the first time since July 2024. This represents deeply oversold territory and suggests the selling pressure may be reaching exhaustion.

Importantly, the daily RSI broke above its downtrend on January 16th for the first time since mid-November. This potential trend break, combined with the oversold conditions, suggests that at minimum a relief rally may be beginning. The daily Bollinger Bands have adjusted significantly, with the top band at $4.01 and the bottom band at $2.30, reflecting the increased volatility in recent weeks.

Looking at the chart, there's a large unfilled gap from $3.00 up to $3.30 dating back to late December. These gaps often get filled over time as prices gravitate back toward previous levels. Last week's high of $2.90 now serves as a near-term pivot point. A sustained move above this level would confirm that a relief rally is underway and open the door for a test of the gap.

Therefore, we are now bullish on natural gas with a $3.20 target and $2.50 stop-loss. While the fundamental picture around elevated inventories remains a concern, the technical setup and extreme positioning suggest the risk-reward has shifted in favor of the long side, at least for a tactical trade.

Gold prices for February 2026 delivery surged 1.77% last week, closing at $4,599 per ounce and reaching fresh record highs in the process. The rally was driven by a sharp increase in safe haven demand as geopolitical tensions escalated, pushing prices above our previous $4,600 target and officially closing our bullish setup for a substantial gain.

The weekly high came on January 14th when gold touched $4,651, marking a new all-time peak for the precious metal. This surge occurred as markets priced in a high probability of US military action against Iran, with investors fleeing to the perceived safety of gold. The move represented a textbook example of gold fulfilling its traditional role as a hedge against geopolitical uncertainty.

However, gold gave back more than 1% on Friday as investors took profits following the record highs. Signs that geopolitical tensions were easing, with Trump backing away from immediate military strikes, dampened some of the safe haven appeal. This profit-taking was a natural response after such a strong run, and it's created a more balanced technical picture heading into this week.

What's particularly noteworthy about gold's recent strength is that it's occurred despite headwinds from the US Dollar. The Dollar Index has remained relatively firm, closing the week at 99.37 after rising sharply from its December low below 98.00. Typically, a stronger dollar creates pressure on gold prices since the metal is priced in dollars globally. The fact that gold has shrugged off dollar strength and made new highs anyway speaks to the power of the other forces supporting precious metals.

Several factors continue to underpin gold's strength beyond just geopolitical concerns. Central bank demand remains at historically elevated levels as countries continue diversifying their reserves away from traditional currencies. Real interest rates, when adjusted for inflation expectations, remain relatively low, reducing the opportunity cost of holding non-yielding assets like gold. Additionally, concerns about fiscal sustainability in major economies have supported interest in alternative stores of value.

From a technical perspective, gold's surge to $4,651 came with several signals that suggested the move was becoming overextended in the near term. The high occurred with a cross above the daily top Bollinger Band at $4,644 and pushed the daily RSI above 70 for the first time since late December. These overbought readings indicated that momentum was stretched.

The subsequent pullback has been healthy for the sustainability of the uptrend. Gold has retreated to around $4,600, allowing technical indicators to cool off without breaking the overall bullish structure. This type of consolidation after a strong advance is typical and often sets the stage for the next leg higher.

Looking at the bigger picture, gold's pattern of higher highs and higher lows remains firmly intact. The low on December 31st at $4,284 represented the most recent higher low, and last week's move to $4,651 established a new higher high. This pattern has been consistent for months and shows no signs of breaking down.

We believe a pullback toward the $4,450 to $4,550 area would create an attractive entry point for the next leg higher. This zone would represent a healthy retracement of the recent gains while maintaining the integrity of the uptrend. Such a pullback would allow the daily RSI to decline back to the 50-60 area, creating room for another run at new highs.

From a strategic perspective, fighting this trend doesn't appear wise given the strength of the fundamental drivers. The long-term picture for gold remains firmly bullish, and we maintain our view that $5,000 per ounce is achievable over the coming months. Central bank buying, geopolitical uncertainty, and concerns about currency debasement aren't likely to disappear anytime soon.

However, we're also cognizant that the near-term technical picture has become somewhat stretched following last week's surge. Rather than chasing prices at current levels or trying to short the rally, we believe the most prudent approach is to wait for a better entry point.

Therefore, we are now neutral on gold and will look to turn bullish again in the event of near-term weakness. A pullback to the $4,450-$4,550 range would likely present an excellent opportunity to establish or add to long positions, as we expect such weakness to be bought relatively quickly by investors who missed the recent rally or are looking to add to existing positions.

The strength in the US Dollar warrants additional discussion given its typical inverse relationship with gold and other commodities. The Dollar Index has rallied to approximately 99.37, representing a meaningful bounce from the December lows and reaching three-month highs.

From a technical standpoint, the dollar's rally has pushed it into overbought territory. The daily RSI has climbed to approximately 67, approaching levels that often mark near-term peaks. Additionally, the Dollar Index has crossed above its daily top Bollinger Band at 99.67, another signal that the move may be overextended.

We believe this dollar strength is likely to prove temporary. The fundamental supports for a sustained dollar rally appear insufficient. Interest rate differentials have not moved dramatically in favor of the US, and expectations for Federal Reserve policy remain relatively dovish compared to other major central banks. Without a more compelling fundamental story, technical momentum alone is unlikely to sustain a major dollar breakout.

If the dollar does indeed roll over from current levels, as we expect, it would remove a significant headwind for gold and other commodities priced in dollars. This potential shift reinforces our view that any near-term weakness in gold prices should be viewed as a buying opportunity rather than the start of a sustained decline.

We believe Intel presents an interesting opportunity heading into its upcoming earnings report. The company is navigating a complex transition in its product mix and manufacturing strategy, and recent developments suggest the stock may be positioned for a positive reaction to fourth quarter results.

Intel has been managing significant changes to its business over the past year. The company has been working to improve gross margins after a period of significant pressure, and recent quarterly results have shown meaningful progress on this front.

In the second quarter, Intel reported non-GAAP gross margins of 29.7% and provided guidance for third quarter margins of 36%. When the company finally reported third quarter results in October, gross margins came in at 40%, significantly above guidance. However, management guided fourth quarter margins sequentially lower to 36.5%.

The dynamics around Intel's margin profile are driven largely by product mix, particularly the company's Lunar Lake processor line. Lunar Lake chips have memory built directly into the processor, which means Intel must absorb escalating memory costs that would otherwise be borne by PC manufacturers. These built-in memory costs weigh on margins for Lunar Lake products.

To combat this margin pressure, Intel has shifted production away from Lunar Lake toward higher-margin chips where the PC or server manufacturer absorbs the memory costs separately. This strategic shift in the production mix has been intended to support better margins in the fourth quarter. Both PC and data center demand have tracked above initial estimates, providing a favorable backdrop for this strategy.

The market is currently expecting this production shift to result in upside to both earnings and margins for the fourth quarter. If Intel can demonstrate that it's successfully managing its product portfolio to optimize profitability while still meeting customer demand, it would represent an important validation of management's strategy.

While the fourth quarter setup appears favorable, the outlook for the first quarter of 2026 is more complex. PC sales are expected to decline seasonally in the first quarter, which is typical for the industry. At the same time, Intel will be ramping production of Lunar Lake, which means these lower-margin products will represent a higher percentage of total production.

This combination implies a sequential decline in margins for the first quarter. The current consensus estimates already reflect expectations for weaker margins in both the fourth quarter and first quarter, which has created some uncertainty around the stock. We believe current expectations may be overly conservative for the fourth quarter while appropriately cautious for the first quarter.

Historically, Intel's stock price has shown a strong correlation with the company's net margins. When margins expand, the stock tends to perform well. When margins contract, the stock comes under pressure. This relationship makes sense given that margins are a key driver of profitability and cash flow generation.

Looking at the average stock price reaction following earnings, Intel has typically opened unchanged when it beats consensus estimates. When the company beats earnings while providing in-line guidance, the stock has averaged a small decline of 0.6% at the open but has typically held that level throughout the following week. The challenging scenario has been when Intel beats fourth quarter earnings but provides negative guidance for the next quarter, resulting in an average gap down of 3.8% followed by an additional 1.1% decline over the subsequent week.

Given this historical pattern, we expect Intel could face some near-term pressure if management provides cautious guidance for the first quarter, even if fourth quarter results are solid. However, this potential weakness should be viewed in the context of the longer-term margin trajectory.

While the first quarter may present margin headwinds, the broader picture for 2026 appears more constructive. Company management has indicated that margins are expected to continue improving throughout the year, with incremental gross margins in a range of 40% to 60%.

In the early part of the year, Lunar Lake production is expected to be a drag on overall margins as the company ramps these products. However, as Intel shifts production mix from client processors to higher-margin server chips later in the year, margins should improve sequentially. This planned trajectory suggests that any first quarter margin weakness should prove temporary.

The server market represents a particularly important opportunity for Intel. Data center processors typically command higher margins than consumer PC chips, and robust demand from cloud service providers for AI and traditional workloads creates a favorable environment for Intel to gain share and improve its financial performance.

Additionally, Intel's manufacturing strategy and its foundry ambitions represent longer-term opportunities that aren't fully reflected in near-term earnings. The company is investing heavily in new fabrication facilities and aims to become a major provider of chip manufacturing services to other companies. While these investments weigh on near-term profitability, they position Intel to participate in multiple growing markets over the coming years.

We believe the setup for Intel presents an interesting risk-reward profile. The market appears to be pricing in a relatively negative scenario where margins disappoint in both the fourth quarter and first quarter. If Intel can deliver better-than-expected fourth quarter margins while providing guidance that, although cautious for Q1, still points to improvement later in 2026, the stock could react positively.

Even if the initial reaction to earnings is muted or slightly negative due to first quarter guidance concerns, we think any weakness should likely be bought at some point during the quarter. The longer-term margin improvement story remains intact, and Intel's valuation doesn't appear to fully reflect the potential for sustained margin expansion throughout 2026 and beyond.

From a technical standpoint, Intel has been consolidating after previous volatility. The stock isn't at extreme levels in either direction, which provides room for movement in response to earnings. If results exceed expectations and management strikes a constructive tone about the full-year outlook, the stock could see a meaningful positive reaction.

We believe Intel represents a situation where patience may be rewarded. The immediate reaction to earnings could go either way depending on first quarter guidance, but the medium-term fundamental trajectory appears to be improving. For investors willing to look past near-term noise and focus on the margin improvement story for 2026, current levels may present an attractive entry point, and any post-earnings weakness could offer an even better opportunity.

Our current portfolio maintains a net long position in the overall stock market. We believe the combination of strong corporate earnings, supportive technical indicators, and positive momentum following the recent higher low formation continues to favor equity exposure.

Beyond our core market exposure, we currently hold some very small speculative positions in several companies that recently provided impressive guidance significantly above expectations. These positions include Energous, Rezolve AI, and Ondas. Each of these companies pre-announced results or guidance that substantially exceeded market estimates, and we're watching to see if this momentum continues.

Energous provided fourth quarter revenue guidance representing sequential growth of 300% and year-over-year growth exceeding 1,000%. The company's wireless charging technology for IoT devices appears to be gaining traction after years of development. While this remains a highly speculative position given the company's history, the magnitude of the revenue acceleration warrants attention.

Rezolve AI pre-announced 2025 revenue in line with expectations but provided 2026 revenue guidance of $350 million, nearly double the consensus estimate and implying annual growth of 750%. If the company can execute on this guidance, it represents a significant inflection in the business trajectory.

Ondas pre-announced fourth quarter revenue of $27-29 million, nearly double the consensus estimate, representing revenue growth of approximately 580%. The company also raised its 2026 revenue guidance to $170-180 million, implying 260% expected growth. These figures, if achieved, would represent exceptional performance.

We emphasize that these three positions are very small and highly speculative in nature. The companies involved are smaller capitalization names with limited operating histories at their current scale. The positions are sized appropriately given the elevated risk profile, and we're monitoring execution closely. These types of high-growth situations can offer outsized returns when they work, but they also carry significant downside risk if execution falters or if the guidance proves too aggressive.

For the S&P 500, we continue to maintain our bullish stance with a target of 7,000 and a stop-loss at 6,700. The formation of a higher low at 6,885 last week, combined with improving technical indicators and continued dip buying, reinforces our constructive outlook. We expect the index to challenge and ultimately exceed the 7,000 level in the near term.

The technical picture has improved following last week's pullback. Key momentum indicators have reset to healthier levels, creating room for further upside without immediately encountering overbought conditions. The daily Bollinger Bands have adjusted in a way that supports another leg higher, with the top band now above our target.

In commodities, our positioning reflects our views on the fundamental and technical setups across different markets. We are now bearish on WTI crude oil with a $56.00 target and $63.00 stop-loss. The fundamental backdrop of oversupply, political pressure for lower prices, and fading geopolitical risk premiums supports this view. The technical rejection at $62.00 and break below $60.00 confirms the bearish setup.

Conversely, we've turned bullish on natural gas with a $3.20 target and $2.50 stop-loss. The extreme oversold conditions, break of the downtrend in the RSI, and attractive risk-reward at current levels make this a compelling tactical trade. While fundamentals around elevated inventories remain a concern, the technical setup suggests a relief rally is likely.

For gold, we've moved to neutral after reaching our $4,600 target and witnessing the metal achieve fresh record highs above $4,650. We maintain our longer-term bullish view with a $5,000 target, but the near-term technical picture suggests a healthy pullback would create a better entry point. We're looking to turn bullish again if weakness emerges toward the $4,450-$4,550 area.

In fixed income, we remain bullish on the iShares 20+ Year Treasury Bond ETF (TLT) with a $93.00 target and $85.00 stop-loss. Despite the recent backup in yields following hawkish Fed rhetoric, we believe the most extreme hawkish scenarios are now priced in. The technical indicators suggest TLT is positioned to push above $90.00 as the market reprices Fed expectations.

Overall, our positioning reflects confidence in the equity market's ability to extend its gains while taking tactical positions in commodities and fixed income where we see favorable risk-reward opportunities. We remain alert to potential volatility from earnings surprises, economic data releases, or policy developments, but the overall setup continues to favor risk assets in the near term.

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^{IMPORTANT DISCLAIMER}

^{This report represents analysis and opinion rather than investment advice or recommendations. All views expressed reflect our current thinking and may change as new information becomes available. Past performance does not guarantee future results.}

^{Readers should conduct their own research and consult with qualified financial advisors before making investment decisions. Market conditions can change rapidly, and positions discussed may not be suitable for all investors depending on individual circumstances, risk tolerance, and investment objectives.}

^{The information provided is believed to be accurate but is not guaranteed. We do not warrant the completeness or timeliness of information presented. Investing involves risk including possible loss of principal. There is no assurance that any investment strategy will achieve its objectives.}