Must Read Research

This week, we balance enthusiasm with caution — tracking equity sentiment at extreme levels, covering what 2025 taught us about bubbles, considering impact from a fresh wave of stimulus, and discuss why beauty product sales should remain strong well after New Year’s Eve parties are over.

 

Michael Hartnett’s Bull & Bear indicator has moved into extreme bullish territory, rising to 8.5 from 7.9 and triggering a contrarian sell signal for risk assets.

Readings above 8.0 have often preceded pullbacks, with global equities declining a median 2.7% over the following two months, achieving a 63% hit rate. Sentiment data reinforce the cautionary signal: the Fund Manager Survey shows the most bullish sentiment in 3.5 years, driven by expectations of rate, tariff, and tax cuts. While he expects 9% global EPS growth in 2026, Chief Investment Strategist Michael Hartnett cautions that the scope for upside surprises appears limited amid rising U.S. unemployment and signs of bond vigilantes slowing the AI capex boom.  An upside risk to consider is a meaningful stimulus surprise from China. Michael is bullish on positioning for lower CPI, reflected in going long zero-coupon bonds, mid-cap stocks, Emerging Market equities, and natural resources.

 

The key equity volatility lesson from 2025 is that big tech breakthroughs tend to breed big asset bubbles, and 2025 resembles 1996.

Ben Bowler, Head of Global Equity Derivatives Research, shows that AI is following the familiar arc of past transformative tech, from railways to autos, to the internet, each marked by multi-year booms and eventual busts. The Nasdaq rally since ChatGPT’s 2022 launch is eerily tracking the post-Netscape path of the mid-1990s, implying a potential peak around April 2028 if historical patterns repeat. Still, there have been some early warning signs. U.S. tech IPOs saw their strongest first-week gains since the dot-com era, buy-the-dip, behaviors ranked among the most aggressive in a century, and volatility has risen alongside markets (a classic bubble signature). S&P 500 volatility dispersion has even surpassed 2008 levels.

 

This year’s tax code changes and the possibility of “tariff dividend checks” could create a spending boon for retailers in early 2026.

Tax refunds are projected to rise by $65B, or 18% y/y, and if a $2,000 “tariff dividend” is approved, the impact would be even larger, potentially $450B. These figures fall short of the $800B 2020/2021 stimulus, and after years of high inflation, the consumer is now in a more difficult position, suggesting a different, more muted impact. Lower- and middle-income consumers would likely see the biggest uplift, and specialty retail analyst Lorraine Hutchinson expects recipients to focus primarily on essentials. The impact won’t be limited to just specialty retail — beverage, packaged food and household product analyst Pete Galbo highlights that his staples companies could also benefit, and other consumer analysts are assessing implications in light of various cross-currents.

 

Ashley Wallace sees Beauty turning heads in 2026. She predicts the global beauty market to grow 4.5% in 2026, with listed players up 4.9% — roughly double the pace of 2025 — driven by improving trends in China and continued strength in the U.S.

Ashley, head of the EMEA consumer discretionary team, is most constructive on the recovery in luxe skincare and sees premiumization and broader distribution supporting haircare growth. By contrast, she remains cautious on mass beauty, due to the K-shaped consumer backdrop (strength in higher income consumer spending while lower income spending is pressured) and limited distribution expansion benefits. Structural tailwinds remain powerful. Online penetration in the U.S. has risen 20 percentage points over the past decade, with online revenue growing 8x faster than offline. “Barrier repair” — skin care products that protect against environmental stressors — have emerged as the hottest trend, growing >200% in 2025.

 

Must Read Research will return in January. Have a happy holiday!