Caveat emptor

The 2nd full trading week of the year comes to an end, and after a bit of a wobble in the middle of the week, we should see another week of modest gains in global equity markets, as sector performance continues to broaden away from tech. U.S. small caps continued to push ahead, as the Russell 2000 has outperformed its big brother from the start of the year.

As we review the week, US inflation came in slightly better than expected, and there was some better news on the UK economy, as the November month-on-month report showed that GDP grew by 0.3%. November’s uptick suggests the UK economy grew modestly in the final quarter of 2025. Maybe some relief that the budget was no worse than expected. The price of oil jumped as the possibility of a Trump-initiated military strike on Iran increased, but as he appeared to back away from that idea, the price drifted back down.

Results from TSMC helped boost the tech sector, delivering a record quarter that indicates AI demand shows no signs of slowing and that investment in expanding capacity is ramping up. Taiwan Semiconductor Manufacturing is budgeting up to $56 billion in capital spending this year. US employment data continues to suggest a weakening labour market; however, on Thursday, the Trump administration stated that applications for US benefits fell last week to the lowest level since November. The reporting season started on a generally positive note from the US banking sector. There also seemed to be a slight thawing of hostilities between Powell and Trump by the end of the week. Donald Trump said he does not intend to fire Powell despite a Justice Department probe into the Fed’s renovation.

What is becoming increasingly clear is that investors are moving well and truly into greed territory. The latest AAII retail investor survey shows a spike in optimism about stocks in the coming months. Monthly inflows into equity ETFs continue to set records. According to  Goldman Sachs, risk sentiment among its clients is at historic highs. The streak of monthly inflows into equity ETFs continues to set records. There has been a significant increase in margin debt, which historically has led to market pullbacks. We watch out for the latest S&P Global Investment Manager Index (IMI) survey. The results from early January 2026 show a significant surge in investor risk appetite, reaching its highest “risk-on” reading since April 2021, another sign of greed entering the market. We often mention the Vix; well, the VVIX measures the expected volatility of VIX, which has jumped significantly recently, suggesting some investors are preparing for a period of volatility. Am I overly concerned? No, as the fundamentals stand, they remain positive, but could there be better buying opportunities in the coming weeks? My sense is yes.