Market Insight Summary - December 21, 2025

Author: Candace Browning, Head of BofA Global Research

Overview

This week, the report balances enthusiasm with caution, highlighting extreme equity sentiment levels, lessons from 2025 regarding market bubbles, and the potential impact of new stimulus measures. Notably, beauty product sales are expected to remain strong post-New Year’s Eve.

Key Insights

• Market Sentiment: Michael Hartnett's Bull & Bear indicator has reached 8.5, indicating extreme bullish sentiment and triggering a contrarian sell signal for risk assets. Historically, readings above 8.0 have preceded market pullbacks.
• EPS Growth: Hartnett anticipates 9% global EPS growth in 2026 but warns of limited upside due to rising U.S. unemployment and potential slowdowns in AI capital expenditures.
• Stimulus Impact: Tax refunds are projected to increase by $65 billion, with potential "tariff dividend checks" further boosting consumer spending, particularly among lower- and middle-income households.
• Beauty Market Growth: The global beauty market is expected to grow by 4.5% in 2026, driven by trends in China and the U.S., with a focus on premium skincare and haircare products.
• Volatility Lessons: The report draws parallels between current tech trends and historical asset bubbles, suggesting a potential peak in tech stocks around April 2028.

Conclusion

While there are positive indicators for growth in certain sectors, caution is advised due to extreme market sentiment and potential economic headwinds. The beauty sector, however, shows promise for continued growth.

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