Market Insight Summary - December 21, 2025

This week's market insights from Bank of America highlight a mix of enthusiasm and caution in the equity markets. Key points include:

Equity Sentiment and Caution

Michael Hartnett's Bull & Bear indicator has reached an extreme bullish level of 8.5, suggesting a contrarian sell signal for risk assets. Historically, readings above 8.0 have preceded market pullbacks, with global equities declining a median of 2.7% over the following two months.

Economic Outlook

Despite a projected 9% global EPS growth in 2026, Hartnett warns of limited upside due to rising U.S. unemployment and potential slowdowns in AI capital expenditures. A significant stimulus surprise from China could be a potential upside risk.

Tech Sector Insights

Ben Bowler notes that the current tech boom, particularly in AI, mirrors past transformative tech cycles, suggesting a potential peak around April 2028. However, early warning signs of a bubble are evident, including aggressive buy-the-dip behaviors and increased volatility.

Consumer Spending Trends

Upcoming tax code changes and potential "tariff dividend checks" could boost consumer spending, particularly among lower- and middle-income households. Tax refunds are expected to rise significantly, although the overall impact may be muted compared to previous stimulus measures.

Beauty Market Growth

Ashley Wallace forecasts a 4.5% growth in the global beauty market for 2026, driven by strong trends in China and the U.S. However, caution remains regarding mass beauty products due to a K-shaped consumer spending recovery.

Conclusion

As we approach the end of the year, the insights suggest a cautious yet optimistic outlook for various sectors, with particular attention to consumer behavior and potential market corrections.

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