by Scott Martindale
  CEO, Sabrient Systems LLC

Quick note: The previous website had some issues, but I invite you now to visit https://MoonRocksToPowerStocks.com to learn more about Sabrient founder David Brown’s new book, Moon Rocks to Power Stocks, which teaches how to build wealth through data and discipline. You can immediately download the book and two bonus reports (on investing in the future of Energy and Space Exploration) in PDF format and learn how to access the Sabrient Scorecards subscription product.

Overview

War and its impact on oil, LNG, and fertilizer supplies and pricing—and by extension the impact on inflation, supply chains, bond yields and mortgage rates, dollar strength, global liquidity and global GDP—continue to top the headlines. And as if that’s not enough, we have our worsening political polarization, an utterly feckless US Congress, and complete lack of bipartisan agreement on anything, with the severe fallout of no DHS funding and long TSA lines at the airport. And lest we forget, we have rising debt and expanding deficits, sticky services inflation, and a softening labor market with falling job openings, layoffs, stalled wage growth, and new college graduates facing rising unemployment. But the buildout of physical AI infrastructure is creating real ROI, wealth creation, and productivity gains, and the companies building the AI compute stack have been delivering incredibly bullish earnings calls and forward guidance—and they are not dissuaded in the least by any of those onerous macro issues.

The doomsayers have been joined by the realists and pragmatists in believing there is no escaping $150/bbl oil and an economic recession, depending upon how much longer the oil market and energy supply chain disruption goes on—leaving only the eternal optimists to carry the bullish flag. History shows that stocks tend to recover nicely following military conflicts that are resolved relatively quickly, finding a bottom concurrently with the peak in oil prices. But production and refining capacity take to time to bring back online, and destruction of energy infrastructure among the Gulf Cooperation Council countries (GCC—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE) can take years to rebuild. If the Iranian regime tries to take it all down concurrent with their own demise, including crippling their own Kharg Island facilities—the future of their own citizens be damned—then the near-term future indeed may be challenging (or even bleak).

The war continues to consume precious resources and disrupt the global economy, as the whole world waits out with bated breath each missile launch and utterance from our president. President Trump’s goals are to defang Iran’s military and long-range missile capability, nuclear infrastructure, and terrorist network, and decapitate its radical, hateful, theocratic regime (and hopefully usher in a friendlier government) without destroying the civilian infrastructure and power grid so that the Iranian people (and the country’s future) aren’t catastrophically crippled. Indeed, rather than Trump “TACOing” again on harsh escalation (i.e., chickening out, as his critics accuse him of), I believe it is really an indication of his desire not to cripple Iran’s future as a thriving participant in the global economy. Trump doesn’t require a secular democracy there; he just wants to see a responsible, approachable government that doesn’t oppress its people, threaten all non-believers with death, aspire to a global caliphate, or zealously pursue an apocalyptic ending that ushers in the “Twelfth Imam.”

What’s left of Iran’s tyrannical regime is behaving like the Black Knight in the old comedy movie, Monty Python and the Holy Grail. Although thoroughly defeated, the regime just keeps on with its impotent saber-rattling. “It’s just a flesh wound!” the Black Knight exclaims after King Arthur chops off his arm. And after the king has chopped off all his arms and legs, the Black Knight says, “Alright, we’ll call it a draw.” Here’s the 4-minute clip. I have much more to say about the Iran War in my Final Comments section below.

Unfortunately, enough market participants are worried that maybe the Iranian regime’s bluster has a kernel of truth, or that US boots on the ground will lead to intolerable death and destruction in a bloody effort to take control of Kharg Island and ship traffic in the Strait of Hormuz. My view is that the regime is flailing like the Black Knight, and that the end is near. No money, dwindling munitions and resources. JP Morgan CEO Jamie Dimon opined that he is optimistic about the aftermath of the war given the new mentality across the region born of recent strong economic growth that has been creating incentives for stability and a desire among the GCC for a “permanent peace in the Middle East” that would open the region to foreign investment and robust growth. He said, “The Iran war gives it a better chance in the long run; [but] it’s probably riskier in the short run." BlackRock’s Larry Fink sees just two extreme potential outcomes with no middle ground: either we see growth, abundance, and $40 oil, or we see global recession and years of $150 oil. It’s worth noting that spikes in oil-to-natural gas ratio historically have receded within a few months; however, destroyed energy infrastructure could easily change this dynamic.

Since its all-time high of 7,000 on 1/28, the S&P 500 is down about 9% (as of 3/30), which means it has lost over $5 trillion in market cap, mostly due to fear-driven selling but also profit protection, capital preservation, and algo trading that is now short-biased. On Friday 3/27 alone, the MAG-7 stocks shed $330 billion in market cap. Traders have been clearing out positions ahead of each weekend due to uncertainty about war escalations. Even holding overnight is worrying for them. The Dow and Nasdaq have fallen more than 10% (i.e., correction territory). Investor trepidation has led to beat-and-raise earnings reports from dominant Tech companies being met with selling—notably Micron (MU) and its incredible quarterly report that confirmed huge demand for AI memory, as well as NVIDIA (NVDA) and its 73% YoY revenue increase that defied the “law of large numbers” for the largest market cap company in the world. Despite seeing its market cap contract for over $5 trillion to closer to $4 trillion, NVIDIA remains an incredibly profitable company with remarkable margins and ROE, and an index weighting of about 8% of the S&P 500—which is more than the weightings of 5 of the 11 GICS sectors (Consumer Staples, Energy, Utilities, Materials, and Real Estate).

The forward P/E on the S&P 500 has fallen from a high around 23x to around 20x today, which is near its 10-year average, The CBOE Volatility Index (VIX) closed last week in panic territory above 31. Bonds have offered no safe haven as auctions have seen limited demand. Nor have gold, silver, and crypto as the US dollar has firmed up and central banks, which had been accumulating gold in a big way, find they desperately need to sell non-interest-bearing assets (like gold) to raise money to either offset lost oil export revenue or to pay the surging price of oil imports. But money is flowing into hard assets, like oil, agriculture, industrial metals, and commodities broadly. Some say the dominos are stacking up much like 2008, this time driven by surging oil prices and a potential meltdown in private credit. The chart below shows the divergent performance of various asset class ETFs, including oil (USO), commodities (DBC), driven mostly by oil and gasoline prices which have seen their biggest surge in four years, agriculture (DBA), bitcoin (BTC-USD), long-term US Treasuries (TLT), and gold (GLD).

This market correction has served to reset lofty valuations in prominent names that many investors want to own for the long term. Keep in mind, large capital spending commitments for AI, defense, and energy projects persist and even grow, such as Meta Platforms’ (META) announcement of an increase in its investment in a state-of-the-art, 1.0 GW AI datacenter in El Paso, Texas, raising its projected capex for the project from $1.5 billion to over $10 billion, as part of a total $135 billion capital spending plan for 2026, creating 4,000 construction jobs and ultimately 300 permanent operations jobs. Moreover, it will be water-positive by employing a closed-loop cooling system, and the company will fully fund all associated infrastructure and power grid connections. This is why engineering & construction firms like Comfort Systems (FIX)—the top performer in our next-to-terminate Q1 2025 Baker’s Dozen—and Sterling Infrastructure (STRL)—a top performer in our Q2 2025 and Q3 2025 Baker’s Dozens—have held up so well despite the profit-taking in their benefactors. I talk more about these firms in my full commentary.

The One Big Beautifull Bill Act (OBBA) has fully kicked in, with its tax reform, deregulation, pro-energy policies, and broad support for the private sector to retake its rightful place as the primary engine of growth via re-privatization, reshoring, and re-industrialization, with much more efficient capital allocation and ROI than government. US corporate earnings are expected to increase by 17% YoY in full-year 2026, according to FactSet—the most since the post-pandemic recovery and a level more typical of an economy emerging from a recession—as analysts keep revising upwards even as share prices fall. However, as DataTrek pointed out, while earnings growth isn’t a concern, Big Tech reinvestment rates are a concern (i.e., capex/cash flow ratio). To be sure, analyst optimism on earnings assumes only a temporary war shock and continued tech strength. As Barclays sees it, “There is a wall of worry—but it’s worth climbing.”

Yes, the Iran hostilities have created vast uncertainties and impacts on energy and supply chains—and by extension inflation. But I still think the overall picture suggests room for another Fed rate cut (certainly not a rate hike!). I go further into all of this in my full post below, including the economy, inflation, Fed policy, and the continued promise of the Tech sector. Then I close with my Final Comments section to expand on my opinions on the Iran “excursion” and the politics around it here at home, followed by an update on Sabrient’s sector rankings, positioning of our sector rotation model, and some top-ranked ETF ideas.

Looking ahead, stock market performance should be more dependent upon earnings growth and ROI rather than multiple expansion—although with this market correction, valuations have pulled back to the 10-year average, which may leave room for some multiple expansion as well. But regardless, rather than the broad passive indexes (which are dominated by growth stocks, Big Tech, and the AI hyperscalers), I think 2026 should continue to be a good year for active stock selection, small caps, and bond-alternative dividend payers—which bodes well for Sabrient’s Baker’s Dozen, Forward Looking Value, Small Cap Growth, and Dividend portfolios, which are packaged and distributed as unit investment trusts (UITs) by First Trust Portfolios.

Witness our Baker’s Dozen portfolios, which have held up relatively well compared to the benchmark S&P 500. The Q1 2026 portfolio (launched 1/17/26) is down only -1.7% vs. -6.1% for SPY (as of 3/27/26). It is led by refiner Valero Energy (VLO) and digital storage maker Western Digital (WDC). It remains in primary market until the Q2 2026 Baker’s Dozen launches on 4/17/26. Notably, last year’s Q1 2025 Baker’s Dozen that terminates on 4/16 has more than tripled the benchmark with a gross total return of +26.3% vs. +7.8% for SPY (as of 3/27/26).

Also, small caps and high-dividend payers tend to benefit from falling interest rates and market rotation—which should resume as the war comes to a (hopefully swift) resolution. Roughly 2/3 of Russell 2000 companies topped Q4 earnings expectations, which is the best beat rate since 2021 (coming out of the pandemic). So, Sabrient’s quarterly Small Cap Growth and Dividend portfolios might be timely investments. And, as a reminder, our Earnings Quality Rank (EQR) is licensed to the actively managed, low-beta First Trust Long-Short ETF (FTLS) as a quality prescreen. Worth checking out.

I have been imploring investors in my recent posts to exploit any significant market pullback by accumulating high-quality stocks as they rebound, with earnings fueled by massive capex in AI, blockchain, energy, and onshoring of power infrastructure and factories, leading to rising productivity, increased productive capacity, and economic expansion. By “high-quality stocks,” I mean fundamentally strong, displaying a history of consistent, reliable, resilient, durable, and accelerating sales and earnings growth, positive revisions to Wall Street analysts’ consensus estimates, a history of meeting/beating estimates, rising profit margins and free cash flow, high capital efficiency (e.g., ROI), solid earnings quality and conservative accounting practices, a strong balance sheet, low debt burden, competitive advantage, a wide moat, and a reasonable valuation compared to its peers and its own history.

These are the factors Sabrient employs in our quantitative models and portfolio selection process. As former engineers, we use the scientific method and hypothesis-testing to build models that make sense. As a reminder, Sabrient founder David Brown reveals the primary financial factors used in our models and his portfolio construction process in his latest book, Moon Rocks to Power Stocks—now an Amazon international bestseller.

Here is a link to this post in printable PDF format, where you also can find my latest Baker’s Dozen presentation slide deck. As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event!  Read on….

  by Scott Martindale
  CEO, Sabrient Systems LLC

 Quick note: If you are a financial advisor who would like to see Sabrient portfolios packaged in an ETF wrapper, please drop me an email (or suggest it to your local ETF wholesaler). We have a line-up of active and passive alpha-seeking portfolios and indexes ready to go!

Overview

The January BLS jobs report strengthened while CPI cooled—a match made in heaven for the economy, right? But investors are grappling with what it portends for Fed monetary policy, particularly given the impending changing of the guard at the Fed. That seems to be all the market cares about at the moment. But of course, in the longer term, these trends bode well for lower interest rates and growth in GDP, earnings, and stock prices, particularly given full implementation of the One Big Beautiful Bill Act (OBBBA), which focuses on tax reform, deregulation, energy production, border security, and broad support for the private sector to retake its rightful place as the primary engine of growth via re-privatization, reshoring, and re-industrialization, with much more efficient capital allocation and ROI than government. All told, I think the GDP, jobs, and inflation story suggests room for more rate cuts, as I discuss in detail in my full commentary below.

As I expected, particularly after a third straight strong year for the market, stocks have been more volatile during Q1, with the CBOE Volatility Index (VIX) climbing back above the 20 “fear threshold.” Energy, Basic Materials, high-dividend payers (aka “bond proxies”), defensive sectors Consumer Staples and Telecom, small caps and equal-weight versions of the major indexes have all significantly outperformed the long-time high-flying mega-cap Tech-dominated S&P 500 and Nasdaq 100 that have been so hard to beat for so long.

February has been marked by rising volatility plus much wailing and gnashing of teeth as the AI story (big investments now for even bigger returns and productivity growth in the near future) is suddenly being questioned. No doubt, stocks have seen the manifestation of investor worries of disappointing or delayed ROI on the massive capex for AI, as well as a crowding out of other uses for the cash, such as for dividends and share buybacks. In addition, the concern that AI will make all current software/SaaS companies obsolete has cut down most software stocks at the knees. And then we have the impact of Kevin Warsh’s nomination for Fed chair, which initially sent commodities (including surging gold and silver) into a tailspin on expectation of (heaven forbid!) tighter policy, lower debt, and a stronger dollar—which used to be considered good things and signs of a robust economy.

In addition, the macro clouds of uncertainty persist regarding trade deals and tariffs, the intractable Ukraine/Russia war, the Venezuela, Cuba, and Iran situations (which also impact China, Russia, and oil markets broadly), enforcement of immigration law, civil strife in US cities, political polarization, imminent midterm elections, Fed policy uncertainty, a stagnant “no-hire, no-fire” jobs market, signs of consumer distress, another partial government shutdown (or in this case, just the DHS), and rising federal debt now approaching $39 trillion (of which $31 trillion held by the global public)—not to mention the gargantuan total unfunded/underfunded liabilities that comprise guaranteed programs like Social Security, Medicare, employee pensions, and veterans’ benefits (as much as $50-100 trillion), plus over $6 trillion in state and local government debt of which over $2 trillion represents public pension and healthcare liabilities as well as state budget deficits that might eventually need federal bailouts. The states and cities in the worst shape are almost all “blue” due to their onerous tax and regulatory policies and massive nanny-state entitlement programs.

So, is it time to go all-in on these defensive plays? Are we due for another 2022-esque bear market? I think not. I think the core of an equity portfolio still should be US Big Tech stocks, given the entrepreneurial culture of US, disruptive innovation, and world-leading ROI that attract foreign capital, as well as Big Tech’s huge cash stores, wide moats, global scalability, resilient and durable earnings growth, free cash flow, margins. In fact, Bill Ackman’s Pershing Square just announced it increased its holdings in Meta Platforms (META) to $2 billion (10% of investment capital). However, the Big Tech hyperscalers (e.g., Microsoft, Alphabet, Amazon, and Meta) have always been considered “asset-light” with their focus on IP, software, and high ROI on minimal physical infrastructure, but their massive spending on datacenters essentially has transformed them into “asset-heavy,” capital-intensive.

According to the Financial Times, “A total of more than $660 billion is set to be ploughed into chips and data centres this year... The unprecedented infrastructure build-out will force Big Tech executives to choose between stemming capital returns to shareholders, raiding their cash reserves or tapping the bond and equity markets more than previously planned.” This has impacted investor psyches.

Nevertheless, there has been little deterioration in the fundamental story for the economy and stocks, and in fact the earnings projections for the S&P 500 in CY2026 are pushing upwards of 15% YoY, according to FactSet. Moreover, net margins are now at 10-year highs (and climbing)—and it extends beyond just the Tech sector. Cathie Wood of Ark Invest believes the US has suffered through a “rolling recession” (largely due to high interest rates) that have “evolved into a coiled spring that could bounce back powerfully during the next few years.” Indeed, capital flow already seems be returning to the AI infrastructure plays, including semiconductors, hyperscale cloud providers, and specialized networking, if not the software/SaaS firms, as I discuss in greater depth below.

Still, ever since the market low on 11/20, small and micro-cap indexes have greatly outperformed, as have the S&P 500 High Dividend (SPYD), S&P 500 Equal-Weight (RSP), and the Dow Transports (IYT). Value is doing well, too. So, this market broadening and mean reversion on valuations that is underway should also offer other (and likely better) opportunities among the AI infrastructure builders (datacenters and networking equipment) and power generators (beyond the giants and hyperscalers) from Industrials, Utilities, and Energy sectors, as well as small/mid-caps, value, quality, cyclicals, and equal-weight indexes. In addition, you might consider high-quality homebuilders, regional banks, insurers, energy services, transports, and healthcare/biotech/biopharma companies. Also, falling interest rates and rising liquidity suggest bond-proxy dividend stocks. Select small caps can offer the most explosive growth opportunities even if the small-cap indexes continue to lag the S&P 500. When borrowing costs decline and credit spreads tighten, small caps tend to respond earlier and more robustly than their larger brethren.

Historically, small caps tend to outperform during periods of rising economic growth, cooling inflation, and falling interest rates. Indeed, analysts are expecting a rebound in earnings for the Russell 2000 this year, beyond the healthy expectations for the S&P 500. Keep in mind, while the cap-weight large cap indexes are dominated by Technology, small cap indexes tend toward Industrials, Materials, and Financials (including regional banks), which should benefit from broad-based economic activity, infrastructure spending, and reshoring of supply chains. Moreover, a dovish Fed should support the earnings of the more interest rate-sensitive market segments (like small caps) as well as mortgage lenders, credit card issuers, high-quality regional banks, property & casualty insurers (who hold bonds as claim reserves), homebuilders and suppliers, home improvement firms, title insurance firms, REITs, and automakers/dealers.

But whether the broad indexes finish solidly positive this year may depend upon: 1) liquidity growth, 2) the relative strength of the dollar, 3) the steepness of the yield curve (could the 2-10 spread rise above 100 bps?), 4) the status and outlook on capex for AI and onshoring, and 5) the midterm elections and whether Republicans retain the House. According to economist and liquidity expert Michael Howell of CrossBorder Capital, this stage of the liquidity cycle (slowing liquidity growth) is correlated with falling bond term premia and flattening yield curve—which means Treasury notes and bonds may perform well later in the year. Indeed, given where we are with stability in real interest rates and inflation expectations, including the many disinflationary trends—like AI, automation, rising productivity, falling shelter and energy costs, peace deals, a firmer dollar, and the deflationary impulse from a struggling China—bonds seem ready to return to their historical role as a portfolio diversifier.

After the S&P 500’s terrific bull run over the past three years in which the MAG7 accounted for roughly 75% of the index’s total return, I think this year might see the equal-weight RSP and small cap indexes outperform the SPY, with the SPY gaining perhaps only single-digit percentage. This scenario also might favor strategic beta and active management. Regardless, stock market performance should be dependent upon strong ROI and earnings growth rather than significant multiple expansion. So, rather than the broad passive indexes (which are dominated by growth stocks, Big Tech, and the AI hyperscalers), I think 2026 should be a good year for active stock selection, small caps, and bond-alternative dividend payers—which bodes well for Sabrient’s Baker’s Dozen, Forward Looking Value, Small Cap Growth, and Dividend portfolios.

I go much further into all of this in my full post below, particularly regarding inflation and Fed policy. Overall, my recommendation to investors remains this: Focus on high-quality businesses at reasonable prices, hold inflation and dollar hedges like gold, silver, and bitcoin, and be prepared to exploit any market pullbacks by accumulating high-quality stocks as they rebound, with earnings fueled by massive capex in AI, blockchain, energy, and power infrastructure and factory onshoring, leading to rising productivity, increased productive capacity, and economic expansion. Regarding “high-quality businesses,” I mean fundamentally strong, displaying a history of consistent, reliable, resilient, durable, and accelerating sales and earnings growth, positive revisions to Wall Street analysts’ consensus estimates and a history of meeting/beating estimates, rising profit margins and free cash flow, high capital efficiency (e.g., ROI), solid earnings quality and conservative accounting practices, a strong balance sheet, low debt burden, competitive advantage, and a reasonable valuation compared to its peers and its own history.

These are the factors Sabrient employs in our quantitative models and portfolio selection process. As former engineers, we use the scientific method and hypothesis-testing to build models that make sense. We are best known for our Baker’s Dozen growth portfolio of 13 diverse picks, which is designed to offer the potential for outsized gains. It is packaged and distributed as a unit investment trust (UIT) by First Trust Portfolios—along with three other offshoot strategies for value, dividend, and small cap themes. In fact, the new Q1 2026 Baker’s Dozen portfolio recently launch on 1/20/2026. Also, as small caps and high-dividend payers benefit from falling interest rates and market rotation, the quarterly Sabrient Small Cap Growth and Sabrient Dividend (a growth & income strategy) might be timely investments. Notably, our Earnings Quality Rank (EQR) is a key factor in each of our strategies, and it is also licensed to the actively managed, low-beta First Trust Long-Short ETF (FTLS) as a quality prescreen.

Sabrient founder David Brown reveals the primary financial factors used in our models and his portfolio construction process in his latest book, Moon Rocks to Power Stocks—now an Amazon bestseller—written for investors of any experience level. David describes his path from NASA engineer in the Apollo Program to creating quantitative multifactor models for ranking stocks and building stock portfolios for four distinct investing styles—growth, value, dividend, or small cap.

Here is a link to this post in printable PDF format, where you can also find my latest Baker’s Dozen presentation slide deck. As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event!  Read on….

  by Scott Martindale
  CEO, Sabrient Systems LLC

 Overview

Bullish conviction was severely tested in November for the first time since the April “Liberation Day” selloff. All the naysayers quickly piled on with warnings of an AI bubble and financial returns on immense capex not being realized for many years, if ever. To make matters worse, they warned of sluggish global liquidity growth in the face of rising debt and an impending “debt maturity wall,” i.e., enormous government and corporate refinancing that could overwhelm capital markets, surge borrowing rates, tighten lending standards, crowd out smaller businesses, and thereby constrain economic growth. But alas, the fear didn’t last long, as the old “bad news is good news” narrative was resurrected to predict increasingly dovish Fed monetary policy would save the day. Indeed, it appears that the S&P 500 still has a shot at finishing 2025 with its third straight year of 20%+ returns (which would be only the second time in history, after the five straight years of the 1995-99 dotcom/Y2K run). And yet the K-shaped economy (i.e., investor/creditor class vs. working/debtor class) is leaving too many citizens behind, particularly young and working-class people.

Remember the famous quote from the fearsome heavyweight champion boxer Mike Tyson, “Everyone has a plan until they get hit in the face”? Well, Steve Forbes had a similar quote for the stock market, “Everyone is a disciplined, long-term investor…until the market goes down.” Indeed, the AI-driven bull run seemed uninterruptable for over six months, with the S&P 500’s 50-day moving average providing reliable support all along the way…at least until 11/17 when for the first time in 138 days (since 4/30) the index closed below its 50-day moving average and triggered a panicky selloff. And then even after another incredible earnings report on 11/19 from market leader NVIDIA (NVDA) that sent the market surging higher on 11/20, by mid-day it came crashing back down on news suggesting maybe the jobs market really wasn’t so bad, which led to worries that the Fed might not cut this month after all, and the market finished the day with a big, ugly, red bearish-engulfing candle. As they say, the more overbought, the worse the correction.

But thankfully, that big, bad, bearish-engulfing candle turned out to be a double-bottom (with the 10/10 low). The S&P 500 found support at its 100-day moving average and then embarked on a rally that has almost entirely retraced its fall from October’s all-time high. It has largely been a speculative “junk rally,” led by the “meme” stocks—like the Roundhill Meme Stock ETF (MEME) and the iShares Micro-cap ETF (IWC), followed by the lower-quality small-cap iShares Russell 2000 (IWM), in which about 40% are unprofitable, then the higher-quality small-cap SPDR S&P 600 (SPSM), in which all are required to be profitable for index entry, and with the mid and large caps trailing behind. Defensives have lagged since April, as illustrated in the chart below showing the ratio of the S&P 500 Low Volatility (SPLV) divided by the S&P 500 High Beta (SPHB), which after a brief jump during the November pullback has returned to its extreme low.

Interestingly, the stock market briefly added a new member of the $1 trillion market cap club during the broad market correction, with drugmaker Lilly & Co. (LLY) enjoying a huge November surge (along with much of the Healthcare sector overall, in a mean reversion catch-up), largely driven by sales in its weight-loss drug Zepbound. So, as LLY pulled back, the trillion-dollar club today is back to 10 members—the original MAG-7 (NVDA, AAPL, GOOGL, MSFT, AMZN, META, TSLA) plus Broadcom (AVGO), Taiwan Semi (TSM), and Berkshire Hathaway (BRK.B).

Short-term technicals on the broad market indexes are overbought once again but still well supported within a bullish uptrend. Nevertheless, for the S&P 500 to hit the 20% return mark for the year will require a bullish catalyst. Most likely it will be the highly anticipated Fed rate cut this week, and importantly, some soothingly dovish words from chairman Jay Powell on additional easing measures plus guidance on the “dot plot” of future rate cuts. However, he can’t be overly dovish as to bring out the “bond vigilantes” in protest, spiking longer-term yields, which would not be favorable for stocks. Market maven Jim Bianco said in an interview on The Money Path that he thinks the tell will be in the number of FOMC member dissents on the expected rate cut, with several dissenters mollifying the bond vigilantes and no dissent angering them. So, Powell walks a tightrope on this, and messaging matters.

Regardless, the liquidity cycle is turning back up, with the Fed already halting its balance sheet reduction (quantitative tightening or QT) as of 12/1, and with more rate cuts in the offing, plus perhaps relaxed capital requirements for banks (like the enhanced supplementary leverage ratio or eSLR) and some form of "QE-lite" to gradually re-expand its balance sheet without antagonizing the bond market. All of this should result in rising M2 money supply. In addition, China has introduced fiscal stimulus and monetary tactics like repurchase operations (“repo”) and a lowered bank reserve requirement ratio (RRR). Furthermore, supply chain pressures are muted, fiscal expansion is underway with lower tax rates and less red tape from the One Big Beautiful Bill Act (OBBBA), and money market funds (aka cash on the sidelines) exceed $8 trillion (the highest ever).

In fact, the Atlanta Fed’s GDPNow is projecting real GDP growth of 3.5% growth in Q3, and forecasters think Q1 2026 might see US growth above 4% given the imminent fiscal impulse (including massive tax refunds in Q1) that should boost the struggling consumer. So, aggregate demand would be expected to rise, likely above the rate of aggregate supply since demand can shift much faster than supply can adjust to match. This would lift asset prices initially, which could be inflationary. As such, some market commentators believe the fed funds neutral rate should match the current rate of nominal GDP growth of 5-6%.

I’m not one of those people. I think any short-term inflationary pressures will be fleeting and offset by the secular disinflationary pressures I often describe: Global Supply Chain Pressure Index (GSCPI) continues to hover at or below the zero line (i.e., its historical average), the benefits of globalization (including comparative advantage) persist despite some strategic onshoring and supply chain diversification, there is a deflationary impulse from China as its dumps cheap goods on the world market in the face of weak domestic demand, and productivity continues to increase through automation and disruptive innovation (including Gen AI).

So, my long-held view remains that a terminal/neutral rate near 3.0% seems right, and the latest fed funds futures suggest 66% odds we get there next year—and that likelihood should increase with the appointment of a new Fed chairman in May (most likely economist Kevin Hassett). Bond yields have normalized with the 10-year Treasury under 4.2%. The flatter yield curve is a market signal to the Fed that it should cut on the short end. The economy needs lower interest rates, including a 30-year mortgage closer to 5%, in tandem with business-friendly fiscal policy and a weaker dollar to: a) sustain rising global liquidity, b) relieve indebted consumers and businesses, c) support US and global economies, and d) avert a global credit crisis. And once that neutral rate is achieved, the Fed can go back into the shadows where it was always intended to be and let fiscal, trade, and tax policies from Congress and the President dominate the news cycle. No more sitting on pins-and-needles at every FOMC meeting or Fed governor speaking engagement.

The return of the “bad news is good news” outlook has fed funds futures solidified at 89% odds of a December cut on 12/10. It also has pushed stocks to within spitting distance of new all-time highs. But notably, bitcoin and other cryptocurrencies corrected much more sharply than stocks, mostly due to deleveraging, and have not yet bounced back like stocks have. Nevertheless, blockchain, tokenization, and stablecoin implementation continue to progress, so I’m not concerned about my crypto allocation—in fact, bitcoin might have just put in a bottom at its 100-week moving average.

Yes, uncertainty persists around trade deals, wars, rising debt, civil strife, stock valuations, a hesitant Fed, and potential government shutdown redux in late January. But investors are positioning for tax and interest rate cuts, deregulation, tame inflation, strong margins & earnings, improving revenue growth, re-privatization, re-industrialization, fast-tracking of power generation infrastructure, robust capex and share buybacks, rising liquidity, a potential “peace dividend,” and a continued flow of foreign capital into the US. Importantly, DataTrek pointed out that Q3 corporate revenue increased by a multi-year record of +8.4%, which is critical for future earnings power—as earnings growth via sales growth is better than cost cutting (higher quality earnings beats). Also, they point out that the percentage of after-tax operating earnings that paid for dividends and stock buybacks has fallen from 96% in 2018 to 81% today, which suggests the difference is being reinvested in business growth—and supports today’s elevated valuations.

In my full commentary below, I talk in greater depth about the K-shaped economy, electricity prices, earnings, debt, inflation, jobs, and Fed policy, as well as the difficulty in “turning the economic ship”—from overreliance on vast, stifling government spending to a robust, unleashed private sector—in the face of political obstructionism, a hostile media, and the impatience of voters in feeling the benefits of the newly passed fiscal stimulus package and the Fed’s monetary stimulus on affordability and mortgage rates, pushing many of them (especially young people and the lower-income/non-asset-holding working class) to shortsightedly embrace the “free stuff” promises of socialist candidates.

I close my commentary by revealing Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, current positioning of our sector rotation model, and several top-ranked ETF ideas. Top-ranked sectors in Sabrient’s SectorCast model include Technology, Healthcare, and Financials. In addition, Basic Materials, Industrials, and Energy also seem poised to eventually benefit from fiscal and monetary stimulus, domestic capex tailwinds, a burgeoning commodity Supercycle, rising demand for natural gas for power generation, and more-disciplined capital spending programs.

History shows that rising GDP growth, stable inflation, and falling interest rates tend to favor small caps. And because small cap indexes are more heavily allocated to Industrials, Basic Materials, and Financials, enhanced infrastructure spending and a revved-up economy could disproportionately benefit them. Indeed, rather than a continuation of the FOMO/YOLO momentum rally on the backs of a narrow group of AI leaders (and some speculative coattail riders), I expect the euphoria will be more tempered next year such that we get a healthy broadening and wider participation across caps and sectors and with a greater focus on quality and profitability. There are plenty of neglected high-quality names worthy of investment dollars. So, rather than the passive cap-weighted indexes, investors may be better served by active stock selection that seeks to identify under-the-radar, undervalued, high-quality gems primed for explosive growth. This is what Sabrient seeks to do in our various portfolios, all of which provide exposure to Value, Quality, Growth, and Size factors and to both secular and cyclical growth trends.

Concerningly, only 22% of active fund managers are outperforming their passive benchmark this year, largely due to the narrow market leadership from the AI-leading Big Tech titans. However, Sabrient has been performing well. We are best known for our 13-stock “Baker’s Dozen” growth portfolio franchise, which is issued quarterly as a 15-month unit investment trust (UIT) by First Trust Portfolios, and each is designed to offer the potential for outsized gains. For example, the Q1 2024 Baker’s Dozen terminated on 4/21/25 with a gross return of +45.7% vs. +8.2% for S&P 500, and the Q3 2024 portfolio terminated on 10/20/25 up +41.7% vs. +24.1% for S&P 500.

In addition, last year’s 33-stock Forward Looking Value 12 terminated on 11/10/25 up +19.9% vs. +12.7% for the S&P 500 Value Index. Also, small caps tend to benefit most from lower rates and deregulation, and high dividend payers become more appealing as bond alternatives as interest rates fall, so Sabrient’s quarterly Small Cap Growth and Sabrient Dividend (growth & income strategy) also might be timely as beneficiaries of a broadening market.

The Baker’s Dozen growth portfolio and three offshoot strategies for value, dividend, and small cap all leverage Sabrient’s process-driven, growth-at-a-reasonable-price methodology, which was developed by founder David Brown. All four strategies are described in his latest book, Moon Rocks to Power Stocks: Proven Stock Picking Method Revealed by NASA Scientist Turned Portfolio Manager (catch the low-price promotion this week only!). To learn more about both the book and the companion subscription product we offer (which does most of the stock evaluation work for you), please visit: https://DavidBrownInvestingBook.com

Click HERE to find this post in printable PDF format, as well as my latest Baker’s Dozen presentation slide deck and my 3-part series on “The Future of Energy, the Lifeblood of an Economy.” As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event!  Read on….

  by Scott Martindale
  CEO, Sabrient Systems LLC

 Overview

In Part 3 of my 3-part commentary on Energy, I close the series by discussing these topics: 1) Solving the US grid fragility problem, 2) The future is nuclear, 3) Rare earth elements, 4) Superconductors, and 5) Investment opportunities. Then I close as usual with Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, and current positioning of our sector rotation model.

In Part 1 of my 3-part commentary, I discussed the following topics: 1) A brief history of energy, 2) Fossil fuels remain dominant today, and 3) The push for renewables. If you missed it, you can read it here at Sabrient.com.

And in Part 2, I discussed: 1) Green legislation and subsidies encounter roadblocks, 2) Europe hitting a breaking point, and 3) Surging power demand from AI and other new technologies. If you missed it, you can read it here.

To reiterate, I am writing this special 3-part series on Energy because: 1) it is the lifeblood of an economy, 2) it is a key component of inflation, 3) AI applications and datacenters are expected to surge global demand for electricity in the face of an already overburdened power grid, and 4) low energy costs benefit all aspects of the economy and raise our GDP growth rate, thus allowing us to more quickly grow our way out of debt rather than having to resort to austerity measures. In summary, it is essential that we have abundant, affordable, reliable, equitable, secure, and clean power generation, and the key energy sources to achieve that are natural gas today and nuclear in the longer term.

I began my professional career with Chevron Corporation, serving as a civil/structural design engineer and environmental compliance engineer for offshore oil & gas production, as well as senior analyst and operations manager in the oil shipping segment. I continue to follow the Energy sector to this day.

By the way, Sabrient’s 13th annual Forward Looking Value 13 portfolio launched on 8/15 with a value and small/mid-cap bias, as an alpha-seeking alternative to the S&P 500 Value Index (SPYV). This may be a timely investment in that Fed rate cuts this fall should be favorable for value stocks and small caps, which frequently are capital intensive and carry significant debt as part of their capital structure. Moreover, given the striking divergence in growth over value and large over small caps, the time may be ripe for mean reversion and market rotation into value and small/mid-caps.

Our other portfolios in primary market include Q3 2025 Baker’s Dozen which launched on 7/18, Dividend 53 which launched on 8/8 with a yield of 4.0%, and Small Cap Growth 47 which launched on 7/16. All represent alpha-seeking alternatives to passive broad-market benchmarks.

Click HERE for a link to this post in printable PDF format. As always, please email me your thoughts on this article, and feel free to contact me about speaking at your event!

Read on….

  by Scott Martindale
  CEO, Sabrient Systems LLC

 Overview

In Part 1 of my 3-part commentary, I discussed the following topics: 1) A brief history of energy, 2) Fossil fuels remain dominant today, and 3) The push for renewables. In case you missed it, you can read it here at Sabrient.com.

In today’s Part 2 below, I discuss: 1) Green legislation and subsidies encounter roadblocks, 2) Europe has hit a breaking point, and 3) Surging power demand from AI and other new technologies. Then I close as usual with Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, and current positioning of our sector rotation model.

And next week in Part 3, I will discuss: 1) Solving the US grid fragility problem, 2) The future is nuclear, 3) Rare earth elements, 4) Superconductors, and 5) Investment opportunities. So, watch for those next two emails.

To reiterate, I am writing this special 3-part series on Energy because: 1) it is the lifeblood of an economy, 2) it is a key component of inflation, 3) AI applications and datacenters are expected to surge global demand for electricity in the face of an already overburdened power grid, and 4) low energy costs benefit all aspects of the economy and raise our GDP growth rate, thus allowing us to more quickly grow our way out of debt rather than having to resort to austerity measures. In summary, it is essential that we have abundant, affordable, reliable, equitable, secure, and clean power generation, and the key energy sources to achieve that are natural gas today and nuclear in the longer term.

I began my professional career with Chevron Corporation, serving as a civil/structural design engineer and environmental compliance engineer for offshore oil & gas production, as well as senior analyst and operations manager in the oil shipping segment. I continue to follow the Energy sector to this day.

By the way, Sabrient’s latest Q3 2025 Baker’s Dozen launched on 7/18. Small Cap Growth 47 launched on 7/16 as an alpha-seeking alternative to the Russell 2000 Index (IWM) for small cap exposure. The new Dividend 53 launched on 8/8. And the annual Forward Looking Value portfolio launches this Friday 8/15 as an alpha-seeking alternative to the S&P 500 Value Index (SPYV).

Click HERE for a link to this post in printable PDF format. As always, please email me your thoughts on this article, and feel free to contact me about speaking at your event!

Read on….

 
  by Scott Martindale
  CEO, Sabrient Systems LLC

I am writing this special 3-part series on Energy because: 1) it is the lifeblood of an economy, 2) it is a key component of inflation, 3) AI applications and datacenters are expected to surge global demand for electricity in the face of an already overburdened power grid, and 4) low energy costs benefit all aspects of the economy and raise our GDP growth rate, thus allowing us to more quickly grow our way out of debt rather than having to resort to austerity measures. In summary, it is essential that we have abundant, affordable, reliable, equitable, secure, and clean power generation, and the key energy sources to achieve that are natural gas today and nuclear in the longer term.

I began my professional career with Chevron Corporation, serving as a civil/structural design engineer and environmental compliance engineer for offshore oil & gas production, as well as senior analyst and operations manager in the oil shipping segment. I continue to follow the Energy sector to this day.

Key Points:

1.      Global energy consumption, largely driven by hydrocarbons, continues to increase. Access to affordable energy is fundamental to economic health, supporting GDP growth, elevating living standards, reducing poverty, mitigating inflationary pressures, and enabling debt alleviation through economic expansion rather than austerity.

2.      Advancements in artificial intelligence, automation, and electrification are anticipated to transform the economy and society primarily through productivity improvements. However, these trends will also contribute to rising global power demand, placing additional strain on already burdened power grids.

3.      In the near term, hydrocarbons remain the most reliable and affordable fuel source, with natural gas being the cleanest and most efficient option. This is why global hydrocarbon consumption persists in its upward trajectory despite significant capital investments and government subsidies directed toward wind and solar initiatives.

4.      Renewable energy sources promoted by governments—primarily wind and solar—exhibit lower energy density and conversion efficiency, and their intermittent nature necessitates battery storage and backup generation. These challenges can result in unreliability, grid instability, higher costs, suboptimal returns on investment, and continued reliance on government subsidies. Furthermore, as renewables cannot fully replace fossil fuels for reliable baseload power, they introduce redundancy that greatly increases the overall cost and complexity of power generation.

5.      Looking ahead, it is improbable that fossil fuel reserves alone will sustain eternal economic growth. Nuclear energy, particularly emerging low-emission low-waste fission technologies using thorium or high-assay low-enriched uranium (HALEU), is poised to play a critical role, including small modular reactors (SMRs). But ultimately, nuclear fusion—having zero greenhouse gas emissions, minimal hazardous waste, and an unlimited fuel source (ocean water)—represents the long-term “holy grail” of sustainable energy production.

6.      The growing electrification of the economy is increasing dependence on materials such as rare earth elements (REEs), which are vital components in wind turbines, electric vehicles, and photovoltaic cells. Additionally, superconductive materials like graphene may enhance efficiency and minimize transmission losses. Technology futurist George Gilder predicts that future datacenters could be consolidated into single graphene wafers, potentially eliminating the need for hyperscale cloud infrastructure.

7.      Regarding investment opportunities, I identify some of the key industry players, accessible via both individual stocks and exchange-traded funds (ETFs).

In Part 1 of my 3-part commentary below, I discuss the following topics: 1) A brief history of energy, 2) Fossil fuels remain dominant today, and 3) The push for renewables. Then I close as usual with Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, and current positioning of our sector rotation model.

Coming up next week in Part 2, I will discuss: 1) Green legislation and subsidies encounter roadblocks, 2) Europe hitting a breaking point, and 3) Surging power demand from AI and other new technologies. And then the following week in Part 3, I will discuss: 1) Solving the US grid fragility problem, 2) The future is nuclear, 3) Rare earth elements, 4) Superconductors, and 5) Investment opportunities. So, watch for those next two emails.

By the way, Sabrient’s latest Q3 2025 Baker’s Dozen launched on 7/18. Small Cap Growth 47 launched on 7/16 as an alpha-seeking alternative to the Russell 2000 for small cap exposure. And the current Dividend 52 will close out its time in primary market this Thursday 8/7. It is a growth & income strategy with a current yield of 3.31%. Note: The new Dividend 53 will launch this Friday 8/8.

Click HERE for a link to this post in printable PDF format. And as always, please email me your thoughts on this article, and feel free to contact me about speaking on any of these topics at your event! 

Read on….