Good morning investors,
With just two trading sessions left in 2025, the equal-weight consumer staples sector has dropped to record lows versus the equal-weight S&P 500, signaling investors are abandoning safety for growth, exactly what healthy bull markets do. Copper hits 41% yearly gains, its best since 2009, as AI data center buildout creates insatiable demand for the red metal. Meta's $2 billion acquisition of AI agent developer Manus shows Big Tech's aggressive push beyond chatbots into functional automation. Meanwhile, Bitcoin limps toward year end down 6%, a stunning reversal from October's $126,000 peak as leverage unwinding continues.
Opening Bell: Risk-On Rotation
Futures flat across the board with S&P ($SPY ( ▲ 0.07% )), Dow ($DIA ( ▲ 0.12% )), and Nasdaq ($QQQ ( ▲ 0.21% )) futures all hovering unchanged. Markets digest Monday's tech selloff where Nvidia ($NVDA ( ▼ 2.21% )) fell 1% and Palantir ($PLTR ( ▲ 1.77% )) dropped 2.4%. Silver ($SILVER ( 0.0% )) futures' worst day since 2021 dragged materials lower with Newmont plunging 5.6%.
Thursday's closure for New Year's Day creates another shortened week perfect for positioning adjustments.
Staples Abandonment Confirms Bull Market
Consumer staples hitting record lows versus the broader market provides powerful confirmation of risk appetite. These predictable cash flow generators, such as Procter & Gamble, Coca-Cola, Costco, all typically outperform during uncertainty. Their underperformance signals investor confidence.
We are in a market environment where every sector in the S&P 500 is trading above its 200 day moving average other than Consumer Staples. This provides a footing for a healthy bull market that isn't reliant on a handful of stocks. Capital is flowing towards risk on areas of the market with operating leverage and earnings momentum, and defensive positioning is sitting on the sidelines.
This setup suggests investors believe momentum continues and any economic weakness proves temporary. It's consistent with robust bull market internals even as leadership rotates and volatility occasionally flares.
Copper's AI-Driven Supercycle
Copper's 41% surge to $12,405 marks its best year since emerging from the 2008 crisis. The rally transcends traditional demand drivers, this is about AI infrastructure requiring massive copper for data center wiring, power transmission, and cooling systems.
JPMorgan targets $12,500 for Q2 2026, citing data center demand as "extremely topical" upside risk. Ian Roper at Astris Advisory explains the evolution: "The story has been green energy and EVs, now data centers are the big growth story." Every hyperscaler buildout needs copper's conductivity.
Goldman's more conservative $10,000-11,000 range still acknowledges AI and defense spending prevent any meaningful correction. Their 2035 target of $15,000 suggests this represents early innings of a structural supercycle.
Meta's $2 Billion AI Agent Bet
Meta acquiring Manus for over $2 billion signals the next AI frontier: agents that execute complex tasks beyond chatbots. Manus claims $125 million revenue run rate just eight months post launch, processing 147 trillion tokens while supporting 80 million virtual computers.
This follows Meta's $14.3 billion Scale AI investment and Limitless acquisition, showing aggressive talent accumulation beyond internal Llama development. Microsoft already testing Manus in Windows 11 validates the technology's enterprise potential.
The strategic importance of moving from AI that talks to AI that does. Market research, coding, data analysis, these agents automate knowledge work at scale. Meta securing this capability before competitors represents significant competitive advantage.
Bitcoin's Leverage Hangover
Bitcoin ending 2025 down 6% at $87,850 after touching $126,000 in October perfectly captures crypto's leverage problem. The 23% three-month decline stems from cascading liquidations of overleveraged positions, not fundamental deterioration.
The token recovering from November's $80,000 low suggests base building rather than breakdown. Institutional infrastructure continues developing while retail speculation washes out, classic consolidation before next leg higher.
I still have high conviction that Bitcoin recovers $100,000 and moves higher.
Year-End Scorecard
S&P 500 up 17.4%, Nasdaq gaining 21%, and Dow advancing 13.9% mark another banner year despite persistent wall of worry. Communications services (+32.5%) and technology (+25%) dominated as AI themes prevailed.
Individual winners tell the story: Western Digital up 300%, Micron surging 250%, Palantir gaining 140%. The losers, Alexandria Real Estate down 50%, Iron Mountain off 21%, show real estate's struggles amid higher rates.
Fed Minutes Preview
Today's 2 PM FOMC minutes release provides final 2025 insight into committee thinking. With 80% odds of January hold, markets seek confirmation of continued patience balancing employment concerns against sticky inflation.
The minutes matter less for immediate impact than understanding 2026 framework. How divided was the committee? What conditions trigger next move? These nuances shape Q1 positioning.
My Growth Screener Update
My equity growth screener now captures 30 stocks, up from 28 last month, identifying high-quality growth companies with sustainable competitive advantages. I'll track these picks more closely in 2026 to demonstrate the screener's effectiveness in identifying outperformers.
The expansion reflects broadening opportunities beyond mega cap tech as earnings growth spreads across sectors. Quality growth at reasonable valuations becomes increasingly important as markets mature.
Final Thought
Consumer staples' record underperformance provides the clearest bull market confirmation signal possible. When investors abandon Coca-Cola for Nvidia, Procter & Gamble for Palantir, safety for growth, that's risk appetite at its purest.
As we close 2025 with markets near records, the setup for 2026 looks constructive despite inevitable volatility ahead. My 10% gain projection with 10-20% drawdowns reflects historical midterm patterns where corrections create opportunities. The post COVID market psychology, sharper drops but quicker recoveries, rewards preparation over panic.
Use these final sessions to position for 2026's themes: AI implementation beyond infrastructure, international diversification windows, small cap outperformance potential, and commodity super cycles. The bull market's foundation remains solid even as leadership rotates.
Wishing all readers a prosperous and healthy 2026.
As always, feel free to reach out with questions about year-ahead positioning.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.