Evidence Brief - 19 Dec 2025
A summary of market leadership, breadth, and positioning risk.
I am starting a new format of the Evidence Brief. It should allow for more actionable insights into the strongest areas of the current market. Enjoy.
Market Regime Overview
This week was a “two-halves” tape: early-week weakness and hesitation (valuation/AI-capex worries), then a late-week rebound as inflation data came in cooler than expected and tech leadership snapped back, helped by Micron’s upside catalyst in semis. Versus the prior week’s tone, this week improved modestly but remained selective: leadership matters more than broad participation right now, and “permission to deploy” is present - but targeted.
Weekly Sector Allocation
FAVOR
Technology & Innovation
Materials & Real Assets
NEUTRAL
Communications & Media
Consumer (Discretionary & Staples)
Industrials & Transportation
Financials & Credit
Healthcare & Life Sciences
AVOID
Energy & Power
Real Estate & Yield
Defensive / Low-Volatility
Speculative / High-Beta
Sector Commentary - Changes & Key Focus Areas
Technology & Innovation - FAVOR
Tech reasserted leadership into week-end as markets cheered softer inflation and leaned back into AI-linked winners; the tone improved materially from the early-week “AI valuation” wobble. The internal posture stays consistent: selective risk exposure remains appropriate, with emphasis on confirmed leaders rather than broad beta.
Capital behavior:
Favor semiconductors, AI infrastructure, and data/compute-enablers; avoid “story tech” without durable demand or clear institutional sponsorship.
Materials & Real Assets - FAVOR
Real assets continued to act as a viable secondary sleeve alongside tech leadership, supported by strength in precious metals and industrial metals over the week. This fits the internal bias toward “structural improvement” themes that can hold up even when breadth is mixed.
Capital behavior:
Favor metals-linked groups and quality miners/material inputs showing constructive structure; avoid crowded, high-volatility commodity punts without trend support.
Financials & Credit - NEUTRAL
Rate-cut expectations into 2026 helped the tone, but the group still reads as “opportunistic/selective” rather than durable leadership this week. This bucket stays neutral - watching for broader participation before upgrading posture.
Capital behavior:
Favor quality banks/credit-sensitive leaders only when they confirm trend + relative strength; avoid low-quality lenders and crowded “reach-for-yield” expressions.
Energy & Power - AVOID
Energy dropped on the week, with oil flat and the sector failing to participate meaningfully in the late-week risk-on rotation. The view stays “de-emphasize” until structural improvement becomes visible again.
Capital behavior:
Avoid new energy exposure absent clear trend resumption; stay focused on sectors where capital is actively being rewarded.
Buckets Reviewed - No Material Change
Communications & Media (Neutral): mixed participation; treat as an extension of tech leadership, not its own regime signal.
Consumer (Neutral): segmented; selective only - avoid broad-brush “consumer strength” conclusions.
Industrials & Transportation (Neutral): pockets of strength, but not a dominant leadership engine this week.
Healthcare & Life Sciences (Neutral): headline/policy sensitivity; treat as tactical/selective.
Real Estate & Yield (Avoid): ongoing rate sensitivity; no leadership confirmation.
Defensive / Low-Volatility (Avoid): lagging as capital preferred growth/innovation into week-end.
Speculative / High-Beta (Avoid): inconsistent follow-through; avoid until risk appetite is clearly expanding.
Risk Signals to Monitor
Tech leadership follow-through: continued outperformance is the clearest “permission” signal in this tape.
Volatility expansion: a renewed spike would negate the late-week improvement and force a more defensive posture.
Breadth/participation: continued improvement beyond tech/materials would be the hallmark of a deeper regime shift (upgrade case).
AI sentiment / capex headlines: the week showed this can still swing the tape quickly.
Macro surprise risk into year-end: inflation/jobs prints (and Fed-path repricing) remain the primary “fast change” catalyst.
What This Environment Favors
Selective, leadership-driven deployment. The market is allowing risk exposure again, but it is rewarding quality + structure over broad participation. This is an environment for focusing on the strongest themes (tech leadership and real-assets strength), controlling downside tightly, and letting evidence - not excitement - dictate exposure.
What Would Change the View
A breakdown in current leadership (especially tech) or a meaningful volatility expansion would shift posture back toward defense; sustained participation broadening across neutral buckets would justify incrementally more constructive exposure