Macro Brief -- Jan 14, 2026

What I’m telling clients right now is that the market is catching its breath in a Goldilocks expansion. The data shows a positive yield curve at 2.26%, stable credit spreads, and a labor market that’s cooling but not collapsing. That’s the environment we’re in. My confidence in this regime is about 70%, which means we’re positioned for resilience, not runaway acceleration.

The plumbing is functioning, with investment-grade spreads around 95 basis points showing no immediate stress. That said, this stability is built on a delicate balance; inflation at 4.5% keeps the Fed on hold, and any reacceleration in price pressures would force a harsh reassessment of this entire setup.

The credit market is our first canary, and it’s singing for now. High-yield spreads are tight, and defaults remain low, which tells you the corporate sector’s fundamentals are holding. Investment-grade debt yields around 5%, offering a solid anchor for portfolios.

However, any uptick in defaults would be our first warning sign, and with the Senior Loan Officer Opinion Survey (SLOOS) showing tightening at 6.5, the flow of easy credit is definitely slowing. This isn’t a red flag yet, but it’s a reminder that the market is functioning, not healing from the rate shock of the past two years.

Let’s talk about the curve, because its steepening is the most important signal in the market. The 2s/10s spread is positive at 2.26%, which reflects a return of term premium.

This is supportive for income strategies—you can get over 4% in 2-5 year Treasuries—but it puts a ceiling on equity multiples. The market is pricing in a normalization, not a collapse. That said, this steepening is a double-edged sword; it suggests growth expectations are improving, but it also means the cost of capital has permanently reset higher, which demands valuation repair across all assets.

And that repair is exactly what we’re seeing in equities. The S&P 500 is hovering near highs, but the P/E multiple has compressed from its peak. The real story is in the sectors. Semiconductors, for instance, are trading at low-teens free cash flow multiples, a world away from the 30-40x valuations we saw at the frenzy’s peak. Software names are in the low-20s. This is the market internalizing a higher discount rate. It’s stable, not cheap. But remember, these are quality secular growers; their earnings durability is what we’re paying for, not speculative multiple expansion.

The income side of the barbell has never been more compelling. This isn’t about reaching for yield in junk; it’s about locking in quality income. Treasury yields north of 4% are the foundation. From there, investment-grade corporates pay about 5%. In the tax-exempt world, certain muni bonds can yield 6-7% on a taxable-equivalent basis. Preferred securities and private credit round out the picture, with the latter offering 9-11% for those with the mandate and patience for illiquidity. This is the ballast for the portfolio. However, the risk here is duration; if the term premium spikes further, even these high starting yields will see mark-to-market pain.

Internationally, there are pockets of value that echo this theme of valuation repair. European and Japanese mid-cap stocks are trading at 11-14 times earnings, a discount to their U.S. mega-cap counterparts. In fixed income, emerging market sovereign debt offers yields between 7-9%. These are not momentum trades; they are value plays contingent on a stable dollar and contained global volatility. The DXY is a key watch item here. But the caveat is obvious: these are deeper waters, and they are the first to get choppy if the dollar strengthens or growth stutters globally.

Headlines about record highs for the S&P 500 and a $4 trillion market cap for Alphabet can create a sense of euphoria. Don’t mistake market breadth for market health. This rally has been narrow, driven by a handful of giants. The plumbing check—credit spreads, the yield curve, liquidity measures like M2 growth—is what keeps me grounded. The current regime suggests expansion, but it’s a measured one. My positioning reflects that: a barbell of secular growth in repaired sectors like semis and software, balanced with high-quality, high-yielding income across Treasuries, IG credit, and private assets.

So, where does that leave us? In a market that’s priced for a perfect soft landing. The data supports it for now. But as an advisor, my job is to stress-check that narrative. The campaign to persuade Trump to investigate the Federal Reserve chief, as reported, is a stark reminder that the central bank’s independence—and thus the market’s anchor—could become a political football. That’s a latent risk not in the economic data, but in the room.

Risks to Monitor: The view breaks if inflation stalls stubbornly above 3.5%, forcing the Fed to hike rather than just hold. A sharp, disorderly spike in term premium would crush both bond portfolios and equity valuations simultaneously. Finally, a meaningful earnings miss from a mega-cap leader would expose the fragility of the narrow market breadth and trigger a broader de-risking. These are the mechanisms that could end the Goldilocks dance.