Despite a relatively uneventful news flow this week, most equity indices, particularly in tech, are trading firmly in positive territory. Even the renewed strength in oil prices, driven by Iran’s refusal to engage in further peace negotiations, appears to have had little impact on equities, at least when it comes to tech. Because, in many ways, we have returned to a familiar market regime where anything related to AI continues to rally, while the rest of the market lags behind.

That said, it is worth asking why equities were so quick to dismiss the still unresolved geopolitical tensions between the United States and Iran after only a brief pullback. Two potential explanations come to mind.

• The market may be anticipating that pressure on Iran will increase significantly due to the risk of imminent shut ins, which could begin within the next two weeks.

• Alternatively, one could argue that the US economy has, for now, remained largely insulated from rising energy prices. The impact is mainly felt at the gas pump, while higher fuel costs are likely more than offset by the tax relief measures introduced under Trump’s One Big Beautiful Bill.

Whatever the underlying reason, the key takeaway is that geopolitics appears to be fading into the background for now. This is particularly relevant as attention may soon shift towards a potentially significant development on the monetary policy front, namely the prospect of a new Fed Chair.

To recap, amid investigations by the Department of Justice into whether Jerome Powell may have provided misleading testimony to Congress last year. Powell’s refusal to respond to a formal questionnaire from the investigating prosecutor effectively led to a political deadlock. A compromise solution now seems to have emerged, and the charges against Jerome Powell appear to have been dropped. As a result, both sides may find a face saving outcome, and there should be little standing in the way of Warsh’s confirmation.

Institutional Positioning

Before turning to this week’s macroeconomic data, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

CAD CPI y/y (Previous: 1.8%, Forecast: 2.5%, Actual: 2.4%)

Canada’s headline inflation rate rose sharply to 2.4% in March 2026 from 1.8% in the prior month, matching the highest level in a year but coming in slightly below expectations of 2.5%. The increase reflected the early impact of the Middle East conflict on consumer prices, as disruptions to tanker flows from the Persian Gulf led to global energy shortages. Energy inflation rebounded to 3.9% from a prior deflation of 9.3%, pushing transportation inflation up to 3.7% from -0.8% in February. This was accompanied by faster price growth in shelter at 1.7% from 1.5% and in recreation and education at 2.6% from 0.5%. At the same time, base effects linked to the reintroduction of GST and HST taxes continued to influence food prices, with food inflation easing to 4.0% from 5.4%. On a monthly basis, CPI increased by 0.9%, largely driven by a 21.2% jump in gasoline prices.

NZD CPI y/y (Previous: 3.1%, Forecast: 2.9%, Actual: 3.1%)

Annual inflation in New Zealand came in at 3.1% in Q1 2026, unchanged from the previous quarter’s 1.5 year high and above expectations of 2.9%, exceeding the RBNZ’s 1 to 3% target range. The main drivers were housing and household utilities, which rose 3.4%, supported by a 12.5% increase in electricity prices and an 8.8% rise in local authority rates and payments. Food prices remained elevated at 4.0% compared to 4.3%, mainly due to higher meat and poultry costs, while transport inflation accelerated to 3.3% from 2.6% on the back of rising private transport expenses. Additional upward pressure came from alcoholic beverages and tobacco at 2.8% from 2.4%, health at 4.1% from 0.7%, and miscellaneous categories at 2.2% from 2.1%, while inflation moderated in clothing at 1.3% from 1.7%, communication at 4.6% from 4.8%, and recreation and culture at 2.2% from 3.2%, with education steady at 2.5%. On a quarterly basis, CPI rose 0.9%, accelerating from 0.6% previously.

GBP UE Rate (Previous: 5.2%, Forecast: 5.2%, Actual: 4.9%)

The UK unemployment rate declined to 4.9% in the three months to February 2026, below expectations of 5.2%. The drop in unemployment coincided with an increase in economic inactivity, suggesting that some individuals exited the labor force rather than secured employment. The number of unemployed fell by 60,000 to 1.78 million, mainly among those out of work for less than six months, while 95,000 additional individuals left the labor market, pushing total inactivity to 9.116 million and lifting the inactivity rate to 21.0%. Employment rose by 24,000 to 34.328 million, with the employment rate edging up to 75.0%, largely due to gains in full time jobs, while the number of people holding second jobs declined to 1.273 million, representing 3.7% of total employment.

GBP CPI y/y (Previous: 3.0%, Forecast: 3.3%, Actual: 3.3%)

UK inflation increased to 3.3% year on year in March 2026 from 3.0%, in line with expectations and marking a three month high. The rise was partly driven by transport costs, which climbed 4.7%, the fastest since December 2022, with motor fuel prices up 4.9% as a result of the conflict with Iran. Petrol prices rose by 8.6 pence per litre and diesel by 17.6 pence. Housing and household services increased by 4.3% from 4.2%, driven by a 95.3% surge in domestic heating oil, the strongest since September 2022. Food and non alcoholic beverages rose 3.7% from 3.3% and services inflation increased to 4.5% from 4.3%, while clothing prices fell by 0.8%, the largest decline since March 2021. On a monthly basis, CPI rose 0.7%.

USD Retail Sales (Previous: 0.7%, Forecast: 1.4%, Actual: 1.7%)

US retail sales increased by 1.7% in March 2026, exceeding expectations of 1.4% and following a revised 0.7% gain in February, marking the strongest growth since March 2025. The increase was largely driven by a record 15.5% surge in gasoline station sales as fuel prices rose amid the Iran conflict, while overall consumer spending remained resilient across most categories, likely supported by larger tax refunds. Gains were recorded across motor vehicles at 0.5%, furniture at 2.2%, electronics at 0.9%, building materials at 0.7%, food and beverages at 0.7%, health and personal care at 0.5%, general merchandise at 1.0%, and nonstore retailers at 1.0%, while restaurant and bar sales edged up 0.1%. Core retail sales rose 0.7%, above expectations of 0.2%.

USD Flash Manufacturing PMI (Previous: 52.3, Forecast: 52.5, Actual: 54)

The S&P Global US Manufacturing PMI increased to 54.0 in April 2026 from 52.3, beating expectations of 52.5 and marking the strongest improvement in factory conditions since May 2022, driven by a four year high in production and the fastest growth in new orders since May 2022. Inventory accumulation also contributed positively, while supplier delivery times lengthened significantly, partly due to supply disruptions linked to the Middle East conflict. Employment was the only negative component, declining for the first time since July 2025.

USD Flash Services PMI (Previous: 50.5, Forecast: 50, Actual: 51.3)

The S&P Global US Services PMI rose to 51.3 from 50.3, well above expectations of 50, reflecting a rebound in services activity following the initial impact of the Iran conflict. New business increased slightly but remained below the average of the past two years as affordability concerns persisted, while input costs rose at the fastest pace since December, prompting firms to raise prices at the strongest rate in 45 months. Employment edged higher and business sentiment improved modestly, although it remained well below levels seen last year.

Summary & Outlook

Upcoming News

• FED, ECB, BoJ, BoC, BoE Policy Rate + Statement

• AUD CPI

• USD, CAD GDP

• USD Core PCE Price Index

Wishing you a successful week ahead,

David Gauch

Founder, Gauch Research

No financial advice.

Hope vs. Reality

What I’ve observed in equities over the past few weeks hasn’t been driven by fundamentals, but rather by two forces: hope vs. reality.

This dynamic was once again clearly visible this week. We started with headlines the U.S. also moved to block the Strait of Hormuz, potentially intercepting and restricting Iranian vessels heading toward China. At first glance, the idea seems questionable, but the implications are significant. Estimates suggest that around 30 to 45% of Iran’s revenues come from oil exports. At the same time, China, which is heavily dependent on imported oil, would also feel the impact of such a disruption.

Markets initially priced this as an escalation at the open, but the move was quickly reversed.

Midweek, stronger than expected producer price inflation data, combined with renewed hopes of de-escalation, pushed the S&P 500 to new all time highs. One key driver behind the sharp move from minus 8% to plus 3% within just 13 trading days has likely been positioning. CTAs and market makers, operating in a positive gamma environment, were forced to buy both dips and rallies to maintain hedged books.

As a result, even slightly positive news had a strong impact on the upside, while negative headlines were absorbed relatively quickly.

Looking ahead, gamma exposure is expected to remain positive in the coming weeks, suggesting continued structural support for the market. Current GEX levels indicate potential put support around 6,800 on the S&P 500, with call resistance near 7,200.

However, weekend headlines suggest that hopes for a resolution of the conflict may be premature. Trading purely based on headlines increasingly resembles a coin toss. What remains worth monitoring, though, is the flow through the Strait of Hormuz, which continues to operate at record lows.

A definitive reopening would likely ease pressure on the Federal Reserve and other central banks. In such a scenario, the Fed could still deliver another rate cut this year.

On the other hand, a prolonged disruption would complicate the outlook, even for more dovish policymakers, and could reinforce a higher for longer stance. Further escalation could even force rate hikes globally, which would likely erase recent gains in equity markets rather quickly.

Institutional Positioning

Before turning to this week’s macroeconomic data, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

US Producer Price Inflation m/m (Previous: 0.5%, Forecast: 1.1%, Actual: 0.5%)

In March 2026, US producer prices experienced a 0.5% month-over-month increase, matching the growth rate of the previous period. However, this growth fell short of the market’s expectations of 1.1%. Goods prices surged by 1.6%, marking the largest increase since August 2023. This surge was primarily driven by an 8.5% jump in energy costs, largely attributed to the ongoing Iran conflict. On the other hand, final demand food prices declined by 0.3%.

In the services sector, prices remained unchanged after a 0.3% increase in February. Within this category, transportation and warehousing costs rose by 1.3%, while other final demand services saw a 0.1% increase. These increases offset a 0.3% decline in trade service margins.

Year-over-year, producer prices rose by 4%, the largest increase since February 2023. However, this growth still fell short of the expected 4.6%. The core index, which excludes food, energy, and trade services, experienced a 0.2% month-over-month increase. This growth rate was slower compared to the 0.5% gains seen in both January and February. Nevertheless, the core index climbed 3.6% year-over-year.

UK GDP m/m (Previous: 0.1%, Forecast: 0.1%, Actual: 0.5%)

The UK’s GDP grew by 0.5% month-on-month in February 2026, surpassing expectations and January’s revised 0.1% growth. This marks the strongest growth since January 2024, with services contributing 0.5% to the growth (up from 0.1% in January). The largest positive contribution came from administrative and support service activities, which rose by 2.0%. This growth was driven by a rebound in employment activities, which increased by 2.5%, along with gains in wholesale and retail trade and repair of motor vehicles, which saw a 0.7% increase.

However, these gains were partially offset by a 0.3% decline in accommodation and food services. Production also increased by 0.5%, reversing previous declines. This growth was supported by mining and quarrying, which saw a 3.9% increase, and energy supply, which increased by 1.5%. Construction grew by 1.0%, with private housing leading the growth. On a yearly basis, GDP expanded by 1.0%, marking the strongest growth since September last year. The latest data comes before the escalation in the Middle East. As a net energy importer, the UK is vulnerable to global energy price shocks due to disruptions in oil and gas exports in the region.

Upcoming News

• US Retail Sales

• CAD, GBP, NZD CPI

• Flash PMI’s

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

No financial advice.

Middle-East Conflict

On the geopolitical front, markets experienced significant uncertainty last week, particularly ahead of Tuesday’s deadline, as Donald Trump escalated rhetoric to extreme levels, even threatening the destruction of an entire civilization.

Following confirmation of a ceasefire, the S&P 500 rallied sharply, gaining approximately +2.5% in a short period of time.

However, the ceasefire proved short-lived, as Israel continued targeting positions in Lebanon. The next phase of the conflict will be shaped by ongoing discussions in Islamabad.

A confirmed ceasefire, or even a broader de-escalation, combined with a reopening of the Strait of Hormuz could push equities and gold higher, while weighing on the US dollar and oil prices. The inverse scenario remains equally plausible.

Despite the ceasefire, transit volumes through the Strait of Hormuz have only seen a marginal increase so far, indicating continued structural and geopolitical constraints.

As highlighted in previous Gauch Research publications, any downside in oil prices following a reopening is likely to be limited. Damage to critical energy infrastructure has structurally reduced capacity, making a return to pre-conflict levels unlikely in the near term.

At the same time, escalation risks remain elevated. Iran retains leverage through the Houthi movement in Yemen, with the potential to disrupt the Bab-el-Mandeb Strait, a critical passage accounting for roughly 12% of global trade.

A closure of this route would not only extend shipping times by 10–14 days, as vessels reroute around Africa, but could also push oil prices up by an additional $20 per barrel.

Institutional Positioning

Before turning to this week’s macroeconomic data, below is an overview of recent positioning shifts across major asset classes, based on our proprietary Gauch Research COT Visualizer.

ISM Services PMI (Previous: 56.1, Forecast: 54.8, Actual: 54.0)

The Institute for Supply Management (ISM) Services Purchasing Managers’ Index declined to 54.0 in March 2026, down from 56.1 in February and below expectations of 55.0.

While the index remains in expansionary territory, the decline signals a moderation in services sector momentum following the strongest reading since August 2022.

The slowdown was primarily driven by a sharp pullback in business activity, which fell to 53.9 from 59.9, and a contraction in employment, which declined to 45.2 from 51.8, marking the first drop in four months.

At the same time, inflationary pressures intensified, with the prices paid index rising to 70.7, the highest level since October 2022, largely reflecting higher energy and fuel costs. Supplier deliveries also slowed, indicating renewed supply chain frictions linked to geopolitical disruptions and adverse weather conditions.

Core PCE Price Index m/m (Previous: 0.4%, Forecast: 0.4%, Actual: 0.4%)

The Core Personal Consumption Expenditures (PCE) Price Index, the preferred inflation gauge of the Federal Reserve, increased by 0.4% month over month in February 2026, maintaining the elevated pace observed in recent months.

On an annual basis, core PCE rose by 3.0%, slightly down from 3.1% previously, but still well above the Federal Reserve’s 2% target.

The data highlights persistent underlying inflation despite some gradual easing and reinforces the challenge for policymakers in balancing inflation control with slowing economic momentum.

Final GDP q/q (Previous: 0.7%, Forecast: 0.7%, Actual: 0.5%)

US economic growth was revised lower to an annualized rate of 0.5% for Q4 2025, down from the prior estimate of 0.7% and the initial reading of 1.4%.

The downward revision was primarily driven by weaker investment activity, particularly in structures, which declined sharply. Consumer spending also softened more than expected, reflecting slower growth in both goods and services consumption.

Residential investment contracted further, while exports posted their largest decline since the second quarter of 2023. Government spending saw a significant contraction due to the government shutdown, subtracting nearly one percentage point from overall growth.

Despite the weak fourth quarter, the US economy expanded by 2.1% for the full year 2025.

US CPI m/m (Previous: 0.3%, Forecast: 1.0%, Actual: 0.9%)

US headline inflation accelerated to 3.3% year over year in March 2026, marking the highest level since May 2024 and a sharp increase from 2.4% in the previous two months. The increase was primarily driven by energy prices, with gasoline and fuel oil rising significantly amid escalating geopolitical tensions involving Iran.

On a monthly basis, CPI rose by 0.9%, the strongest increase since June 2022, largely due to a surge in fuel costs.

In contrast, core inflation remained more contained. Core CPI rose by 0.2% month over month and 2.6% year over year, indicating that underlying inflationary pressures, while still elevated, are not accelerating at the same pace as headline figures.

This Print eases immediate pressure on the Fed to adjust rates, supporting the view that policy will remain higher for longer, particularly as energy-driven inflation can be framed as transitory.

For now, the target rate is expected to remain in the 350–375 bps range throughout the year.

Upcoming News

• US PPI

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

No financial advice.

Markets past week have once again been driven almost entirely by headlines, shifting rapidly from optimism to reality and back again. In such an environment, maintaining a clear and structured view becomes increasingly difficult. The goal of this update is therefore to cut through the noise and refocus on what actually matters.

The conflict continues to escalate, and according to recent statements, no meaningful de-escalation is expected over the next 2 to 3 weeks. If anything, the risk leans toward further escalation.

From a market perspective, the key issue remains the disruption of critical trade routes. The Strait of Hormuz continues to see severely restricted traffic, effectively removing a major artery of global energy supply from the market.

As highlighted in previous updates, even in the case of a ceasefire or negotiated resolution, the structural damage has already been done. Energy infrastructure destruction and ongoing supply chain disruptions will continue to have lasting effects.

Another critical risk lies in the Bab el-Mandeb strait. A potential blockade by the Houthis could have significant consequences. Oil prices could increase by an additional 20 dollars per barrel. Around 12 percent of global trade would be affected. Delivery times for goods could extend by 10 to 14 days. This would further intensify existing supply chain stress and amplify inflationary pressures globally.

With headlines remaining unreliable, the following dates are far more relevant in determining the direction of the coming months:

• April 10 marks the expiry of the US exemption for purchasing Russian crude oil. If this is not extended, additional supply will be removed from an already constrained market.

• April 15 is the estimated depletion point of around 400 million barrels of strategic reserves. This would mark the largest SPR drawdown in IEA history and leave no meaningful emergency buffer.

• April 30 represents the expiration of all emergency measures.

Once these deadlines pass, the market effectively approaches a cliff scenario without a safety net. Even a late resolution would likely come too late to prevent structural imbalances. In such a case, the current disconnect between futures, which are trading at a discount, and spot prices in the oil market is unlikely to persist. A repricing higher in futures would invalidate the current hope driven positioning.

Given the current uncertainty, risk management remains critical. The base case remains skewed toward further escalation. However, the outlook would need to be reassessed in case of a confirmed ceasefire or a clear end of the conflict, as well as a reopening of the Strait of Hormuz.

Institutional Positioning

Below is a snapshot of current large speculator positioning, based on proprietary tools designed to visualize flows in a simplified and structured way.

Overall Positioning

Summary Update April 3

Beyond geopolitics, recent macro data added another layer of complexity.

News Recap

Non-Farm Employment Change (Previous: -133K, Forecast: 65K, Actual: 178K):
The US economy added 178K jobs in March 2026, marking the strongest increase since December 2024. This follows a revised decline of 133K in February, which was largely impacted by a strike in the healthcare sector. The latest figure came in well above market expectations of 65K. Job growth was heavily concentrated in healthcare, which added 76K jobs. Within that, ambulatory health care services accounted for 54K, including a 35K increase in offices of physicians as workers returned from strike-related disruptions. Construction added 26K jobs following weather-related declines during the winter months. Transportation and warehousing contributed 21K jobs, manufacturing added 15K, and social assistance continued its upward trend with an increase of 14K.On the downside, federal government employment declined by 18K, while financial activities saw a decrease of 15K. Revisions to prior data show that January payrolls were adjusted higher by 34K to 160K, while February was revised lower by 41K to -133K. Combined, employment for the two months is now 7K lower than previously reported.

The unemployment rate declined to 4.3 percent in March from 4.4 percent in February, coming in below expectations of 4.4 percent. The number of unemployed individuals decreased by 332,000 to 7.239 million. However, total employment fell by 64,000 to 162.85 million, while the labor force declined by 396,000 to 170.09 million. This pushed the participation rate down by 0.1 percentage point to 61.9 percent. At the same time, the broader U-6 unemployment rate, which includes discouraged and underemployed workers, increased to 8 percent from 7.9 percent.

The key takeaway is that this was a misleadingly strong print. The labor market is showing further signs of softening.

US Final Services PMI (Previous: 51.1, Forecast: 51.5, Actual: 49.8):
The S&P Global US Services PMI fell to 49.8 in March 2026 from 51.7 in the previous month and was revised down from the preliminary estimate of 51.1. This marks the first contraction in the services sector in over three years. The decline was driven by the weakest growth in new business since April 2024, as firms reported reduced client confidence and softer demand. This was partly linked to the impact of the Middle East conflict. Export activity deteriorated further, with tariffs and geopolitical tensions continuing to weigh on trade. Business sentiment weakened to a five-month low, as rising energy costs increased concerns around inflation and consumer spending. Employment edged lower for the first time since December, reflecting growing caution among firms. At the same time, input cost inflation accelerated to its highest level this year, largely driven by higher energy prices. Companies continued to pass these rising costs on to clients, pushing selling price inflation to an eight-month high.

SVC Breakdown

USD

The dollar remains the most dominant in the current environment, supported by global demand and safe haven flows.

Gold

Gold has stabilized following the recent selloff. A further corrective move toward the 4900 region remains a realistic scenario.

S&P 500

Equities have shown notable resilience so far, largely driven by intermittent optimism. However, the combination of escalating geopolitical risks, tightening supply conditions and upcoming macro deadlines creates a fragile setup. A continuation of escalation, especially in combination with the outlined deadlines, could act as a catalyst for further downside in equities.

Upcoming News

• ISM Services PMI

• Core PCE Price Index

• Final GDP

• CPI

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

Free Telegram Channel

No financial advice.

Markets have been highly volatile over the past weeks following the escalation in the Middle East after the U.S. and Israel attacked Iran. What is becoming increasingly clear is that the market is starting to move away from the initial expectation of a quick resolution.

Major U.S. indices, including the Dow Jones, have now entered correction territory (more than -10% from recent highs), confirming that this is no longer a short-term reaction but a broader repricing of risk.

The key driver remains the energy market. Oil prices have surged significantly, with Brent crude moving above $110 (+55% in March), as the conflict directly impacts critical global supply chains. Iran’s control over the Strait of Hormuz is central here, affecting not only oil flows but also essential resources like fertilizers and helium. Even if the situation were to stabilize quickly, the damage to energy infrastructure suggests that prices are unlikely to return to previous levels anytime soon.

What is changing now is the market narrative. The idea of a short-lived conflict is fading, and markets are beginning to price in a prolonged period of elevated energy costs. This shift has clear implications: rising inflation pressures, reduced expectations for rate cuts, increasing bond yields, and a continued rise in volatility.

At the same time, existing macro risks, such as AI-related disruptions and concerns in private credit markets, are adding further pressure to the outlook.

In simple terms, the market is transitioning from hope to reality. A prolonged conflict with structurally higher energy prices implies higher inflation, rising yields, a stronger U.S. dollar, and continued downside pressure on equities.

News Recap

US Flash Services PMI (Previous: 51.7, Forecast: 52.0, Actual: 51.1):
The Services PMI declined to 51.1, marking the weakest expansion in nearly eleven months and missing expectations. Demand is clearly slowing, with both domestic and international orders losing momentum as uncertainty around the Middle East conflict and fiscal concerns weigh on confidence. Businesses are already reacting to this softer environment by reducing staff, pointing to early cracks in the labor market. At the same time, forward-looking expectations have deteriorated, reaching their lowest levels since October, highlighting a cautious outlook across the sector.

US Flash Manufacturing PMI (Previous: 51.6, Forecast: 51.5, Actual: 52.4):
The Manufacturing PMI rose to 52.4, beating expectations and signaling stronger activity. However, this strength is largely driven by precautionary behavior rather than genuine demand. Firms are increasing production and building inventories in anticipation of supply disruptions and rising prices linked to the ongoing conflict. While new orders improved and export demand stabilized, employment growth slowed and supply chain pressures intensified, with delivery times rising sharply. In addition, both input and output prices surged, reinforcing the inflationary environment despite the headline strength in the sector.

SVC Breakdown

USD

Since the last update, nothing has changed regarding the broader outlook for the U.S. dollar. The overall game plan remains intact: pullbacks continue to present potential entry opportunities.

A good example was seen on March 23, when comments from Trump about possible peace negotiations triggered a temporary move lower. However, this was quickly dismissed after Iran labeled the statements as fake news, leading to a reversal. This dip provided a solid long opportunity, which was shared in the Telegram channel.

Gold

The downside target from the last update was reached last week, and we did see a reaction from that level.

From here, the focus shifts to the developing structure. A move back into the prior range appears realistic, but should be approached with reduced risk. The environment remains highly driven by external factors, so any positioning should stay flexible and well-managed.

S&P 500

As mentioned in the previous update, the downside continuation in the SPX was the highest probability scenario. The zone outlined in the last update provided very solid short entries, offering clean opportunities on the move lower.

For further downside continuation, the zone mentioned below could act as a key area for potential entries. Keep in mind that in the current environment, moves can remain volatile, so execution and risk management stay critical.

Gameplan:

Upcoming News

• JOLTS

• Retail Sales

• NFP

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

Free Telegram Channel

No financial advice.

With markets becoming increasingly complex and headlines often sending mixed signals, this update aims to simplify the key macro drivers behind current pricing and outline what could matter going forward.

Current market conditions continue to be driven by a combination of geopolitical risk, tightening financial conditions, and shifting policy expectations.

The ongoing war remains a key overhang, sustaining elevated uncertainty and limiting risk appetite across global markets. At the same time, oil prices continue to trend higher, reinforcing inflationary pressures and complicating the macro outlook.

Interestingly, gold has been selling off despite the uncertain backdrop, highlighting that markets are not positioning for a traditional risk-off environment, but rather reacting to rising real yields and tighter liquidity conditions.

Equities have come under pressure, and the current sell-off appears fundamentally justified. The combination of higher yields, a persistently strong dollar, and a Federal Reserve maintaining a hawkish hold is creating a challenging environment for risk assets. Financial conditions continue to tighten, forcing a repricing across equity markets.

On the policy side, expectations have shifted materially. Markets are no longer pricing in rate cuts for this year and have started to incorporate the possibility of additional hikes. This reflects both the persistence of inflation and the Fed’s commitment to maintaining restrictive policy for longer.

At the same time, stagflation risks are rising. Growth and labour market dynamics are showing signs of moderation, while inflation remains elevated, partly reinforced by higher energy prices. This combination increases uncertainty and limits the range of favorable macro outcomes in the near term.

However, it is important to note that the current pricing of further rate hikes may be somewhat premature. Market sentiment appears increasingly anxious, with positioning reflecting a more defensive and reactive stance.

This creates an asymmetric setup. In the event of positive developments, particularly on the geopolitical front, the potential for a sharp, V-shaped recovery remains elevated. Such dynamics are typical in environments where sentiment is fragile and positioning is skewed.

As always, markets tend to overshoot in both directions. While the current environment justifies caution, it also creates the foundation for selective opportunities.

News Recap

US PPI m/m (Previous: 0.5%, Forecast: 0.3%, Actual: 0.7%):

US producer prices increased by 0.7% month-over-month in February, accelerating from 0.5% in January and coming in well above expectations of 0.3%. This marks the strongest monthly increase in seven months and adds to evidence that upstream inflation pressures remain persistent.

The move was largely driven by goods prices, which rose 1.1%, the biggest increase since August 2023. A significant contributor was a sharp surge in food-related components, particularly a 48.9% increase in fresh and dry vegetable prices. Energy-related categories, including diesel fuel, gasoline, and jet fuel, also moved higher, reinforcing the inflationary impulse.

On the services side, prices rose by 0.5%, moderating from the previous month but still contributing to overall inflation. Notably, traveler accommodation services saw a strong increase, providing the largest upside contribution within services.

Core PPI rose 0.5%, easing from January’s 0.8% but still exceeding expectations. On a year-over-year basis, headline PPI accelerated to 3.4%, the highest level in a year, while core PPI climbed to 3.9%. Overall, the data points to continued inflation persistence at the producer level, with potential implications for future consumer price dynamics.

Federal Funds Rate (Previous: 3.75%, Forecast: 3.75%, Actual: 3.75%):

The Federal Reserve left the federal funds rate unchanged at a target range of 3.50%–3.75% for a second consecutive meeting, in line with market expectations.

While policymakers continue to describe economic activity as solid, the broader message remains cautious. Labour market conditions are showing signs of moderation, and inflation, although off its peaks, remains somewhat elevated. Additionally, geopolitical developments, particularly the ongoing conflict involving Iran, were highlighted as a source of uncertainty.

Updated projections reflect a slightly stronger growth outlook, with GDP forecasts revised modestly higher for both 2026 and 2027. At the same time, inflation expectations have been revised upward. Both headline and core PCE are now expected to reach 2.7% in 2026, with further upward revisions for 2027.

Taken together, the Fed’s stance can be characterized as a “hawkish hold”: policy remains restrictive, inflation risks are still skewed to the upside, and any easing cycle is likely to be gradual and conditional on clearer disinflationary progress.

SVC Breakdown

USD

With no resolution yet in sight in the Middle East, the focus remains on USD strength. The combination of rising real yields in the US and the dollar’s traditional role as a risk-off asset continues to support further upside potential.

Gold

Our previously highlighted support area failed to hold, and with ongoing uncertainty alongside weaker demand for gold, prices could be pushed below the 4400 level. That said, a potential upside correction from this area remains possible, offering selective opportunities for short-term buyers.

S&P 500

As noted over the past weeks, the previous gamma put support level failed to hold, turning from a stabilizing factor into an area for further downside. At present, there are no major gamma levels providing meaningful support for the SPX.

This leaves market direction largely dependent on developments in the Middle East. Without a de-escalation, downside pressure is likely to continue, with potential targets toward the 6400 level.

Upcoming News

• Flash PMI’s

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

Free Telegram Channel

No financial advice.

Hi everyone and welcome back to this week’s SVC-Update after what felt like a rather chaotic week in terms of market dynamics.

While intraday and daily price action picked up noticeably compared to the past few months, many major indices actually held up surprisingly well when viewed on a weekly basis.

US and Chinese large caps remained relatively stable overall. At the same time, one rule that has often held true in recent years proved itself once again: whenever global uncertainty rises, European equity markets tend to feel the impact the most.

Oil moves back into focus

Outside of equities, oil clearly stood out this week. A +32% weekly move in WTI is certainly significant. That said, it is worth remembering that we have seen even more extreme levels during previous episodes in recent years.

For private consumers, however, the raw oil price itself is less relevant than what ultimately shows up at the gas station. And while we are indeed seeing a spike in US gasoline prices, they are still lagging behind the peaks observed in 2023 and 2024.

During earlier oil crises, crude oil accounted for roughly one quarter of global electricity production. Today that share has fallen to low single digits. As a result, spikes in oil prices no longer automatically translate into sharp spikes in electricity prices.

This becomes quite visible when looking at current German electricity prices, which have remained relatively contained despite the recent oil move.

Taken together, it suggests that, despite some alarming headlines, we are still far away from a genuine energy crisis.

Rising yields and central bank concerns

Another development many market participants likely noticed is the sharp move higher in global bond yields.

The underlying concern in the market is that higher energy prices could force central banks to move more slowly when it comes to rate cuts. In the case of the Federal Reserve, this could mean delaying easing cycles, while in the Eurozone some investors even speculate about the possibility that the ECB might have to reconsider tightening again. However, I would be cautious with that interpretation.

First, it is far from guaranteed that an oil price spike necessarily translates into a meaningful rise in core inflation. And second, the duration of the current geopolitical conflict remains highly uncertain, even though the current news flow suggests it could persist for longer.

Corporate fundamentals remain strong

If we momentarily put geopolitics aside, the picture at the corporate level actually continues to look very solid. The earnings season, which is now largely completed, once again came in well above expectations. On an index level, the S&P 500 recorded its sixth consecutive quarter of double-digit earnings growth, highlighting that corporate fundamentals remain robust.

There was, however, a small downside surprise at the end of the week: Friday’s US labor market data came in weaker than expected. That said, the 92k jobs lost can at least partly be attributed to one-off effects, which means the data point should be interpreted with some caution rather than as a clear signal of a broader deterioration in the labor market. More on that down below.

News Recap

US Non-Farm Employment Change (Previous: 126K, Forecast: 58K, Actual: -92K):
The US economy shed 92k jobs in February, marking the largest decline in roughly four months. This compares to a downwardly revised gain of 126k jobs in January and came in well below consensus expectations, which had anticipated an increase of around 59k jobs. At first glance, the headline number certainly looks concerning. However, the underlying details paint a somewhat more nuanced picture.

A significant portion of the decline was concentrated in health care employment, which fell by 28k jobs, largely reflecting strike activity during the month. Within the sector, physicians’ offices lost 37k jobs, while hospital employment actually increased by 12k, highlighting the temporary nature of part of the weakness.

Elsewhere, several sectors continued to show softer momentum. Employment declined in information (-11k) and federal government (-10k), while additional losses were recorded in transportation and warehousing (-11k) as well as manufacturing (-12k).

At the same time, not all areas of the labor market weakened. Social assistance employment continued its steady upward trend, adding 9k jobs, driven primarily by individual and family services, which expanded by 12k positions.

In addition to the February figures, the report also included downward revisions to previous months. The December reading was revised from +48k to -17k, while January was adjusted slightly lower from +130k to +126k. Combined, these revisions reduce previously reported employment gains by 69k jobs.

Taken together, the latest data reinforces the picture that US payroll growth has been broadly flat throughout 2025, suggesting a labor market that is no longer accelerating but also not collapsing.

For policymakers and markets alike, the key question going forward will be whether this report marks the beginning of a more sustained slowdown — or merely reflects temporary distortions and sector-specific factors.

US ISM Services PMI (Previous: 53.8, Forecast: 53.5, Actual: 56.1):
The ISM Services PMI in the US rose to 56.1 in February 2026, up from 53.8 in January, exceeding market expectations of 53.5 and marking the strongest expansion in the sector since August 2022. The increase was mainly driven by stronger business activity, with the subindex climbing to 59.9 from 57.4, its highest level since September 2024.

New orders also showed solid momentum, rising to 58.6 from 53.1, representing the largest increase in 17 months. Meanwhile, the employment component improved to 51.8 from 50.3, indicating the fastest pace of job growth in the sector in about a year.

The Supplier Deliveries Index eased slightly to 53.9 from 54.2, but remained above 50 for the 15th consecutive month, signaling continued strong demand and slower delivery times.

At the same time, the Prices Index declined to 63, its lowest level since March 2025. While this suggests some easing in cost pressures, the reading remains well above 60, pointing to ongoing inflationary pressure in the services sector.

SVC Breakdown

USD

The last three SVC Updates each highlighted attractive long opportunities in the US Dollar, and the first upside target has now been reached. Amid ongoing geopolitical tensions and no visible signs of easing, the US Dollar continues to benefit from its role as a risk-off asset, particularly against more risk-sensitive currencies such as the EUR and NZD in this case.

Further Game Plan:

Gold

Gold traded more like a risk-off asset last week, experiencing several sharp sell-offs, which were likely also driven by the strength of the US Dollar. However, in an environment with a somewhat less volatile dollar, it could become attractive to position for potential long opportunities again.

S&P 500

As discussed in recent weeks, the key levels in the S&P 500 were well defined. We have now seen the first break below the gamma put support, meaning that market makers’ hedging positions were no longer able to support the market to the upside. In this environment, potential upside retracements could be used to establish short positions as a hedge within a long portfolio.

Upcoming News

• Consumer Price Index

• Core PCE Price Index m/m

• Prelim GDP q/q

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

No financial advice.

Overall, the week was relatively calm with very limited market-moving fundamental data (aside from PPI). As discussed in previous updates, the main focus remained on the situation in Iran, which escalated significantly over the weekend. Below is a structured overview of what happened and how markets may react going forward.

A major escalation in the Middle East began on 28 Feb 2026 when the United States and Israel launched coordinated airstrikes inside Iran, targeting regime and military infrastructure. The operation, widely reported as one of the most significant joint strikes in recent decades, reportedly killed top Iranian leadership including Supreme Leader Ayatollah Khamenei, triggering a sharp regional military response.

In immediate retaliation, Iran’s Islamic Revolutionary Guard Corps (IRGC) declared all U.S. and Israeli military assets across the region legitimate targets and launched waves of missile and drone strikes. These strikes have spread far beyond direct Iran-Israel theaters and hit multiple Gulf states:

• United Arab Emirates: Infrastructure and Airports in Dubai and Abu Dhabi were damaged and flights suspended, at least a few civilian casualties were reported, with debris strikes and fires in major hubs.

• Kuwait City: Kuwait International Airport sustained damage from incoming drones.

• Bahrain: U.S. Fifth Fleet facilities and surrounding areas have been hit.

• Oman: Ports and an oil tanker were struck, marking a widening of the conflict footprint.

• Doha (Qatar) and other Gulf capitals also reported missile interceptions and fallout effects.

The broad geographic spread underscores that this is no longer a bilateral confrontation. Iran’s retaliation now impacts Gulf Arab states long considered relatively stable or neutral.

On the diplomatic front, the UN Security Council convened an emergency session, with global powers calling for de-escalation and opposing both the initial strikes and Iran’s retaliation.

Closure of the Strait of Hormuz

The Strait of Hormuz remains the most critical oil transit chokepoint globally. Roughly 20% of worldwide oil consumption and a significant share of LNG exports pass through this narrow corridor between Iran and Oman. A disruption could have immediate global consequences.

Export Destinations
The majority of crude oil transiting Hormuz flows to Asia. China, India, Japan, and South Korea account for the largest share of imports. These economies are structurally more exposed to supply interruptions than the US or Europe.

Dependencies

• China and India rely heavily on Gulf producers such as Saudi Arabia, Iraq, UAE, and Kuwait.

• Japan and South Korea import the majority of their crude from the Middle East.

• Europe has diversified supply sources but would still face price transmission effects.

• The United States has limited direct dependence but would experience higher energy prices due to global pricing dynamics.

LNG Risk
Qatar’s LNG exports also transit Hormuz. Any disruption would likely tighten Asian gas markets and increase volatility in global LNG pricing.

Expected Market Gaps at Open

• USOIL +11.89%

• GOLD +2.49%

• SILVER+3.94%

• EURUSD -0.36%

• DOW 48440 -0.86%

• NASDAQ -0.92%

News Recap

PPI m/m (Previous: 0.4%, Forecast: 0.3%, Actual: 0.5%):
The U.S. Bureau of Labor Statistics reported that the Producer Price Index for final demand rose 0.5 percent in January, seasonally adjusted. This follows a 0.4 percent increase in December 2025 and a 0.2 percent rise in November. Unadjusted, the index climbed 2.9 percent over the 12 months ending January 2026. January’s gain was driven by a 0.8 percent rise in prices for final demand services, while prices for final demand goods fell 0.3 percent. Excluding food, energy, and trade services, the index increased 0.3 percent in January, marking the ninth straight monthly rise, and was up 3.4 percent over the past year.

SVC Breakdown

USD

The zone identified in the last SVC update provided additional solid long entries. Given the current geopolitical escalation, the U.S. dollar should continue to benefit from safe haven flows, potentially pushing price action toward our next target zone.

Gold

The previously mentioned area was not filled. However, the broader direction remains clear: upside. If the conflict continues to escalate or prolong, gold could extend toward the next major upside targets around 6000.

S&P 500

Under the current risk-off environment, equities remain vulnerable to geopolitical shocks. A medium-term bearish scenario becomes increasingly plausible if the 6800 level is decisively broken to the downside.

Market sentiment can also be observed in recent NVIDIA earnings. Despite delivering a strong beat, the stock declined roughly 5% the following day, not a constructive bullish signal.

Upcoming News

• ISM PMI’s

• NFP

• Retail Sales

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

No financial advice.

Alongside additional fundamental headlines, last week remained heavily shaped by geopolitical and fiscal uncertainty.

The United States deployed further military assets toward Europe, clearly signaling pressure toward Iran. President Donald Trump also emphasized that further escalations remain possible, even hinting at the prospect of a “limited strike.” Over the next 48 hours, Iran is expected to engage in negotiations in order to prevent a broader escalation.

However, the key headline on Friday afternoon was the ruling by the US Supreme Court, which declared the legal foundation of most tariffs insufficient. At the same time, the judges indirectly outlined alternative legal pathways through which these tariffs could potentially be reinstated, albeit with additional procedural effort.

In an initial step, President Trump announced the flat 10% tariff on all countries worldwide, which has now been increased to 15% for approximately the next five months under Section 122 of the Trade Act. Subsequently, formal investigations will be launched to create the legal basis for longer-term or permanent tariffs, for example under Section 301. In practical terms, the broader direction may not change significantly.

What could ultimately prove constructive for markets is the fact that a considerable amount of the currently restrictive dealer gamma expired on Friday. This may allow price action to move more freely without the countercyclical hedging flows from options market makers, potentially opening the door for a sustained break above 7,000 in the S&P 500.

A potential catalyst could arrive as early as Wednesday after the close, when the current earnings season unofficially concludes with the report from NVIDIA.

News Recap

Advance GDP q/q (Previous: 4.4%, Forecast: 2.8%, Actual: 1.4%):
The US economy expanded at an annualized rate of 1.4% in Q4 2025, the weakest pace since Q1 2025, following 4.4% growth in Q3 and well below expectations of 3%. Consumer spending moderated (2.4% vs. 3.5%), weighed down by a slight contraction in goods consumption (-0.1%), while services spending rose 3.4%.

Exports declined by 0.9% after surging 9.6% in Q3, and imports also decreased, though at a slower rate (-1.3% vs. -4.4%). Government spending and investment contracted sharply by 5.1% (vs. +2.2%), subtracting 0.9 percentage points from overall growth due to the government shutdown.

On the positive side, fixed investment accelerated (2.6% vs. 0.8%), driven by strong gains in intellectual property products (7.4%) and equipment (3.2%), while the contraction in structures eased (-2.4% vs. -5.0%). The decline in residential investment also moderated (-1.5% vs. -7.1%).

For the full year 2025, the US economy expanded by 2.2%, down from 2.8% in 2024.

Core PCE Price Index m/m (Previous: 0.2%, Forecast: 0.3%, Actual: 0.4%):
The core PCE price index, the Federal Reserve’s preferred inflation gauge, rose 0.4% month-over-month in December 2025, exceeding expectations of 0.3%. This marked the strongest monthly increase since February and reinforces the FOMC’s message that disinflation is progressing more slowly than anticipated.

On a yearly basis, core PCE increased by 3%.

United States Flash Services PMI (Previous: 52.7, Forecast: 53.0, Actual: 52.3)
The S&P Global US Services PMI declined to 52.3 in February 2026 from 52.7 previously, missing expectations and marking the slowest expansion in ten months.

New business inflows softened, particularly due to weaker export demand. Slower client momentum led firms to reduce the pace of hiring. At the same time, service providers raised selling prices to a seven-month high, while input cost inflation remained elevated, albeit below recent peaks.

Looking ahead, companies remain optimistic that improving weather conditions, lower interest rates, and potential tax relief could support activity over the coming year.

SVC Breakdown

USD

The Dollar continued its move toward our first target zone last week, congratulations to those who captured the long from the previous area.

Fundamentally, the data paints a mixed picture: sticky inflation, slowing GDP, and softer PMIs on one side. On the other, a still-resilient labor market and ongoing geopolitical tensions could provide near-term support for the Dollar.

At this stage, there does not appear to be a strong enough catalyst to reverse the prevailing direction, yet positioning also suggests the market is not fully committed to an aggressive long bias either.

Gold

While Gold is partially influenced by Dollar strength, the current geopolitical backdrop continues to justify a constructive long bias.

I was able to capture a strong Gold long this week, which has so far developed into a 1:22 risk-reward profile.

S&P 500

The US500 regained some ground on Friday following the news that Trump’s tariffs were deemed legally insufficient. Technically, the index traded within the same range throughout the week, largely influenced by dealer gamma hedging flows.

With a significant portion of options expiring recently, dealers now have more flexibility. Should we receive one or two bullish catalysts, a sustained move above the 7,000 level in the S&P 500 could materialize more easily.

Upcoming News

• NVDA Earnings

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

No financial advice.

Last week gave us a clearer read on the current macro backdrop. The two key data points were, without question, NFP and CPI, and they came in surprisingly mixed. We saw strength on the labor side while inflation cooled, creating a conflicting signal for markets.

As a result, price action reflected that uncertainty. The DXY spent most of the week in consolidation, and the S&P 500 continued to trade within the same range between the previously discussed gamma exposure levels. Notably, the index is still struggling to break through the 7,000 gamma zone.

What this tells us is that options dealers are heavily hedged around that area. Their positioning forces them to trade counter-cyclically, which repeatedly pushes the market back into the range whenever it tries to break out. That said, there is some reason for cautious optimism over the coming weeks, this gamma wall could gradually fade. In fact, part of that pressure may already have started to roll off into Friday.

However, as we move into the second half of February, another potential headwind comes into play, at least according to flow traders like Citadel’s Scott Rubner. Historically, February is not only the second-worst month of the year, but retail flows also tend to slow down significantly during this period. Early data suggests that this drop in participation may already be underway.

“This time is different.”

And there is a case to be made that it actually might be. As we know, the current U.S. administration passed what is commonly referred to as the “One Big Beautiful Bill Act” last year. While that is not its official name, the legislation includes substantial tax relief for households. A portion of those refunds could find its way back into the markets.

According to early estimates, the first larger refund waves should start arriving toward the end of February, with total inflows potentially reaching a $50–100 billion delta over the course of the year.

Non-Farm Employment Change (Previous: 48K, Forecast: 66K, Actual: 130K):
January’s labor data came in significantly stronger than expected, adding 130K payrolls, well above both the consensus estimate of 66K and December’s downwardly revised 48K print. It marks the strongest monthly gain since December 2024 and suggests that, at least on the surface, the labor market is still showing pockets of resilience.

Most of the strength came from the services side. Health care led the gains with 82K new jobs, driven primarily by ambulatory health care services, which accounted for 50K of that increase. Social assistance added another 42K, while construction contributed 33K. Manufacturing posted a modest gain of 5K jobs.

On the negative side, the federal government shed 34K jobs, largely due to deferred resignation programs from 2025 rolling off payrolls. Financial activities also declined by 22K. Several major sectors showed little to no change, including mining, wholesale and retail trade, transportation and warehousing, information, professional and business services, and leisure and hospitality.

However, the more important takeaway sits beneath the headline number. Total nonfarm employment growth for 2025 was sharply revised down to +181K from a previously reported +584K. That revision implies an average monthly job gain of just 15K, far below the earlier estimate of 49K.

So while January’s print looks strong in isolation, the broader trend points to a much softer labor market than previously believed. This keeps the macro picture mixed, short-term resilience in the data, but a noticeably weaker underlying employment trajectory.

CPI y/y (Previous: 2.7%, Forecast: 2.5%, Actual: 2.4%):
Inflation data for January reinforced the cooling trend, with the annual CPI rate slowing to 2.4%, its lowest level since May. That marks a decline from 2.7% in both of the previous two months and came in slightly below the 2.5% consensus forecast.

A large part of the deceleration was driven by base effects, as higher readings from a year ago rolled out of the annual calculation. The most notable relief came from the energy complex. Overall energy prices declined by 0.1% after rising 2.3% in December, led by sharp drops in gasoline and fuel oil. Natural gas prices continued to rise, but at a slightly slower pace than the month before.

Outside of energy, there were also pockets of easing. Used car and truck prices moved back into negative territory, while inflation in food and shelter moderated slightly. These components remain important, but the incremental slowdown suggests that some of the stickier price pressures are gradually softening.

On a monthly basis, headline CPI increased by 0.2%, down from 0.3% in December and below expectations. Core inflation also edged lower, with the annual rate falling to 2.5%, its lowest reading since March 2021 and in line with forecasts. However, the monthly core print came in at 0.3%, a touch firmer than December’s 0.2%, indicating that underlying price pressures have not fully disappeared.

Overall, the report points to continued disinflation, but not a clean, linear path lower. Headline trends are improving, largely helped by energy and base effects, while core dynamics still show some persistence beneath the surface.

SVC Breakdown

USD

Even though last week’s data gave us additional insight into the current state of the economy, price action remains trapped within the same overall range.

The zone discussed in the last SVC update offered solid opportunities for short-term long setups, as anticipated. Price reacted cleanly and respected the structure.

From here, the key level to watch is that same area to the downside. If it breaks decisively, the bias shifts. A sustained move below that zone would invalidate the short-term bullish structure and increase the probability of momentum to the downside, at which point I would start prioritizing short setups again.

For now, we remain range-bound. The playbook stays tactical, not directional.

Gold

A very similar setup is unfolding in gold. Here as well, price has mostly offered opportunities within the same range that has been highlighted in the last few updates.

The market continues to respect those boundaries, meaning the best trades have come from tactical entries inside the range rather than trying to anticipate a breakout. Until we see a clear expansion beyond those levels, the environment remains more suited for short-term, range-based setups rather than strong directional plays.

US500

As mentioned at the beginning of the update, this market remains locked in a gamma-driven consolidation between 6,800 and 7,000.

Dealer positioning continues to suppress volatility within that corridor, reinforcing mean-reversion dynamics rather than allowing sustained directional follow-through.

A decisive break of either boundary would be significant. If price manages to push through one of these levels and subsequently confirms the move on a clean retest, that retest could offer a structured opportunity to position in the direction of the breakout.

Until then, the environment remains dominated by hedging flows and range behavior rather than expansion.

Upcoming News

• Advance GDP

• Core PCE Price Index

• Flash PMI’s

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

Today we’re starting with a company almost everyone knows, not because of its financials, but because of what it represents.

Ferrari ($RACE) is often seen as just another automaker. But once you look at the numbers and the business model, it becomes clear:

This is not a car company.

It is a luxury brand that happens to sell cars.

The Core Model: Scarcity by Design

Ferrari’s strategy is simple:

Demand must always exceed supply.

The company deliberately limits production, even though it could sell more vehicles. The goal is not volume. The goal is value per client.

This controlled scarcity creates:

• Long waiting lists

• Strong pricing power

• High resale values

• Persistent exclusivity

Ferrari does not compete with Ford or Volkswagen.

Economically, it behaves far more like Hermès or LVMH.

Where the Money Really Comes From

Cars are the core product, but margins are driven by mix and customization.

A Ferrari is rarely sold “base spec.”

Clients add:

• Custom paint finishes

• Unique interiors

• Performance upgrades

• Bespoke elements

These options carry exceptionally high margins and significantly increase revenue per vehicle.

Beyond that, Ferrari benefits from:

• High-margin after-sales services

• Spare parts

• Licensing and brand partnerships

• Formula 1 exposure

The ecosystem reinforces the brand, and the brand reinforces pricing power.

Financial Profile: Luxury Economics

The numbers confirm the thesis.

Growth

• Revenue: $8.07B

• 5Y Revenue Growth: 15.3%

• Expected EPS Growth: 10.0%

Profitability

• EBIT Margin: 29.8%

• Net Margin: 22.3%

• ROE: 43.4%

Most automakers operate with single-digit operating margins.

Ferrari generates luxury-level returns.

Cash Flow & Balance Sheet

• Debt/Equity: 0.76

• Current Ratio: 2.3

This is not a capital-destroying industrial business.

It is a high-return brand platform.

Valuation: Premium for a Reason?

Ferrari trades at:

• P/E: 37.5

• Forward P/E: 30.4

• EV/EBITDA: 22.9

• P/FCF: 32.4

Expensive compared to traditional automakers.

But the comparison may be wrong.

The market is not assigning an auto multiple.

It is assigning a luxury multiple.

The real debate is not whether Ferrari is cheap.

The debate is whether Ferrari deserves to be valued like a long-term luxury compounder.

Growth Drivers

Ferrari still has multiple levers:

• Price increases

• More premium model mix

• Limited editions

• Hybrid and upcoming electric models

Growth is driven more by value per car than units sold.

Order books often extend years ahead, giving strong revenue visibility and reducing cyclicality relative to mass-market peers.

Key Risks

• Premium valuation leaves little room for error

• Electrification could challenge brand identity

• Ultra-luxury demand depends on global wealth conditions

Ferrari is not immune to cycles, but it is structurally more insulated than traditional manufacturers.

Investment Question

Ferrari combines:

• Scarcity

• Brand power

• Pricing strength

• Industry-leading margins

In my view, Ferrari could offer attractive diversification for a global portfolio, especially with the stock trading around 27% below its previous all-time high.

As always, this is not financial advice. The goal of Alpha Bets is to share ideas, frameworks, and investment theses, not to provide buy or sell recommendations. Every investor should do their own research and make decisions based on their personal risk tolerance, time horizon, and financial situation.

P.S. If you own $RACE, you can tell your friends you own Ferrari.

Just not one in your garage.

David Gauch
Founder, Gauch Research

No financial advice.

If you did not have the opportunity to follow markets last week, you can rest assured: you did not miss much at the headline level. The S&P 500 declined only 0.1% over the week, the VIX rose a moderate 1.8%, and 10-year yields moved roughly 4 basis points lower.

Beneath the surface, however, the situation was far more turbulent than the weekly performance might suggest. As Goldman Sachs recently described it, markets have been experiencing a form of “daily trench warfare.”

Without Friday’s sharp late-week rally in equities, the S&P 500 would have ended the week down more than 2.0%. At the same time, the sector rotation appears to be continuing, now reinforced by the narrative that advances in AI could ultimately render certain software business models obsolete, the so-called “SaaSpocalypse.” Edward Jones illustrates this dynamic effectively in the following chart:

Alongside this week’s volatility in equity markets and the delayed labour-market data, several additional economic releases were published, which are outlined below:

ISM Manufacturing PMI (Previous: 47.9, Forecast: 48.5, Actual: 52.6):
The US ISM Manufacturing PMI rose unexpectedly to 52.6 in January 2026, up from 47.9 in December and well above the consensus forecast of 48.5. The data indicate that manufacturing activity returned to expansion for the first time in twelve months, reaching its strongest level since 2022.
The improvement was broad-based, with notable gains in new orders (57.1 vs. 47.4), production (55.9 vs. 50.7), employment (48.1 vs. 44.8), supplier deliveries (54.4 vs. 50.8), and inventories (47.6 vs. 45.7). Despite the improvement, both the employment and inventory components remained in contraction territory. Price pressures were largely unchanged, with the prices index edging up slightly to 59 from 58.5.
According to Susan Spence, Chair of the ISM Manufacturing Business Survey Committee, the stronger headline reading should be interpreted with some caution. She noted that January is typically a restocking period following the holiday season, and some of the recent purchasing activity may reflect efforts to front-run anticipated price increases linked to ongoing tariff-related uncertainties.

ISM Services PMI (Previous: 54.4, Forecast: 53.5, Actual: 53.8):
The US ISM Services PMI held steady at 53.8 in January 2026, unchanged from the downwardly revised December reading and slightly above the consensus forecast of 53.5. The data point to continued solid expansion across the services sector.
Business activity strengthened notably, with the production index rising to 57.4 from 55.2. In contrast, momentum in other components moderated, as new orders eased to 53.1 from 56.5, employment edged down to 50.3 from 51.7, and supplier deliveries slowed to 54.2 from 51.8. Inventories (45.1 vs. 54.2) and the backlog of orders (44.0 vs. 42.6) remained in contraction territory, while price pressures increased, with the prices index climbing to 66.6 from 65.1.
According to Steve Miller, Chair of the ISM Services Business Survey Committee, respondent commentary in January increasingly focused on tariff-related impacts and broader uncertainty, likely reflecting annual contract renewals and geopolitical tensions. Energy products such as gasoline and diesel were still cited as declining in price. With the business activity and supplier deliveries indices reaching their highest levels since October 2024, the persistence and breadth of rising price pressures will warrant close monitoring.

JOLTS Job Openings (Previous: 6.93M, Forecast: 7.25M, Actual: 6.54M):

The number of job openings declined further to 6.5 million in December, according to the US Bureau of Labor Statistics, continuing the downward trend observed in recent months.
Over the same period, both hires and total separations were broadly unchanged at 5.3 million. Within total separations, quits remained steady at 3.2 million, while layoffs and discharges were little changed at 1.8 million.

SVC Breakdown

USD

Since the announcement involving Kevin Warsh, the USD has continued to stabilise and has gained additional support from dollar-bullish developments over the course of the week.
The labour-market data that were postponed due to the government shutdown are expected to be released next week. Once those figures are available, we should be able to further validate and refine our SVC framework from a medium- to longer-term perspective.

Gold

Price action in this area remained largely unchanged over the past week, broadly in line with the expectations outlined in our SVC framework. Rather than pursuing premature entries, we continue to focus on incoming macro data and market price action. There is no need to be first into a trade when the broader picture has yet to confirm.

US500

The earnings backdrop remains broadly constructive. While two additional mega-cap names, Alphabet (-3.9%) and Amazon (-11.7%), sold off following their results, largely due to continued increases in AI-related capital expenditures weighing on margins and near-term profitability, the overall picture at the index level remains solid. Aggregate earnings growth for the current season is tracking at approximately 13.0%.
At present, the market continues to trade between the two primary GEX zones. A break below the put-support area would open the door to further downside, whereas a decisive move through the gamma wall would point to additional upside potential.

Upcoming News

• Retail Sales m/m

• NFP

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

No financial advice.

Midweek, the market (S&P 500) briefly printed a new record, crossing the magical 7,000-point mark for the first time ever, even if it only traded above that level for a relatively short period of time.

The most important news this week was Trump’s decision to nominate Kevin Warsh as the successor to Jerome Powell. Markets initially reacted with a sell-off in the S&P 500, followed by a stronger US dollar and sharp declines in commodities such as gold (-13%) and silver (-30%).

Warsh is currently in favor of further, moderate rate cuts. At the same time, he is widely regarded as a strong opponent of “quantitative easing”, aka money printing. It will therefore be interesting to see which policy adjustments he might push for within the FOMC, assuming he ultimately takes office. Before that, he still needs to be confirmed by the Senate.

In my next Premium Subscriber post, I will take a deeper look at why markets reacted the way they did to Warsh’s nomination and how this could shape future market behavior.

In addition, we received several important data releases this week, which I will break down below:

Federal Funds Rate (Previous: 3.75%, Forecast: 3.75%, Actual: 3.75%):
The Fed left the federal funds rate unchanged at the 3.5%–3.75% target range at its January 2026 meeting, in line with expectations. This follows three consecutive rate cuts last year, which pushed borrowing costs to their lowest level since 2022. Governors Stephen Miran and Christopher Waller dissented from the decision, both voting in favor of an additional 25bp cut. Policymakers acknowledged that economic activity continues to expand at a solid pace, while job gains have moderated and the unemployment rate has shown early signs of stabilization. Inflation, however, remains somewhat elevated. The Fed reiterated that future policy decisions will depend on incoming data, the evolving economic outlook, and the balance of risks. During the press conference, Chair Powell emphasized that the US economy is entering 2026 on firm footing and that current interest rates are appropriately positioned to support continued progress toward both of the Fed’s dual mandate goals.

PPI m/m (Previous: 0.2%, Forecast: 0.2%, Actual: 0.5%):
The Producer Price Index (PPI) for final demand rose by 0.5% in December on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. This follows increases of 0.2% in November and 0.1% in October. On an unadjusted basis, final demand prices increased by 3.0% in 2025, down from a 3.5% rise in 2024. The December increase was driven entirely by higher prices for final demand services, which advanced 0.7%. Prices for final demand goods, meanwhile, were unchanged.

SVC Breakdown

USD

Following the recent sell-off in the US dollar, I initially moved to the sidelines to wait for further data confirmation. The nomination of Kevin Warsh, however, provided an opportunity to position long USD, as this developed into a classic sell-the-news event. In addition, I view Kevin Warsh as a competent and credible choice as Powell’s successor, particularly given his stance on quantitative easing. Under his leadership, longer-term yields could potentially move somewhat lower, more on that in my dedicated follow-up post.

From a technical perspective, the DXY remains in an overall bearish structure. Should this structure be broken, fundamental drivers would once again provide strong confirmation for longer-term upside opportunities.

Gold

Even though the sharp sell-offs in commodities have left a bitter aftertaste, further uncertainty could once again create attractive entry opportunities. The key is to wait for the initial reaction at the relevant levels, as acting too early can easily result in catching a falling knife.

US500

Taking a look at the earnings season, the picture has clearly improved. According to the latest estimates, current earnings growth stands at +11.9%, up from a rather disappointing +8.2% just last week.

The zone highlighted in the previous update already offered attractive entry opportunities on Monday. Should we now see a decisive break above the call resistance around the 7,000 level, additional positioning opportunities could emerge.

Upcoming News

• ISM Services PMI

• ECB Main Refinancing Rate

• NFP

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

No financial advice.

On Tuesday (Monday was a US holiday), the S&P 500 suffered its first drop of slightly more than -2% in quite some time, only to recover almost the entire move over the following days. The trigger for this short-lived equity rollercoaster was, unsurprisingly, new tariff threats from the US administration against several European countries, linked to the ongoing Greenland discussion. From a market perspective, however, the episode was resolved fairly quickly after President Trump and NATO Secretary General Mark Rutte reached a basic understanding on the Greenland issue.

While no concrete details were officially disclosed, reports from the New York Times suggest that the US could receive territorial rights in Greenland for the construction of military bases and broader military infrastructure. Mining rights are also said to be part of the discussions. It is worth noting that the existing agreement with Denmark and Greenland already allowed the US to establish military bases. What would be new, however, is the potential transfer of actual territory to the United States. Interestingly, this appears to be primarily a deal between Trump and Rutte/NATO, with Greenland’s local population reportedly not being consulted. From a market standpoint, though, the issue seems to be priced as “done for now,” as reflected by the swift recovery in equities.

While bond yields barely reacted to these developments, the US dollar weakened noticeably against the euro on a weekly basis. This move is likely driven by rumors that the US could support Japan in strengthening the yen, as well as speculation that BlackRock CIO Rick Rieder has emerged as a frontrunner for the eventual succession of Jerome Powell at the Fed.

In addition, we received several data releases this week, which I will break down below:

Final GDP q/q (Previous: 4.3%, Forecast: 4.3%, Actual: 4.4%):
The economy grew at an annualized 4.4%, above the initial 4.3% estimate and the fastest pace since Q3 2023. Growth was driven by solid consumer spending (+3.5%), a sharp export rebound (+9.6%), higher government spending, and a much smaller drag from inventories. The main soft spot was fixed investment, which rose just 0.8%, down from 4.4% in Q2, suggesting that business investment remains sluggish despite strong headline growth.

Core PCE Price Index m/m (Previous: 0.2%, Forecast: 0.2%, Actual: 0.2%):
US core PCE inflation rose unchanged from October and in line with expectations. On a year-over-year basis, core inflation edged up slightly to 2.8% from 2.7%, also exactly as forecast, offering little new information for the near-term Fed outlook.

Flash Manufacturing PMI m/m (Previous: 51.8, Forecast: 51.9, Actual: 51.9):
The S&P Global Manufacturing PMI edged up to 51.9 from 51.8, broadly in line with expectations. While output growth accelerated to its strongest pace since August and new orders rebounded, overall momentum remained weak, with employment growth slowing to a six-month low, pointing to a still fragile recovery in factory activity.

Flash Services PMI m/m (Previous: 52.5, Forecast: 52.9, Actual: 52.5):
The S&P Global Services PMI held at 52.5, below expectations, marking nearly three years of uninterrupted expansion. However, new business growth slowed, exports fell at the fastest pace since 2022, and employment growth eased, reflecting softer demand. While input cost inflation moderated and price pressures cooled slightly, business confidence declined to a three-month low, suggesting the services sector is still expanding, but with fading tailwinds.

SVC Breakdown

USD

Despite relatively stable data this week, the prior market structure could not be maintained. This raises the risk that the longer-term bearish structure is resuming. As our SVC framework does not yet provide a strong read, positioning should be limited to reduced-risk setups only.

Gold

Gold and silver closed the week with an impressive rally, supported by a weaker US dollar. Silver pushed above the 100 level, while gold advanced to just shy of 5,000. Members of our premium chat were able to benefit from additional long setups in gold during the move. With no attractive entry opportunities available at the moment, it makes sense to wait for the next retracement before considering new positions.

US500

The recent “TACO trades” have once again provided attractive entry opportunities in the S&P, as demonstrated well this week. Partially supported by our SVC-Framework, the S&P remains a bullish signal. That said, upcoming earnings releases this week are an important risk factor and could reintroduce short-term volatility into the market.

Upcoming News

• Federal Funds Rate / FOMC Press Conference

• Earnings: ASML, MSFT, META, TSLA, MC, VISA

• PPI

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

No financial advice.

Last Sunday, the Federal Reserve released a statement by Jerome Powell indicating that the Department of Justice has issued a subpoena to appear before a grand jury, reportedly threatening criminal charges related to his testimony before the Senate Banking Committee last June. The testimony in question concerned, among other things, a multi-year renovation project of the Federal Reserve’s historic headquarters building. The initial market reaction was sharp: the US dollar sold off aggressively, as investors questioned the independence of the Federal Reserve amid concerns over a potential removal of the Fed Chair. This uncertainty pushed long-term yields sharply higher. However, having seen similar episodes in the past, it quickly became clear that this was a short-lived shock, with markets stabilizing and recovering shortly thereafter.

In addition, we received several important data releases this week, which I will break down below:

Consumer Price Index CPI y/y (Previous: 2.7%, Forecast: 2.7%, Actual: 2.7%):
US inflation held steady at 2.7% in December, unchanged from November and in line with expectations. Energy inflation eased, driven by falling gasoline prices and slower fuel oil increases, although natural gas prices rose further. Used car prices also cooled noticeably. In contrast, food and shelter inflation accelerated, with shelter remaining the largest monthly driver. Core inflation stayed at 2.6%, the lowest level since 2021 and below expectations. On a monthly basis, CPI rose 0.3%, while core CPI increased just 0.2%, undershooting forecasts.

Producer Price Index PPI y/y (Previous: 2.8%, Forecast: 3.0%, Actual: 3.0%):
US producer prices rose 0.2% m/m in November, lifting PPI inflation to 3.0% y/y. Core PPI (excluding food and energy) was flat on the month, but the annual core rate firmed to 3.0%. The report suggests businesses are absorbing higher costs, partly linked to tariffs, as trade service margins fell 0.8% in both October and November. Weaker labor market conditions and slower wage growth have limited firms’ ability to pass costs on. However, underlying inflation pressures remain strong: PPI excluding food, energy, and trade services rose again in November, pushing the annual rate to 3.5%, the highest level in eight months.

Retail Sales m/m (Previous: -0.1%, Forecast: 0.5%, Actual: 0.6%):
US retail sales rose 0.6% m/m in November, the strongest increase since July, rebounding from October’s decline and beating expectations. The gain was driven by a rebound in auto sales and strong holiday demand. Most categories posted increases, led by sporting goods and book stores, miscellaneous retailers, gasoline stations, building materials, and clothing. Sales were flat at general merchandise and electronics stores, while furniture sales dipped slightly. The control group, which feeds into GDP calculations, rose 0.4%, pointing to solid underlying consumer demand.

SVC Breakdown

USD

Despite the initial shock on Sunday, the US dollar managed to stabilize and continued its move toward the 100 level. Equally noteworthy was the market’s reaction to the inflation data: despite slightly cooling inflation, which would typically weigh on the dollar, the initial bearish move was quickly bought, allowing the dollar to extend its bullish momentum.

The zone highlighted in our last SVC update worked very well, providing attractive entry opportunities:

Gameplan:

Gold

As expected, gold rallied strongly following the shock surrounding the subpoena of Jerome Powell, allowing the broader bullish trend to extend further. Readers who acted on our initial gold long ideas have been able to add further gains.

Gameplan:

US500

Earnings releases so far this week have been generally solid, not outstanding, but certainly not weak. Within the current SVC framework, the market remains strong, with fundamentals and trends intact.

The zones from the last update were also used effectively: the first experienced a slightly deeper drawdown, while the second aligned with put support, provided a clean and attractive entry.

Upcoming News

• Core PCE Price Index

• Final GDP

• Flash PMI’s

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

Markets have absorbed recent geopolitical tensions related to Venezuela relatively well, with oil prices remaining broadly flat on a weekly basis. From a news flow perspective, it was a data-heavy week, providing further insight into the current macro regime:

Manufacturing PMI (Previous: 48.2, Forecast: 48.3, Actual: 47.9):
The ISM Manufacturing PMI remained below the expansion threshold, confirming a continued contraction in the US industrial sector. Weakness persists across new orders, production, and employment, pointing to subdued demand and cautious capital allocation by firms. A meaningful near-term recovery in manufacturing remains unlikely.

Services PMI (Previous: 52.6, Forecast: 52.2, Actual: 54.4):
The ISM Services PMI surprised to the upside, clearly above 50, signaling robust expansion in the services sector. Strength was driven by solid business activity, healthy order flows, and stable employment, reinforcing services as the primary growth engine of the US economy.

Non-Farm-Payrolls (Previous: 56K, Forecast: 66K, Actual: 50K):
The latest labor market report showed a clearly below-trend employment gain, confirming a gradual cooling of the US labor market. Despite a slightly lower unemployment rate (4.4%), job creation remains too weak to support a narrative of labor market strength. Downward revisions to prior months further validate the loss of momentum.

SVC Breakdown

USD

The US dollar managed to establish a short-term base this week. While the initial reaction from our previous update played out well, the area could not be sustained, signaling that a medium-term bottom may now be forming.
Although our SVC framework has shifted bullish, underlying fundamentals do not support a strong USD trend, leaving this move fragile and highly data-dependent.

Gold

Readers who followed last week’s analysis should now be positioned long gold, congratulations. The key resistance area has been broken to the upside.
Ongoing geopolitical tensions, including developments around Venezuela and Greenland, continue to provide fundamental support for gold appreciation. Within our SVC framework, gold remains classified as Strong.

US500

It has become increasingly evident that the US equity market is heavily driven by the AI narrative, with valuations reaching levels that appear structurally stretched. The term “AI bubble” is now widely discussed.
That said, markets do not correct without catalysts, and at present, no clear systemic trigger is visible. As a result, our SVC framework continues to classify US equities as Strong, with minor pullbacks still offering tactical entry opportunities.

Upcoming News

• CPI

• PPI

• Retail Sales

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

The first full trading week of the new year begins under heightened geopolitical uncertainty. Given the current situation in Venezuela, it is prudent to initially observe the market’s reaction before drawing conclusions. In addition to the ISM PMIs, the primary focus this week will be on Friday’s Non-Farm Payrolls report.

SVC Breakdown

USD

Since Christmas, the US dollar has staged a modest recovery and formed a short-term low. A continuation of this rebound appears plausible in the near term, before fundamental drivers regain dominance.

The conflict involving Venezuela over the weekend is unlikely to have long-term implications but may provide temporary support for the dollar. This week’s attention is firmly on US labor market data. Due to the recent government shutdown, the last employment report showed further signs of labor market softening. It remains to be seen whether this trend persists. A continued deterioration in labor market conditions would add further fundamental downside pressure on the US dollar.

Gold

The past three years have been exceptionally favorable for gold investors. After a brief retracement, primarily driven by profit-taking, gold reached a new all-time high on December 22. Since then, prices have corrected by approximately 5%, while Bitcoin has outperformed in relative terms.

Despite this short-term pullback, gold remains structurally and fundamentally attractive. A weakening US dollar, the ongoing debasement trade, and rising geopolitical tensions continue to support demand for safe-haven assets.

Other commodities, such as silver and copper, have also experienced impressive rallies. However, my focus remains on gold. A particularly compelling indicator is the gold-to-silver ratio, which is currently at a multi-year low, suggesting that gold may offer superior relative value compared to silver going forward.

Upcoming News

• ISM PMIs

• JOLTS Job Openings

• Non-Farm Payrolls

• Consumer Sentiment

Wishing you a successful trading week ahead,

David Gauch
Founder, Gauch Research

I started the year deliberately cash-heavy, anticipating elevated volatility around Trump’s inauguration and the potential for disorderly repricing. Rather than forcing early exposure, I waited for volatility to materialize and for price to define opportunity.

That patience paid off.

Once conditions aligned, capital was deployed selectively.
As a result, my core portfolio delivered a total return of 48%, materially outperforming broader market benchmarks.

This outcome was not driven by constant activity, but by timing, selectivity, and risk discipline.

Looking Back: What Defined this Year

2025 was not short on events. It was a year dominated by uncertainty, political shocks, and sharp repricing phases across assets.

Key developments included:

• The DeepSeek selloff, triggering a brief but violent risk-off move

• Trump’s inauguration and the immediate shift in trade rhetoric

• Liberation Day and renewed tariff threats

• Ongoing Federal Reserve credibility drama

• Further rate cuts amid slowing labor dynamics

• A government shutdown adding fiscal stress

• And, despite all of this, huge market moves

The dominant feature of the year was not direction, it was uncertainty.

Look at the Numbers

What truly defined 2025 was the level of macro noise. This was most clearly reflected in gold and silver, both of which acted as real-time barometers for uncertainty and confidence in monetary policy.

The result: deeply polarized market views.

Recession calls were everywhere. High-profile investors openly positioned for economic contraction, Michael Burry being one of the most notable examples.
Yet despite the constant headwinds, the market remained resilient.

As of now, equities are up roughly 17% on the year.

That disconnect between narrative and price should be the key lesson of 2025.

Why Data Matters in Noisy Environments

During periods like this, I deliberately narrow my focus to hard data.

Not opinions.
Not headlines.
Not narratives.

Because when uncertainty is high, many market participants lose perspective, they miss the forest for the trees. I’ve made that mistake myself.

So let’s walk through the data and draw conclusions from what actually matters.

Inflation: 2.7% YoY

Despite a temporary uptick during summer and early autumn, largely driven by newly introduced tariffs under the Trump administration, the long-anticipated delayed inflation shock never materialized.

Last week’s inflation data came in significantly below expectations, even if some argue the figures understate underlying pressures.

Still, the trajectory remains clear: inflation continues to move toward the Federal Reserve’s 2% target.

Whether that target is ever reached exactly is secondary. Direction matters more than precision.

Unemployment Rate: 4.6% YoY

The effects of quantitative tightening and the government shutdown are now visible in the labor market.

The question is no longer if the labor market is weakening, it is.

That said, conditions remain historically manageable. This is not a crisis. But the deterioration is meaningful.

At 4.6%, unemployment now exceeds the Fed’s own projections for 2026, adding pressure to an already complicated policy backdrop.

This materially shifts the balance within the Fed’s dual mandate.

GDP Growth: 4.3% YoY

GDP data this year has been volatile, and misleading if taken at face value.

Much of the distortion stems from tariff front-loading, as companies accelerated imports ahead of tariff implementation. This artificially boosted imports earlier in the year and subsequently dragged GDP sharply lower during the summer.

The takeaway:
Headline GDP swings overstated both strength and weakness.

The underlying economy slowed, but did not collapse.

Interest Rates: 3.50%-3.75%

When we step back and focus strictly on the Federal Reserve’s mandate, balancing inflation and employment, the policy path becomes clearer.

With inflation trending lower and labor markets softening, further rate cuts in 2026 remain likely.

Our base case expects 50–75bps of additional easing toward neutral, which would:

• keep pressure on the USD

• support short-duration bonds

• and steepen parts of the yield curve

Outlook: What Comes Next?

USD: Structural Headwinds

From a macro perspective, the data continues to point toward further USD weakness.

Looking ahead to 2026:

• A new Fed Chair is expected

• Policy is likely to turn more dovish, aligning more closely with the current administration

• The unresolved US debt burden remains a long-term risk, particularly for long-dated yields

This combination is not supportive for sustained dollar strength.

EUR: A Case for Relative Recovery

If we have a directional bias on the USD, we need a credible counterweight.
In most cases, that counterweight is the euro.

Europe has had its own challenges this year, but several developments are constructive:

• A new government framework

• Large-scale infrastructure investment plans

• A central bank that has already moved rates toward a possible neutral level

• Stabilizing inflation

• A labor market that remains resilient

Taken together, conditions increasingly point toward relative recovery in the Eurozone, particularly versus the US.

ING’s potential scenarios:

Process Going Forward

Going forward, all analysis will be structured around the SVC-Framework:

Structure → Validation → Context

• Structure: Price defines direction

• Validation: Macro data determines durability

• Context: Sentiment and positioning define conviction and timing risk

No structure → no trade.
No validation → fragile conviction.
No context → unmanaged risk.

This framework enforces clarity, discipline, and consistency, especially in noisy market environments.

What This Means for Gauch Research Readers

SVC allows for concise, structured, and transparent market analysis.

Each update is designed to deliver:

• a clear directional bias

• an explicit conviction level

• and defined risk conditions

All within minutes, not pages.

The goal is not to overwhelm with data, but to filter what actually matters.

Premium Access & Depth

While public updates focus on direction and conviction, deeper layers remain intentionally reserved.

For Premium subscribers, this includes:

• detailed fundamental breakdowns

• full macro validation logic

• and access to my proprietary analytical tools via Atlas-Terminal

This structure ensures that:

• free readers receive clear, actionable market context

• premium members gain depth, transparency, and implementation-level insight

Value is created through process, not volume.

SVC is not designed to predict markets.
It is designed to remove noise, enforce discipline, and improve decision quality.

That standard defines Gauch Research going forward.

Wishing you a successful year ahead,
David Gauch
Founder, Gauch Research

Latest Data and News in Review What Moved the Markets?

Global equities have done what they do best which is simply rising. This has been the case for months with only a few exceptions in November. The only dampener for Eurozone investors might be the weaker dollar which is likely due to the highly probable nomination of Kevin Hassett as the next Fed Chair. It is also notable that Bitcoin has behaved like digital gold on a weekly basis again as it dropped in textbook fashion while yields rose noticeably across all maturities.

Will there be a Santa Rally?

This is the question of all questions. At least currently there seems to be little standing in the way of stocks moving higher. Seasonals support a further rise. The technical background is also quite positive unlike in previous weeks. Volatility has collapsed and the market has cleared all relevant trend following trigger levels so systematic flow finally appears to be on the long side. Additionally we are in the open window regarding buyback programs. However what could potentially stop the widely desired year end rally would be a too dovish Fed stance at the next FOMC meeting on Wednesday.

What Is Coming Up This Week?

This brings us directly to the upcoming events of the next few days. The standout event is by far the FOMC meeting and the rate decision on Wednesday. The market is currently pricing in an 86.2% probability of a 25 basis point cut. Even more important than the immediate rate change will certainly be the press conference and the upcoming dot plot regarding the further trajectory for the Federal Funds Rate target range. It could also be interesting to see if Jerome Powell says anything regarding the current liquidity situation in the reserve market and any associated future resumption of Quantitative Easing (brrr…)

USD:

FX markets remain quiet with volatility at yearly lows. Metal-backed currencies like AUD or CAD are outperforming, while the Dollar remains soft ahead of next week’s expected rate cut and Kevin Hassett’s potential confirmation in January, which markets view as dovish. While real rates recently rose, a Hassett-led Fed could depress them, further weighing on the greenback. We align with the consensus for seasonal USD weakness into year-end, targeting 1.17 for EURUSD. DXY technically, sustained trading under 99.00 opens the door towards 98.00.

Price Targets S&P 500 for 2026:

Before heading into the Second Advent lets glance at the 2026 S&P 500 price targets. Bank of America anchors the low end at 7100 citing multiple compression while Wells Fargo offers a meager 7200. Optimism builds with JP Morgan at 7500 and Goldman Sachs at 7600 but surprisingly even perma bear Mike Wilson at Morgan Stanley sees 7800. The clear bulls however are the Germans with Deutsche Bank and DZ Bank leading the pack at 8000.

Gauch Research View

Our strategic outlook remains unchanged. We maintain a long term bullish but cautious view on the S&P 500. However we adopt a short term bearish view on the US dollar and a bullish bias on the Euro Dollar exchange rate. Short term volatility may persist but the broader narrative continues to point toward resilient US growth.

Atlas-Terminal COT Overview:

Atlas-Terminal Risk Meter:

Atlas-Terminal YSA:

Lets Talk Charts (no financial advice):

USD:

EURUSD:

S&P 500:

GOLD: