The Federal Reserve is expected to cut interest rates and halt its quantitative tightening program after shrinking the balance sheet by $2.4 trillion — a move that has strained liquidity in areas like REPO lending. This anticipated pause in tightening is being viewed as a de facto rate cut, potentially pushing rates down to 3.5% or lower from the current 4.25%. Major tech earnings from Microsoft, Meta, Google, Apple, and Amazon are in focus this week, with investor attention centered on AI-related spending and data center growth. Despite valuations appearing full, PVG sees the S&P 500 maintaining upward momentum through year-end 2026 earnings but warns the market is entering a “melt-up” phase characterized by high risk and volatility.

Sector-wise, technology and communications services continue to outperform, while defensive areas like utilities and real estate also showed strength. PVG highlights optimism in semiconductor recovery—particularly Texas Instruments and Intel—as AI demand expands, and sees promise in autonomous driving plays such as Mobileye and Google. Financials like Capital One posted strong results, signaling resilience, while the chemical and industrial sectors are showing early signs of recovery through leaner operations and strategic spinouts (notably Honeywell’s planned divisions). Overall, PVG views 2025’s market environment as one of cautious optimism—supported by improving liquidity, AI-driven growth, and selective opportunities amid elevated valuations and geopolitical uncertainty.

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