Aptus 3 Pointers, January 2026

Full Transcript

James

Hello, everyone. My name is James Yahoudy. Welcome to our monthly update.

First trading day of February, and I think, you know, a lot to talk about as we look back on January. So we’ll get right into things. First, a quick disclosure, and I’ll pass it off to to John Luke Tyner, head of fixed income, and David Wagner, head of equities.

The opinions expressed during this call are those of Aptus Capital Advisors Investment Committee and are subject to change without notice. The material is not financial advice or an offer to sell any product. Poor-looking statements are not guaranteed.

Aptus reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. More information about Aptus Investment Advisory Services can be found in its form ADV Part 2, which is available upon request. All right.

So just pass it off to Dave. Appreciate everyone joining, and we’ll, as always, look to keep this under 30 minutes, and available for any questions, comments, please reach out directly to our team. Dave, all yours.

Dave

Jonathan Lucas, I got a question for you. Are you as optimistic today as you were heading into 2026, maybe even on a 1 to 10 scale? So we’ve seen January. Do you remain just as optimistic as you were heading into this year today?

John Luke

Yeah, I mean, it’s a great question.

If you look, nine, eight of the last nine months for the S&P have been positive, and the one month that was negative was December, down 0.1%. So there’s a lot of fear, it feels like that was injected in January, just with the geopolitical backdrop, the new Fed chair backdrop, a lot of things that we’ll kind of touch on. But I mean, I always kind of sum it up to if earnings are decent, and the consumer is still standing, it’s really hard to get too bearish. And you throw on top of that, the deficit continuing to run at, you know, five, 6%.

There’s a lot of stimulus that’s going to continue to hit this market. So I’m not too worried.

Dave

It did feel like every day, John Luke in January was its own ecosystem.

You know, there’s a lot of headlines out there. There’s a lot of news out there, at least in my chair, especially as we started to go through earnings, I could tell you my brain was putting a pretzel in each of its own daily ecosystems with all the noise out there. And I think that’s what you’re trying to elude there, John Luke was like, there was a lot of noise in January.

Right? And I think we got a lot more questions, at least I know I did in regards to, you know, where do we currently stand on the market? You know, throughout, you know, the first part of January, given our optimism heading into 2026. And I would I would agree with you, John Luke, like it really hasn’t changed. It just shows you that, you know, how resilient this market is right now, given all the noise going on and around.

Because as we just mentioned, there’s a lot of noise. But at the end of the day, the market is not political. It’s not geopolitical.

You know, it’s agnostic to all those factors. And it only tends to focus on two things. Are the policies and the information hitting the market going to increase or decrease earnings? Or is the second will be, is it going to increase or decrease margins? And as you alluded to, John Luke, as long as the earnings are strong, and spending is strong, really tell this market.

That doesn’t mean that there can’t be some type of pullback. But look at the returns we saw this month. You know, S&P 500 up 1.5%. Great international, the non dollar denominated indices.

Amazing. Small caps. Heck yeah, brother.

It was a party. It was a party down the cap system. I think one of the crazy statistics I saw during the month was I think like the first 15 trading days of January, small caps outperformed large caps.

That’s something that hasn’t happened since 1996. I love it. There’s been a lot of breath in the market, not just at the index level, but also at the sector level and the ETF thematic basket level.

I mean, we’re all been talking about, you know, semi caps, pardon me, semiconductors beating software companies, which has continued this year. But even if you look at the breakdown in the semiconductor index, like, you know, Broadcom and NVIDIA pick up 30% of the ETF, but yet they’re flat on the year. Yet the ETFs up call product 15% or so because you have names like Micron, Intel.

There’s been a big broadening out of this market, not just in the tech space, but all the way down the market cap spectrum, which I think a lot of people would be joyous about that. I’d say the thing that probably stuck out the most to me here was, you know, EM continued to work. The dollar did continue to weaken.

I would also say that the other surprising thing here is that a lot of the winners of last year have continued to win this year. For some reason, our brains are wired that the Gregorian counter is going to change over the themes of last year as you enter into January of the following year, whether it’s just due to momentum or the January anomaly. But it just didn’t really seem to ring true that the winners of last year have definitely continued this year.

And we’ll definitely see what the next 11 months brings us.

John Luke

Yeah, I think, too, just to point out your comment on the dollar, Dave, looking at the from kind of the end of the calendar year last year to the lows, it was maybe a 3% decline, a little bit over a 3% decline. But if you look at it, it’s almost flat.

You know, I know a lot of that’s on the worst news and, you know, what that means for markets. But just thought that was interesting. It’s more EM, I think, is coming from earnings growth than it is from the dollar side.

It’s kind of my two cents. But, you know, looking at this chart, it’s, I guess, a little bit of a life’s tale, in a sense, on how the market does in January. It continues on throughout the back half of the year.

And what you see is an interesting chart here that shows the market up between zero and 2%. So, you know, modestly positive for January and what has happened for the next 11 months throughout the year. And as you can see, there’s one red number that was from 1966, where the market had a poor following 11 months of the year.

But, you know, you look at the average and the median return, and they’re both healthy numbers for market performance. You know, I think we would all be grateful if that did end up playing out. But I do think that a positive January can continue to set the bar for a good rest of the year, especially considering the stimulus, the tax refunds, the one big beautiful impacts, the flowing inflation, and now certainty on the Fed chair looking forward.

Dave, you got anything to add to this?

Dave

The chart is so simple. Everyone here knows that Aptus’ motto is simple beats complex. And over the past month, as we just alluded to, there’s been a ton of noise out there.

So let’s just keep our eye on the prize. And this is a great chart that John put in here just to help advisors to remain rationally optimistic moving forward by looking at historical data. I love it.

So I’ll start this one, John Luke, and I’ll pass it up to you, because this is more of your specialty, because your brain’s bigger, a lot bigger than mine, and you get this type of stuff. All right. We’ve been getting a lot of questions on, obviously, the international asset class.

And if you’ve heard us speak here lately, we talk how a lot of the winnings here lately, especially relative to the US on the international side of the ledger, has come from dollar being devalued. And it’s also come from valuation expansion. And a lot of our conversations here more recently have not just been moved from the valuation commentary.

It’s been moved more towards dollar currency. And where is it moving from here? It feels like it’s very much of a consensus side, especially for the Twitter people of this world, that the dollar is only going to continue to get devalued given the move of some people selling treasuries, at least from the global bank scenario, and lack of trust in the dollar, that they’re just going to think that that’s going to continue to move into perpetuity into the future. But I think what John Luke was going to talk about here, the interesting part is the S&P 500, it derives 42% of its geographic revenue from international parts of the globe, meaning that only 58% of its revenue is derived here domestically.

So you’re already getting a little bit of a flavor, a little bit of a twist, by owning the S&P 500 with some type of international exposure. But I’ll let you take it from there, John Luke, to talk about the dollar or whatever you want to.

John Luke

Well, I made a couple of comments on the dollar.

We’ve been in a weakening cycle the last couple of years, maybe a little bit more magnified last year. But if you look back to periods, we’re kind of just back at the average of where we have been the last eight years or so, kind of on an aggregate. But if you look back to past U.S. dollar weakening cycles, you’ve got the Plaza Accord, which was from 85 to 87, where the dollar lost about 50% of its value.

But what you saw through that period was actually exceptional returns from all risk asset classes, except gold, actually, after it stabilized the back half of that. It kind of front-runned it, per se. But a 10% drop in the U.S. dollar equates to about a 2% to 3% boost in earnings through the S&P 500.

And so, as Dave alluded to, that 42%, a large chunk of it is actually from tech companies with the highest margins, the highest growth. So I think some of that obviously is helpful for returns for U.S. stocks. But think about it from this way: How does the dollar impact earnings?

Well, the easiest way is that whenever that you translate the currency at the end of the quarter, if you got paid in a currency that’s strengthening relative to the dollar, you translate that back, and it supports earnings. The second really is that you just have an ability to sell more stuff globally. It makes our export more attractive.

And so I think just the modest weakening of the dollar isn’t necessarily just good for international or emerging market stocks. I think it can be good for just the broad index as well. And what we’re trying to demonstrate here is that the U.S. market index, the S&P 500, has a lot of international exposure that we’re getting in our portfolios.

Dave

Back to the dollar, too. Everyone that says that the dollar is just going to continue to weaken, so we want to own internationally. Why? There’s so many other components to total return on the international.

If you think the dollar is weakening, just bet against the dollar. That’s the most simplistic way of playing this, because their argument is like, hey, you know what? Donald Trump, he’s being wrong. He wants a stronger dollar here.

Actually, I don’t think he does. I think Kelly on CNBC had a great write-up this last week talking about this. Trump actually wants a weaker dollar to everything Donald just alluded to.

He just says he wants a strong dollar, not in terms of currency valuation. He wants a strong dollar to remain the cornerstone of currencies around the entire globe. And I think that’s what Trump’s talking about when he talks about the strong dollar.

It’s like, hey, let’s make sure we keep control over the global reserve currency. And I think that’s a bifurcation a lot of investors miss here. I think he actually welcomes this weakening dollar to John Luke’s point.

All right. John Luke, I would say this was probably the biggest news in the last week of the market. I don’t know if I could say all of January because a lot went on here.

But President Donald Trump did announce his new Fed chair. I think it was somewhat a surprise to a lot of market participants. I think it was a surprise by the market.

So I think the question we should be asking ourselves right now with this nomination of Warsh, does it change for stocks? Because there’s basically two reasons that the market was mildly disappointed, in my opinion, by the Warsh nomination. And his first is that he’s made less than supportive comments about quantitative easing. Last summer, I believe, Warsh spoke about QE being reverse Robinhood in that it benefits asset holders more than it benefits non-asset holders.

Specifically, Warsh thinks that QE compounds inequality in the market. And quite frankly, he pretty much is correct here. But however, QE has become more of an integral part of Fed policy.

And many believe it’s critical to the massive appreciation in assets over the past, call it 17 to 20 years, and abandon or altering this policy. And markets are probably going to want to hear from Warsh about his commitment to QE here in the near future. It’s going to be a big question when he goes up to Senate for his nomination.

But I think the second reason that the market was a little skittish was that he called for a regime change. I think John Luke correct me if I’m wrong, he said there needs to be a change in heads at the Fed, basically saying that the people running the Fed, Powell or whoever, are the same exact people who let the inflation genie out of the bottle. And because of that, there needs to be new leadership that can restore credibility to the public again.

And again, that’s probably not necessarily a horrible thing, because I don’t know if his comments are totally off base. I think John Luke would very much agree with those comments, knowing John Luke now for like 10 years. But the markets want to hear more specificity on what exactly this regime change means in the coming weeks.

So I wouldn’t say the markets hate the Warsh choice, but I think it’s going to be how he views the markets and the Fed is going to be a main ingredient on how this 10 plus year bull market is going to be moving forward. Because from a policy standpoint, people have called him like a hawk, which makes it a very surprising choice for Donald Trump, because he’s obviously wanted more of a dev Fed chair to bring interest rates down. But Warsh definitely reinvented himself, in my opinion, John Luke, by advocating for lower interest rates.

I mean, obviously, as I just mentioned, he’s been a huge critic of the Fed’s ample reserves. So think the large balance sheet regime. And he argued last year that, you know, he wants more of an aggressive reduction in the balance sheet.

So that could make more room for aggressive rate cuts in the future. Of course, a more aggressive balance sheet reduction will probably, you know, boost long term interest rates, because the supply demand will be off there, there might be a little bit less supply in the market moving forward. Even if it did make room for Fed, deeper Fed cuts moving forward into the future.

So in Donald Trump way, and I’ll stop here, he definitely probably shook the market’s ground a little bit by by trying to change the regime and change how things are done in Washington, DC. Obviously, Trump did that with tariffs. And it seemed like that may happen now moving forward with the Fed for good or for worse. I don’t know.

John Luke

Yeah, I mean, there’s probably a 30 minute conversation in itself on on this topic. But, you know, Kevin Warsh has a strong background with Stan Druckenmiller and Scott Bassett from his prior life of working in the private sector.

And, you know, my general take is having private sector practitioners come and be government employees for the benefit of the public. It’s probably a good thing because they’ve actually managed money in real cycles, real markets. And it’s not just based off of, you know, what a textbook says.

So I’m pretty positive in general on his nomination. I think that Rick Reiter would have been another good choice. But I think there’s probably some comments that he made about the Trump administration and his past that maybe kept, you know, him from getting this election.

But I’m going to imagine that there’s a lot of real market practitioners and conversations going on behind the hood. But I think if you sum it down to just the simplest perspectives, Walsh wants less government involvement in the banking system, and he wants more private market participation. And so, you know, if banks can have less regulations in place, then I think they can be in a good spot to kind of take down a smaller balance sheet for the Fed, right? It’s just someone else’s balance sheet on the private sector.

So I think that you can kind of play both sides. But viewing him just straight up as a hawk, I think is a bad take. Yeah.

And we touched on this. We won’t entrench too much. But, you know, if you look at real consumer expenditure, consumer spending, you continue to see a shift higher.

The consumer has felt benefits of higher net worth from asset prices going higher, from real wages increasing just nominally as they’ve gotten paid more, but also because inflation has come down. And as long as you continue to see this chart inching higher, I just view that as a general positive for the market where the consumer is spending into the economy, which will support a number of things. But earnings is probably the most important.

Dave

I wish this chart, John Luke, had kind of like a trend line of expectations versus history. And what it would show you is that we’re kicking above our weight class rate now from a consumer spending growth perspective as a percentage. It’s growing like 5 percent when it tends to grow, like 5.5 percent when it tends to grow in that 3 to 6 percent range.

The average probably 4.5 percent, JL. So we are kicking above our coverage rate now from a spending perspective. But that’s also because consumers are much more healthier than where they were 10 years ago, 20 years ago, 30 years ago.

I could keep going on.

John Luke

Yeah. I mean, maybe the inverse is that you’ve seen a decline in the savings rate.

We’ve talked about this before on past top threes, but the savings rate doesn’t account for the return that you’re getting on your savings, which is higher now just with money market yields a little lower than it was a year or two ago. But also, risk assets have had a heck of a return. And if you think about the demographics of older Americans, well, they’ve probably done quite well with their investment.

And now they’re spending it and enjoying their life. And so I think that that’s kind of a reflection of really this chart and the savings rate and maybe a little bit of debunk the fear that markets are putting on that number. This one’s perfect for you.

I think if you put this in conjunction with the Fed chair chart, just talking about the market tends to challenge the new Fed chair with the market volatility, and you throw that into a midterm year. What do you think plays out for the remainder of 2026?

Dave

You know, I guess me and you always want to run and shy away from talking politics, but in the midterm election year, it’s hard not to. JL, you sent this chart out that’s on the right hand side.

It’s very much like a chart that we always have in the quarterly slide deck. And a lot of our different write-ups is talking like how often a pullback tends to happen. And I love how they kind of break it down here.

Like, you know, an S&P 500 inch a year decline of 20%, you know, happens 26% of the years. So I guess that’s to say inverse that’s like every four years or so. My data has it closer to five, but you know that we’re not going to nitpick data here because it all’s mined at the end of the day.

But yeah, midterm election years tend to be very, very volatile, more volatile on the perception of market volatility than probably actual volatility because of all the headlines, much like what we’ve had to endure just in January in its own. So it probably makes everyone’s lives on this call and listen to this call from an advising perspective more difficult because you have to put up with all these political ideologies and thoughts on both parties and Republican Democrats. Everyone’s wrong.

I’m wrong. Everyone’s wrong on politics. Everyone, just a fact.

But when it comes to market volatility, we will see more volatility this year. I usually say volatility for some reason, because I like to simulate it with the Tennessee volunteers who played my Kentucky Wildcats on Saturday. Hopefully the former loses to the latter there.

Go cats. But we will see more volatility. The average pullback in a non midterm election year is 12%.

The average pullback as measured by the S&P 500 in a midterm election year is closer to 19%. That’s almost like a 50% increase, over a 50% increase. I got to carry my one there.

So we will see volatility. Luckily, I don’t know how much we can talk about our allocation. We’re prepared for this volatility.

The fact that we’re not handcuffed to volatility from a calendar constraint perspective, how we can use volatility to our advantage, honestly, gets me very excited for this year. It’s going to be a heck of a year from a portfolio management perspective. It’s going to be really hard.

But it gets me really excited because John Luke, myself, Brad, JD, Mark Callahan, the whole PM team, we’re ready to roll up our sleeves and get our hands dirty and work hard for these incremental returns by utilizing volatility as an advantage, and especially being active amongst it. It gets me so excited for not only how our funds are positioned, but how our overall asset allocation is positioned. So if we do see that fall, again, I’m all optimistic on the year 2026, as you read from our aptest outlook heading into this year.

I think, as I always say, bears sound smart, bulls make money. There’s going to be plenty of opportunities where bears may sound smart this year, but much like we saw after the tariff tantrum in April, the ones that are going to make money are the ones that are rationally optimistic and that can use volatility as an advantage to themselves so they can take on more risk. It’s like that Mark Spitznagel, he has this quote where he goes, with proper risk management through hedges, it does help you to protect capital and downside, but the more advantageous benefit of having the right types of hedges is so you can take on more risk.

And that’s exactly what we’re trying to do here, but keep guardrails for when this ball utility does happen. It will happen.

John Luke

Yeah, and the aptest three-pointers has turned into the five or six-pointers with the charts, but there was another chart that followed this one on the left side from 314 Research, and it showed that in years, midterm years, that you have the Fed in a cutting cycle and you don’t have a recession, that the returns are actually pretty strong.

And so there’s caveats, and like Dave said, you can kind of data mine whatever that you want, but if you do have an environment where the economy holds up, growth is strong, economic growth, GDP growth is strong, earnings growth is strong, the Fed is in a cutting cycle, maybe a little bit more of a cutting cycle than was priced in a couple weeks ago now with the new Fed chair. You know, I don’t think it’s a reason to step out of the market by any means and really lean into the allocation structure.

James

Awesome.

Just to jump in here and maybe wrap the conversation, is there any maybe common themes? I’ll start with you, Dave, that you’ve heard from advisors, investors, as it relates to portfolio positioning or markets that you want to share?

Dave

I’m getting very aggravated right now. This is all anecdotal. This is just me here.

I’m getting aggravated. I was on the road like 22 or 23 days this month at a bunch of conferences. Let me tell you, it’s like I’m walking into a cave and just hearing an echo everywhere I go.

Everyone’s echoing each other right now. The amount of consensus out there really makes me mad and almost makes me want to fade consensus. It’s like a lot of the stuff that they learned last year when consensus was caught off sides basically on every single tilt.

Everyone has that same tilt of last year they do this year because they don’t want to give up on their tilts because they don’t want to admit that they’re wrong because no one wants to be wrong in this world. You’re wrong a lot in this world. I’m wrong all the time in this world.

Everyone’s still saying, oh, we want to own the average stock. We want to own dividend payers. We want to own quality.

We want to lower iteration. Everyone’s saying the same exact thing and they’re just absolutely missing the point. Obviously, we have our thoughts on all of that, our tilts.

If you look at our asset allocation specifically in our impact series, all that matters is the structure of the allocation. After what I saw last year, what I’ve seen to the start of this year, it just gives me even more conviction. I could talk until the cows come home.

If I like this stock, that stock, this asset, I love it. It’s fun. It’s sexy.

It’s unbelievable. At the end of the day, it doesn’t matter. I think they’ve just missed the mark there because that’s just what they’ve been taught.

That’s what they’ve been ingrained. Look at the Sharpe ratio. Look at the Trader ratio.

Look at own quality, own value, this or that. Everyone’s saying the same thing and it disappoints me. Really, I truly believe before I pass the jail, look at the structure of your allocation because at the end of the day, that’s all that matters.

Day by day, I get more convicted by it, by hearing that all these single conferences. No one ever talks about the structure of an allocation. They talk about finding alpha, alpha this, alpha that, seek alpha, yada, yada, and it just disappoints me.

I’m glad we’re doing it right. I believe we’re doing it right. I’d hedge myself there because of compliance, but I believe we’re doing it the right way.

John Luke

Yeah. Well, I think same question for me, James, would be just the run-up that you’ve seen in precious metal to start this year and I guess really the last three or four months where things have gotten a little bit turbo. It was easy in hindsight to feel the extendedness, especially of like silver, where you had a massive move lower on Friday because of, I guess, partially because of the announcement of the new Fed chair, but also I think just sentiment had gotten very exuberant.

I think you had the biggest drop in gold maybe ever or at least since the 80s. I think intraday it was down close to 15%. Silver was down about 30%.

I think it just shows a little bit, echoing Dave, of the need to stick to a process. There are opportunities to structure the portfolio and to make the right decisions in there, and it’s usually a bad idea to irrationally or exuberantly or FOMO into some of these asset classes. I always go back to when you think about gold or silver or other precious metals, if you break it down to where the returns come from, it’s really just based on sentiment.

There’s no yield. There’s no growth. Really, there’s negative growth because they’re mining more of it every year.

It’s all based on consumer, the sentiment from us as buyers or just the market as buyers. I don’t think that’s a sustainable investment thesis into the future. That was very notable just with the huge rise up and then the huge drop.

James

Awesome. We’re at the 30-minute mark or so. I just wanted to thank everybody for watching.

You guys know it’s the first week of the month, so a lot of commentary from our team will be out. If you need any help with market commentary, thinking through your portfolio allocations, if you’re not a consulting client of ours, please reach out. We’re here to help.

We want to be a resource. Again, thanks for joining.

John Luke

Thanks everyone.