Extreme Economic Uncertainty is a Major Buy Signal
Economic uncertainty is spiking. Doomers are having a field day.
Top worries include a widening Middle East war, an AI driven growth scare, an oil-induced inflation spike, and a premature end to fed rate cuts.
It’s a very scary list.
Just don’t fall for it because extreme economic uncertainty is a major buy signal.
And here’s the silver lining: Bull markets always climb a wall of worry.
It’s actually a positive omen.
Here’s why: When no one’s worrying, the crowd is already all-in and the rally will falter as demand dries up.
Today we’ll explain the huge rotation into HALO stocks that has many sectors up YTD even as the S&P 500 is down small.
Then, we’ll unpack two contrarian, evidence-rich, datasets to help you stay invested and buy quality on sale.
As usual, we’ll wrap up with the best sectors to overweight right now and a list of winning stocks seeing huge institutional buying.
Economic Uncertainty Spikes
The US Economic Policy Uncertainty Index measures macro headline risk based on news coverage, reports from the Congressional Budget Office, and a survey of economic forecasters.
Today’s business landscape is wildly in flux – geopolitical worries and rapid AI investment, innovation and disruption are spooking people, all while monetary and trade policy feel up in the air.
Against this backdrop, it’s no wonder economic uncertainty is at its highest level since it peaked last spring at the height of the tariff panic (chart).
This sudden brutal macro backdrop has been enough to end the S&P’s once powerful rally:
Stay with me for the evidence-based buy signal.
Market-Beating Stocks Sport HALO Effect
As we’ve been saying for months, index performance doesn’t come close to telling the whole market story.
Under the surface, it’s been an epic stock picker’s market with huge dispersion between winners and losers.
We’ve been recommending energy, materials, industrials and semis all year. They remain leadership. Safer defensives like utilities, staples and real estate are also outperforming.
These 2025 laggards are up even as the S&P chops lower (chart).
Here’s what explains this massive rotation:
HALO – heavy asset, low obsolescence is the new equity leadership theme, while service oriented, software businesses are seeing their multiples re-rated sharply lower.
Markets are rewarding real world physical capacity, networks, infrastructure and engineering complexity - assets that are hard to replicate and less exposed to potential technological obsolescence from AI.
What’s In: Think consumer packaged goods, pharma, semis, energy, mining, defense, aerospace, power generation, grids, utilities, transport infrastructure, critical machinery and long cycle industrial capacity in general
What’s Out: asset light, software heavy, service business models found primarily in the tech, communications and financials sectors that may either see slower growth or be completely disrupted as AI adoption spreads.
Extreme Economic Uncertainty is a Major Buy Signal
With uncertainty so high and the S&P swinging wildly, many are getting spooked out of equities.
Here are two meaty, contrarian datasets to give you the conviction to stay invested and add to quality names on weakness.
We analyzed how equities perform after periods of high uncertainty since 2000.
It turns out, extreme uncertainty is a major buy signal.
The S&P 500 has averaged outsized gains of 24% 12-months after top decile readings in the economic policy uncertainty index.
Don’t fall for the bear bait.
High economic uncertainty is not a reason to abandon stocks:
OK, here’s reason #2 to stick with equities:
Tight Credit Spreads Signal Upside for Stocks
With the big four hyper-scalers promising to spend $650B on datacenters, a 60% year-over-year increase, talk of an AI bubble is everywhere.
The bears’ big concern is that epic artificial intelligence investment spending has risen to levels that could strain corporate balance sheets and create credit risks.
Credit spreads measure the premium companies pay above comparable Treasury yields to borrow money.
Here’s the problem with the bear case.
Spreads are currently near record-tight levels at only 88 basis points above Treasuries. That’s well below the long-term average of 130 basis points:
Here’s the best part. Stocks outperform when credit spreads are below 1%. This makes sense because super tight spreads reflect bond investors’ high confidence in the health of corporate America.
Since 1989, the S&P 500 has gained 12% in the 12-months following sub 1% investment grade credit spread readings vs. only 6.6% average advances when credit spreads have been above 1% (chart).
Even better, stocks have been less volatile in sub 1% credit spread regimes. The biggest S&P 500 drawdown was only 20% vs. a maximum drawdown of 69% when spreads were north of 1%.
What This Means for Your Portfolio
Most stocks are doing fine even though the S&P 500 is down slightly YTD due to its huge 50% exposure to tech, communications and financials.
HALO heavy sectors like energy, materials, utilities, staples and industrials are all leading the market YTD by wide margins.
We flagged energy as a sleeper sector in our 2026 Outlook on December 15. It’s 2026’s top performer and still our top ranked sector. The asset heavy utilities, materials, staples and industrials sectors are also seeing strong inflows and round out our five top sectors:
Tech, communications and financials have been for sale all year. But the selling has gotten so widespread and indiscriminate that quality opportunities are emerging in best of breed franchises.
Many of these have sky high MoneyFlows fundamental scores. It’s their weak technical readings that lower their overall MAP scores.
The carnage is very similar to energy and staples in Q4, nobody wanted to go near them but they turned out to be hidden gems.
The smart money is always looking for opportunities in dislocated sectors.
When volatility rises it’s important to up the quality when you buy on dips to account for heightened macro risk.
This isn’t a time to buy highly speculative stocks.
Today’s list is a blue chip only list of HALO names seeing the biggest institutional inflows plus a few beaten down tech, communications, discretionary and financials jewels to buy on sale and put away.
Our data is built to find the outlier stocks ahead of the crowd.
To get access and make even more from this call to action, sign up for a PRO membership.
You’ll get our proprietary indicators and learn how our unique money flow approach finds outlier stocks early. Give it a shot!
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Be early next time.
Our process helps investors “be early” to trends.
Good things happen when you follow the data instead of the crowd!
Go with the flows!