Daybreak Holiday: Stock Market Records, Fed Independence, The Future of DEI | Bloomberg...

Stocks are starting 2026 after three straight years of double-digit gains, but Cameron Dawson and Lorie Calvasina argued that the path higher looks much less straightforward. Dawson said Washington policy, high valuations, and elevated earnings expectations create a very high bar for returns, while Calvasina said RBC still sees a 13% S&P 500 target but expects a 5% to 10% drawdown along the way. Both framed the year as one where volatility, geopolitical risk, and renewed pressure on the Fed could make the market choppier than consensus expects.

The discussion also focused on the dollar, sector rotation, and whether the AI trade is broadening. Dawson said “sell America” is becoming crowded and that weakening dollar expectations are already reflected in positioning. Calvasina said investors are looking for reasonably valued sectors such as financials, healthcare, materials, and some consumer staples, while large parts of technology remain expensive despite still-rising earnings estimates. Both suggested small caps are interesting but not yet compelling enough to justify the optimism, especially without more rate cuts and stronger cyclical data.

The Fed segment centered on how the investigation into Jay Powell could complicate next week’s first rate decision of the year. Anna Wong said soft CPI and expected weak payrolls make policy difficult, while Michael McKee said markets still do not seem to be pricing in a major reaction to the probe. The final segment said DEI has moved beyond a normal pendulum swing: Jeff Green described a wholesale dismantling, while Heather Landy said some companies are quietly renaming or rolling back programs rather than openly defending them.