Fundamental Signals

Editor’s Notes

• Precious metals are sending a loud signal. Silver’s move really caught my attention—up 17% in a single holiday-shortened week and 40% month-on-month, decisively outperforming gold. This doesn’t feel like a speculative blip. Between geopolitical flashpoints, talk of physical shortages, and distrust in “paper” markets, metals are starting to behave less like trades and more like stress indicators. The question I keep asking myself: what are these markets hedging against that equities are still ignoring?

• Strong markets, uneasy foundations. While Japan continues to look “on fire” and AI-linked narratives remain powerful, the backdrop is getting harder to dismiss—U.S. bankruptcies at 15-year highs, growing valuation concentration, and rising skepticism around bonds as a safe asset. It’s a strange mix of optimism on the surface and fragility underneath, which usually isn’t resolved quietly.

• A moment to pause and reflect. With gold up ~70% this year and silver screaming higher, it might be worth asking not just where returns are, but where protection is. When traditionally “boring” assets start acting like this, markets are often telling us more about risk than opportunity.

Net-net: Global markets ended the week sharply divided, with precious metals surging—silver up 17% week-on-week and 40% month-on-month—and Japan’s Nikkei remaining “on fire,” while sentiment in the U.S. and Hong Kong stayed cautious. Despite strong 2025 gains, rising U.S. bankruptcies, valuation concentration, and ongoing AI debates are fueling unease, even as corporate moves in energy, semiconductors, and consumer tech point to where the next market shifts may emerge.

I. Overall Themes, Market Sentiment & Debates

Bond Market Concerns

A notable concern is raised regarding the bond market, with treasuries seen as a credit risk, TIPS based on "dubious inflation calculations," and corporate bonds offering low premiums, suggesting a fundamental re-evaluation of fixed income's risk/reward profile.

Precious Metals: Silver's Geopolitical Surge

Silver saw an astounding "Christmas Miracle" surge, up 17% in a holiday-shortened week and 40% for the month, notably outperforming gold. A critical debate centers on genuine physical demand, particularly from China's Shanghai exchange, versus speculative "paper" markets (Comex/LMBA), with claims of Western exchanges being "sucked dry" of physical silver. Geopolitical catalysts are directly linked to these moves: China's strategic resource actions (decreased copper production, silver export limitations from January 1, new platinum exchange) coinciding with the U.S. announcing an $11 billion arms package for Taiwan. In parallel, copper reached new all-time highs above $12,000.

Energy Sector Re-rating Thesis

A compelling bullish thesis for 2026 argues that crude at $55 is unsustainable, the supply glut is overstated, and shale production is peaking. This suggests the energy sector (XLE), currently underweight in the S&P 500, may be poised for a significant re-rating.

AI Sector Valuation Debate

The debate over an "obvious bubble" in AI is intensifying. Skeptics point to many AI projects being "far from profitable" and fueled by speculative hope, leading some to reduce tech exposure. The counter-argument asserts AI is not a bubble, citing "blind spots" among value investors and justifying massive data center buildouts by the foundational scale of the technological shift.

Hong Kong: Cautious & Volatile

Ahead of the Christmas holiday closures on Thursday and Friday, the Hong Kong market continues to exhibit cautious sentiment and ongoing volatility across key sectors. While pockets of strength are observed in tech and consumer names, these are contrasted by declines in banking and energy sectors. Market discussion suggests a focus on daily movers rather than deep fundamental analysis, signaling limited institutional conviction.

Japan Market on Fire

Sentiment in Japan remains overwhelmingly positive, with the Nikkei 225 described as "on fire" and leading Asian indices. Gains in the broader Topix are attributed to rising bond yields and expectations of continued Bank of Japan (BoJ) rate hikes. Earlier surges above ¥50,000 were fueled by decade-high bond yields and strength in the AI sector. Risk factors, however, include recent market dips tied to regulatory hurdles (e.g., Bybit exiting Japan) and sharp moves in Japan's 10-year yields, highlighting sensitivity to policy and liquidity.

Global Macro & Sentiment

The prevailing market sentiment is a complex blend of excitement, particularly around precious metals, and cautious skepticism regarding the broader market. A notable undercurrent of economic concern persists due with U.S. bankruptcies in 2025 showing corporate filings up 4%, small business +10%, and personal +8%, with large corporate bankruptcies reaching their highest level in 15 years. Despite significant 2025 gains (S&P 500 up 17%, gold up 70%), fears remain that the market is "richly valued," "concentrated in U.S. growth," and potentially "on the brink of a substantial correction."

II. Interesting Comments, Facts & Ideas

Japan Market Specifics

• Semiconductor Ecosystem: Japanese semiconductor equipment companies Tokyo Electron (8035.T) and Advantest (6857.T) are surging, driven by positive global tech spillover and potential margin boosts from BoJ rate hikes. Semiconductor material companies Resonac (4004.T) and SUMCO (3436.T) saw gains of 8.3% and 8.0% respectively, linked to positive industrial policy and foreign investment news, notably TSMC's potential second Kumamoto fab advancing to 2nm technology. NEC (6701.T) is highlighted as a high-volume upward trend play within Japanese tech.

• Sector Rotations & Rebounds: Mitsui Mining & Smelting (1501.T) gained 7.5% amid a broader resource sector rotation in Japan, supported by rising global yields. MCJ (6670.T) (PC peripherals) and Kakaku.com (2371.T) (consumer services) are identified as short-term rebound candidates on hardware demand recovery and consumer trends. Fujita Tourist Enterprise (9722.T) is pitched as a short-term rebound candidate in hotels/tourism, buoyed by inbound tourism recovery.

• Conglomerate Interest: Sumitomo Corporation (8053.T) is noted for active trading and potential upside in commodities and logistics, reflecting investor interest in its diversified business.

Hong Kong Market Specifics

• Telecom Divergence: China Mobile Limited (0941.HK) successfully completed its first 800G live network pilot in Sichuan, yet its stock saw a mild 1.57% decline. This suggests the market views the telecom sector as stable but lagging, with significant 5G investments not yet fully translating into stock performance boosts.

• Financial & Energy Headwinds: Merchants Bank (3968.HK) shows persistent weakness, down 2.98%, reflecting broader banking sector concerns. PetroChina (0857.HK) declined 2.49%, impacted by global oil dynamics and domestic demand worries.

• Consumer Tech & Staples: Meituan (3690.HK) was a top gainer, up 2.41%, on positive sentiment in consumer tech, linked to recovery in delivery/e-commerce services and recent China stimulus pledges. Conversely, Nongfu Spring (9633.HK) was down 1.62%, facing headwinds from economic slowdown and increased competition.

• Semiconductor Challenges: SMIC (0981.HK) was off 1.38%, with discussions focusing on ongoing semiconductor challenges from US restrictions, though long-term AI potential is noted.

• Property & Conglomerate Recovery Plays: Conglomerate Jardines (0005.HK) has seen a significant run-up with potential for further gains, driven by diversified holdings across Asia. CKH (Cheung Kong Holdings 1113.HK) is identified for early-stage recovery potential, emphasizing upside in infrastructure and property as China's stimulus measures filter through. Property sector stocks like Hysan Development (0014.HK) and Great Eagle Holdings (0041.HK) are seen with further room to run, buoyed by low valuations and interest rate cut expectations.

U.S. Stock Specifics

• AI / Infrastructure Plays:

  • Nvidia (NVDA): Price targets around $235, with potential for higher, buoyed by a significant $20 billion licensing deal with Groq for inference technology.

  • Nutanix (NTNX): A strong thesis for replacing VMWare due to Broadcom's price hikes and policy changes, with active call buying in anticipation of market share gains.

  • GSI Technology (GSIT): Pitched as an "alternative AI chip play" featuring a power-efficient Gemini APU for edge AI. Anticipation builds for multi-modal LLM benchmarks by year-end.

  • Penguin Solutions (PENG): Formerly SGH, pivoting to an "End-to-End" AI infrastructure builder, notably having built Meta's RSC. Trading at ~1x Sales, with recent investment from SK Telecom.

• Software / Cloud:

  • Oracle (ORCL): Seen as a potential "2023 META vibes" turnaround story, possibly re-evaluated after being punished for its AI foray despite a robust core business.

• Consumer / Retail:

  • PayPal (PYPL): Bullish thesis ("PainPal to PaidPal 2026") cites strong FCF, active buybacks, banking charter, commerce catalysts, and potential ad revenue. Expectations for a rerating to 15-20x P/E.

  • Lululemon (LULU): Viewed as a "margin reset, not a broken growth story," with significant long-term earnings potential driven by international expansion in China and Europe.

  • Uber (UBER): Bullish sentiment persists despite a dip, citing a 35% 5-year revenue CAGR, 31% FCF growth, net cash position, and dominant 75% market share. Trades at 19x forward for 22% EPS growth, with Uber One as a key competitive advantage.

  • Sprouts Farmers Market (SFM): Despite being down 38% from highs, plans over 40 new stores in 2026, targeting 14% revenue growth, indicating strong expansion plans.

  • Instacart (CART): While screening cheap, strong skepticism exists regarding its "defensible business proposition" due to intense competition. Smaller chains reportedly turn to Instacart out of "desperation."

  • Netflix (NFLX): Acknowledged as a "high quality business" growing at 20%, but its valuation (40x P/E, 30x forward P/E) is considered high by some, with buying interest only if prices drop significantly (e.g., below $90).

• Energy Sector Specifics:

  • Occidental Petroleum (OXY): Performance is questioned for lagging Brent/TXI oil spot prices by 50% since 2016, leading to debates on whether shareholder liquidation would be a better outcome, highlighting significant underperformance concerns.

• Value / Contrarian:

  • Nomad Foods (NOMD): Pitched as a "deep value contrarian case," trading at 8-8.6x P/E despite being a market leader. ERP migration issues are considered temporary headwinds, supported by aggressive share buybacks and a 5.4% dividend yield.

• Small Cap / Growth:

  • Warpaint London (W7L.L): A UK AIM-listed color cosmetics company, trading at attractive valuations (EV/EBITDA of 6.5, P/E of 10) with no debt. Drawing comparisons to ELF Beauty's trajectory a decade ago.

Cross-Market & Thematic Ideas

• U.S. Manufacturing Boost: CNH Industrial NV announced plans to invest nearly $5 billion over the next five years in U.S. manufacturing and R&D facilities, signaling significant domestic expansion.

• Healthcare Innovation: Vertex Pharmaceuticals Incorporated is advancing its VX-548 non-opioid pain program, with management believing it could redefine treatment in post-surgical and neuropathic pain.

• Grid Modernization: PG&E Corporation successfully launched its Dynamic Line Rating (DLR) and Asset Health Monitoring (AHM) technology demonstration, moving into trial deployment for grid modernization.

• Global Consumer Expansion: On Holding AG Class A expanded its global presence to over 80 countries, with an ambitious aim to double net sales.

• Hospitality Market Entry: Hyatt Hotels Corporation Class A opened its first Hyatt-branded hotel in Nha Trang, Vietnam, marking a strategic market entry.

• Emerging Sector Concerns: The "Neoclouds" sector (GPU rental platforms) faces concerns over thin margins and rapidly falling GPU rental prices, drawing comparisons to past dot-com failures.

Market Mechanics / Alpha Signals

• Reddit Alpha: Analysis suggests that the top 10 stock recommendations from r/stocks significantly outperformed, returning 68.3% in 2025 (vs. 18% for SPY) and 58.6% in 2024 (vs. 46% for SPY), with Rocket Lab (RKLB), Nvidia (NVDA), ASTS, and Palantir (PLTR) as major contributors, highlighting a potential source of sentiment-driven alpha.

• Superinvestor Underperformance: A debate exists around why some "superinvestors" consistently underperform the broader market over long periods, prompting questions about active management efficacy.

General High-Growth Picks for 2026

Recurring mentions for 2026 growth potential include NVDA, MU, GOOGL, META, MSFT, LLY, and ASTS.

Happy Alpha Hunt! - Distilla

Disclaimer: This content is generated using AI, synthesizing public data (filings, reports, news) and social media (Reddit, X). It may contain errors, inaccuracies, or hallucinations. Nothing herein constitutes financial advice. This newsletter is for informational purposes only; please consult a qualified professional and conduct your own due diligence before making any investment decisions.