Stall-Speed Growth, Selective Risk

Synopsis

Markets are increasingly pricing a mid-to-late cycle environment where recession risk is deferred but growth remains uneven, supporting risk assets without requiring re-acceleration. Policy uncertainty—via Fed independence rhetoric and looming tariff rulings—has replaced macro data as the primary volatility driver, reinforcing higher-for-longer dynamics, curve steepening, and selective sector rotation. Across equities, leadership is narrowing as investors favor Value, cyclicals with pricing power, and AI names with visible cash flows, signaling a decisive shift from broad beta toward disciplined, fundamentals-driven positioning.

Lens 1: Surprise Metric

Our “Surprise Metric” reveals factor movements outside of their historical return distributions for different horizons (Surprise 1W, 1M, 3M columns below). Values above 1 (below -1) standard deviation suggest outsized strength (weakness) relative to history (data sourced from our open ecosystem of risk model providers).

End Date: 1/9/2026

^{* Arrows represent directional change in 1W Surprise Metric. Single arrows indicate 1X or larger difference from previous week and double arrows indicate a 2X or larger difference. Horizontal arrows indicate minimal change.}

Highlights

• Factor leadership confirms mid-to-late cycle regime. Value continues to outperform Growth as risk-on accelerates, with Beta, Volatility, and Momentum rallying sharply. Quality has stabilized but remains structurally underowned, suggesting limited near-term sponsorship despite improved performance.
• Labor data keep risk assets supported, but growth is narrow. Softer-than-expected NFP and unemployment reinforce a “stall-speed” labor market—reducing near-term recession risk—yet job gains remain concentrated in leisure and healthcare, while cyclicals like manufacturing and transport continue to shed jobs, arguing for selective rather than broad cyclical exposure.
• Fed independence rhetoric injects volatility and favors curve-steepening trades. Reports of BOJ subpoenas and Powell’s forceful response unsettled markets, pushing term premiums higher and pressuring risk assets. A reinforced “higher-for-longer” narrative challenges long-duration hedges while supporting banks and other beneficiaries of wider net interest margins.
  

Lens 2: Thematic Crowding

This snapshot reveals thematic hedge fund exposure by measuring the beta of a Wolfe Hedge Fund Crowding factor portfolio to key market themes, calculated from residual return data. Higher beta indicates greater crowding in the theme, while lower beta suggests contrarian or avoided positioning to the theme. Data used for this analysis extends back to Jan 1st, 2024. 

‍How to read this graph

Highlights 

• Cyclicals cooled but remain structurally favored. While momentum faded last week, cyclicals still sit well above historical averages, signaling institutions remain comfortable leaning into risk. Investors continue to favor Energy and Industrials on the view that recession risk is pushed out—without requiring a renewed growth upswing.
• Tariff positioning thinned ahead of legal risk event. The theme is less crowded as investors await a Supreme Court ruling, with prediction markets assigning ~75% odds to blocking emergency tariff authority. That expectation has supported retail and consumer stocks, and a negative ruling could drive further rotation into import-reliant, margin-sensitive names while easing inflation concerns—timing risk remains the key overhang.
• AI retraced as markets demand proof, not potential. The theme turned modestly negative again as investors refocus on monetization, cost discipline, and ROI visibility. Capital continues to concentrate in platform leaders and infrastructure with near-term cash flow, while long-duration AI “optionality” trades lose sponsorship.
  

For Further Discussion

As you digest this week’s Lenses, consider further discussion on the following points:

• How long can risk-on persist with “stall-speed” growth and narrow labor strength? Cyclicals and Value remain favored as recession risk is pushed out, yet job gains are concentrated in services while manufacturing and transport weaken—raising the question of whether selective cyclicals and financials are the right expression versus broader beta exposure.
• Is policy uncertainty replacing macro data as the main volatility driver? Fed independence rhetoric and tariff legal risk are pushing term premiums higher and reshaping sector leadership, favoring curve-steepening trades, banks, and import-sensitive consumer names while challenging long-duration hedges and inflation-protection positioning.
• Are markets entering a true stock-pickers’ regime across themes? Factor leadership (Value, Momentum, Beta) and the evolving AI narrative both point to discrimination over blanket exposure—rewarding cash-flow visibility, pricing power, and balance-sheet strength while reducing tolerance for crowded defensives and long-duration “optionality” trades.
  

Omega Point can help you surface and explore these questions with data-driven clarity. Reach out if you'd like to dig deeper into any of these themes.