The Insider Report: A Dangerous Crack or Epic Rotation?

Market Overview It was a split tape last week, with only the Dow Jones finishing higher up by 1.05%. The S&P 500 closed at a new high during the week, but still finished down 0.63% by Friday's close. The real carnage was in the tech sector and Nasdaq, as the index finished 1.62% lower. There appears to be an epic rotation into small caps (Russell 2000 hit new all-time highs), which have notable exposure in financials, healthcare, and industrials. Crypto was heavy last week while silver hit another new all-time high. The Fed cut rates but it didn't send risk assets soaring. Stocks I Like Invesco (NYSE:IVZ) – 61% Return Potential What's Happening Invesco Ltd. (IVZ) is a leading global investment management firm providing a wide range of asset management solutions, including ETFs, mutual funds, and alternative investments across equities, fixed income, and multi-asset strategies, offering investors exposure to the rapidly growing asset management and wealth advisory sector with a focus on innovative, client-centric products and sustainable investing. The previous quarter shoed revenue of $1.19 billion and earnings of $275.4 million. This valuation on NEE is solid. P/E is at 17.56, Price-to-Sales is at 1.87, and EV to EBITDA is at 9.61. At a technical level, IVZ recently broke out from an ascending triangle formation. This points to a continuation in the underlying bull trend. Why It's Happening Invesco Ltd. is capitalizing on the asset management industry’s resurgence, delivering record Q3 2025 net long-term inflows of $28.9 billion driven by ETFs & Index, China JV & India, Fundamental Fixed Income, and Private Markets. This robust organic growth, amid rising global markets and investor confidence, positions Invesco to expand its market share in a sector benefiting from sustained capital deployment and wealth creation trends. Explosive assets under management growth underscores Invesco’s operational momentum, with ending AUM surging to $2.125 trillion—a 6.2% quarter-over-quarter increase—fueled by strong performance across diversified strategies. This scale enhances revenue potential as fee-based models thrive in a low-interest-rate environment, creating a narrative of resilience and expansion in the multi-trillion-dollar global investment landscape. Strategic focus on high-growth regions and products diversifies Invesco’s revenue narrative beyond traditional markets. Leveraging its China joint venture and India operations for emerging market exposure, alongside booming ETF and private markets segments, the company is tapping into underpenetrated opportunities that align with shifting investor preferences toward alternatives and passive strategies, fostering long-term client retention and new business wins. Attractive dividend policy and shareholder returns enhance Invesco’s appeal to income investors. Declaring a quarterly dividend of $0.21 per share—up 2.4% from prior levels—with a sustainable 3.49% yield and projections for normalized payout ratios around 40%, the company balances growth investments with consistent capital returns, reinforcing its story as a reliable, value-oriented player in the financial services sector. Analyst Ratings:Goldman Sachs: NeutralRBC Capital: Sector Perform Barclays: Equal-Weight My Action Plan (61% Return Potential) I am bullish on IVZabove $22.00-$23.00. My upside target is $42.00-$43.00. Oceaneering International (NYSE:OII) – 34% Return Potential What's Happening Oceaneering International, Inc. (OII) is a leading global provider of engineered services and products for the offshore energy industry, specializing in remotely operated vehicles, subsea robotics, asset integrity management, and advanced technologies for oil and gas exploration, production, and renewable energy applications, offering investors exposure to the rapidly growing offshore energy and subsea technology sector with a focus on innovation, safety, and operational efficiency. The previous last quarterly report showed $742.9 million in revenue and $44.76 million in earnings. Valuation is very strong on OII. P/E is just 11.81, Price-to-Sales is at 0.97, and EV to EBITDA is at 7.08. From a technical standpoint, OII recently broke out from a saucer formation. Upside momentum tends to accelerate after a resolution from such a pattern. Why It's Happening Oceaneering International Inc. is riding the wave of sustained offshore energy demand, posting a robust Q3 2025 with revenue climbing 9% to $743 million and net income surging 73% to $71.3 million, driven by strong asset utilization and operational efficiencies. This performance, amid a stabilizing oil market and rising deepwater exploration, positions Oceaneering as a resilient leader in subsea services, capitalizing on global trends toward energy security and production growth. Multi-year contract wins bolster Oceaneering’s backlog and revenue visibility. The recent award from bp Mauritania for inspection, maintenance, and repair services in the Greater Tortue Ahmeyim field, alongside a vessel services agreement for the MPSV Harvey Deep Sea through 2027, underscores the company’s essential role in major offshore projects, creating a steady stream of high-margin work in emerging and established basins. Innovation in subsea technology enhances Oceaneering’s competitive edge. The launch of Vision™ Subsea—a cloud-based module for 3D data visualization and remote integrity assessments—extends its digital solutions into underwater environments, enabling operators to optimize asset management with engineering-grade insights and reducing operational risks in a sector increasingly focused on efficiency and sustainability. Diversified segment strength provides resilience across energy and beyond. With contributions from subsea robotics, offshore projects, and manufactured products, Oceaneering’s broad portfolio mitigates exposure to oil price volatility while tapping into aerospace, defense, and renewables, building a narrative of adaptable growth in a transitioning energy landscape. Analyst Ratings:TD Cowen: HoldBarclays: Equal-Weight Citigroup: Neutral My Action Plan (34% Return Potential) I am bullish on OII above $23.00-$24.00. My upside target is $35.00-$36.00. Xometry (NASDAQ:XMTR) – 89% Return Potential What's Happening Xometry, Inc. (XMTR) is a leading AI-powered online manufacturing marketplace connecting buyers with a global network of suppliers for custom parts and assemblies, offering instant pricing and lead times for services like CNC machining, 3D printing, and injection molding, providing investors exposure to the rapidly growing digital manufacturing and on-demand production sector with a focus on innovation and supply chain efficiency. The last quarterly report showed revenue of $180.72 million and earnings of $6.21 million. Valuation in XMTR is a bit steep. Price-to-Sales is at 4.56 and Book Value is just 5.31. From a charting perspective, XMTR just broke higher from a symmetrical triangle formation. These patterns usually mean the trend is going to continue to climb upwards. This looks bullish. Why It's Happening Xometry Inc. is revolutionizing the fragmented $275 billion custom manufacturing market with its AI-powered online marketplace, connecting buyers and suppliers for instant quoting and seamless sourcing of parts across industries like aerospace, automotive, and medical devices. This digital transformation narrative, accelerated by rising demand for resilient supply chains and ESG transparency, positions Xometry as a category-defining platform capturing share in a sector ripe for modernization and efficiency gains. Explosive Q3 2025 revenue acceleration underscores Xometry’s operational momentum, with total revenues surging 28% year-over-year to a record $181 million—driven by 31% marketplace growth that outpaced prior quarters and beat internal guidance. This robust performance, amid a challenging manufacturing macro, reflects deepening enterprise adoption and network effects, creating a flywheel of recurring business that signals sustained double-digit expansion into 2026. Path to profitability and margin expansion highlights Xometry’s maturing business model, achieving record marketplace gross margins of 35.7% and adjusted EBITDA of $6.1 million in Q3 2025—a $6.8 million improvement from last year. With raised full-year guidance to $676-678 million in revenue and $16-17 million in EBITDA, the company is demonstrating scalable economics and cost discipline, transforming from a high-growth disruptor into a reliable earnings generator. Rapid product innovation and ecosystem enhancements fuel Xometry’s competitive moat, including the launch of the Workcenter mobile app for suppliers, U.S. auto-quoting for injection molding, and AI-powered design tools that slash quoting times from days to minutes. These advancements deepen user engagement, boost conversion rates, and extend the platform’s reach into high-volume production, reinforcing its story as an indispensable tool for global manufacturers navigating digital supply chain shifts. Analyst Ratings:JP Morgan: OverweightGoldman Sachs: Neutral Cantor Fitzgerald: Neutral My Action Plan (89% Return Potential) I am bullish on XMTR above $48.00-$50.00. My upside target is $110.00-$112.00. Market-Moving Catalysts for the Week Ahead A Fed Divided Against Itself Can't Stand The Fed concluded its final meeting of the year last week by lowering the target range for the federal funds rate by 25 basis points to 3.50%-3.75%. This marked the third consecutive rate cut amid a weakening labor market and persistent, though slightly elevated, inflation. The Fed noted that economic activity has continued to expand at a solid pace, with job gains remaining strong but unemployment edging up to a projected 4.5% for 2025, while inflation is anticipated to moderate gradually toward the 2% target. However, there was a hawkish tilt, with the median participant forecasting only one additional rate cut in 2026. The bigger story is how three members dissented, including one advocating a 50-basis-point cut and two preferring no change. Fed Chair Jerome Powell emphasized a data-dependent approach, signaling potential pauses in easing based on incoming labor and inflation figures, while announcing plans to purchase shorter-term Treasury securities to maintain ample reserve levels. I'll talk more about some key bond market ratios below to keep a close watch on liquidity. Prime the Russell 2000 As the large cap indices spun their wheels last week, the small-cap Russell 2000 broke out to a new all-time high. It looks like 2026 is shaping up to be a year for small cap outperformance, which has woefully underperformed large cap stocks in recent years. Lower interest rates from the recent Federal Reserve cuts help to ease refinancing burdens on these rate-sensitive companies, which often carry floating-rate debt, while a surge in mergers and acquisitions activity—particularly in biotech—combined with a rebounding IPO market, promises to unlock undervalued assets and attract inflows. Broader tailwinds include domestic reshoring trends benefiting U.S.-focused companies and a “soft landing” economic scenario avoiding recession, positioning small caps for relative outperformance after years of lag. The biggest sectors in the index include financials, industrials, and healthcare. Look for these themes to accelerate in 2026. Sector & Industry Strength Since we're on the final stretch of the year, I want to tighten up the timeframe that we use to measure the sector performance rankings. Obviously, there's been a bit of volatility in the market since October, and the rankings here tell a very clear story. The top-performing sector since the start of Q4 has been healthcare (XLV). In second place, we see financials (XLF), which have climbed nicely since the yield curve has been steepening so much. Tech's slippage is a bit of a concern, as it's right in the middle of the pack since the start of Q4. But seeing utilities (XLU) and consumer staples (XLP) hovering near the bottom is a good sign for bulls. 1 week3 Weeks13 Weeks26 WeeksMaterialsConsumer DiscretionaryHealthcareTechnology Editor's Note: Materials and consumer discretionary coming on the board is a mixed signal. The A.I. Trade is Back On (Sector ETF: SMH/QQQ) The ratio between semiconductors (SMH) and the Nasdaq 100 (QQQ) is one of the most important ones when it comes to measuring the health of the AI theme in markets. As you can see, it's been trending higher for years, meaning that chips have outperformed. Chips are the foundation of the entire AI revolution – none of it would be possible without higher computing power. But the real catch here is how chips tend to lead even more so than the tech sector. This means that chips have a tendency to outperform to the upside when tech is healthy, and outperform to the downside when tech is unhealthy. Fortunately for bulls, this ratio experienced a clean breakout from a wedge pattern, and successfully retested former-resistance-turned-support of the wedge. As long as this ratio continues to climb, the bull market is going places. The Momentum for DeFi (Sector ETF: ETH/BTC) Cryptos have been hit hard over the past couple of months, but underneath the surface of the carnage, there appears to be a massive realignment taking place. I'm looking at the ratio between Ethereum (ETH) and Bitcoin (BTC) here. Since April, Ethereum has been outperforming Bitcoin by a wide margin. Of course, there was the pullback in the ratio from August into the low of November, but we completed a higher-low, which arguably reestablishes a new uptrend. Now, we are looking at this rounding bottom formation in this chart. If this breaks above the upper horizontal trendline of the pattern, it would confirm that Ethereum is set to outperform Bitcoin by a wide margin going forward. Send the Spreads (Sector ETF: HYG/IEI) The Fed cut rates last week, but the most important thing to watch now is how bond markets respond. Long-term rates are looking like they want to keep climbing for another month or so, but I'm actually more focused on how liquidity conditions respond. We're looking at the ratio here between junk debt (HYG) and 3-7 Year Treasuries (IEI). Basically, we want to see junk bonds outperforming Treasuries in order to signal healthy liquidity and risk appetite. The more this ratio climbs, the more liquidity conditions improve. Note how it's been consolidating near resistance of the saucer formation. If we see a breakout here, which I'm expecting, be on the lookout for a big breakout in stocks to new all-time highs. My Take: While liquidity conditions look to be on the verge of a massive improvement near-term, we'll have to watch whether inflationary pressures creep back into the market. If so, then this ratio should start to drop. If we see a sharp drop in this ratio by chance, I'd look for the Fed to become a lot more aggressive in their rate cuts. But they're going to try to get spreads to narrow as much as possible with as little intervention as possible first. Cryptocurrency Back to analyzing Bitcoin this week, as it rallied to take out the previous week's high before facing some sell side pressure after the Fed cut rates. In theory, more liquidity should be a tailwind for crypto, but there are serious technical headwinds it needs to overcome. First and foremost, the trend is to the downside now. Bitcoin keeps making lower-lows and lower-highs, and until we see this reverse, bulls are going to have a tough time reestablishing any sort of momentum. At this point, the best bet is to look for a higher-low on this pullback here. The other concern is that this could be construed as a corrective rally within a rising channel. However, there is a resistance zone in the 94,000-95,000 area, which if cleared, should lead to a rally up to the 105,000 zone. This is the key level to watch near-term. Legal Disclosures: This communication is provided for information purposes only. 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