The Big Picture: S&P 7,000 and the "Nominal" Bull Market

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The S&P 500 is knocking on the door of 7,000, a level Phil Davis identifies as the "top of range" predicted last year. However, the report emphasizes that this milestone is driven less by organic economic explosion and more by inflation and currency devaluation.

• The "Shrinking Measuring Stick": Phil argues that asset prices are rising mechanically because the Dollar has fallen roughly 14% since the start of the Trump administration. The S&P at 7,000 in "weak Dollars" represents the same economic value as the S&P at 6,000 in "strong Dollars".
• Earnings Mirage: While Q4 earnings are beating estimates (8.3% growth), much of this is fueled by the currency conversion benefit of overseas revenues and the inflation of goods prices,.
• Technicals: despite high valuations (22-24x forward P/E), technical indicators like RSI (58.5) and MACD suggest the rally is not yet exhausted. There is likely room for another 5–10% "FOMO" push before momentum breaks,.

Macro Risks: The "Yo-Yo" Dollar and Consumer Collapse

The most alarming data point discussed is the collapse of Consumer Confidence, which plummeted to 84.5 in January—a 10-point drop and a decade low,.

• The Split Reality: While the stock market celebrates S&P 7,000, the average consumer is being crushed by the inflationary feedback loop of tariffs and a weak Dollar.
• Global "Bypass": The AGI Round Table noted that while the U.S. threatens tariffs, allies are diversifying away from American reliability. The EU and India signed a massive free trade deal, and global capital is fleeing to gold ($5,000+) and hard assets as a hedge against U.S. policy caprice,.

Sector Watch: Healthcare Shock & Industrial Strength

The market is currently bifurcated between the "Physical Economy" and the "Policy Economy."

• Healthcare (The Loser): UnitedHealth (UNH) crashed ~20% after the government proposed a meager 0.09% increase in Medicare Advantage payments (effectively a cut against inflation). Phil cited this as a prime example of "Dictatorship Risk" or "TACO Time"—when companies reliant on government subsidies cannot effectively plan for policy shocks.
• Industrials (The Winner): Conversely, companies dealing in physical goods are performing well. General Motors (GM) and UPS beat earnings, signaling resilience in the industrial base despite the consumer gloom.

Portfolio Updates & Top Trades

The Morning Report included a comprehensive review of the Top Trade Alerts from the Second Half of 2025, highlighting massive gains and necessary adjustments.

• Lockheed Martin (LMT): A standout winner, up 3,609% on the spread due to a well-timed entry in July 2025.
• Toyota (TM): Up 485%, currently deep in the money.
• PPL Corp (PPL): The "Picks and Shovels" utility play for AI data centers is up 89% and tracking well.
• Short-Term Portfolio (STP) Moves: In response to the elevated risk of a government shutdown and geopolitical tension (South Korea tariffs), Phil aggressively doubled down on SQQQ hedges (betting against the Nasdaq) to protect the portfolio against a potential 20% drop. He also cashed out short puts on winners like Apple (AAPL) and Cisco (CSCO) to raise cash and reduce bullish exposure.

Actionable Trade Idea: American Airlines (AAL)

Phil outlined a "bulletproof" trade idea for American Airlines (AAL), viewing the recent earnings miss (caused by weather) as a buying opportunity for a stock trading at 7-8x forward earnings.

• The Strategy: Sell 2028 $12 Puts and/or set up a spread by buying 2028 $12 Calls, selling 2028 $17 Calls, and selling short-term March $13 Calls.
• The Logic: This structure allows the investor to get paid via premium selling even if the stock stays flat or drifts lower, taking advantage of low expectations.

Educational Insights

The chat featured two critical lessons for traders:

1. Capital vs. Buying Power: Phil clarified that trade probabilities must be calculated based on actual capital at risk, not "Buying Power." Relying on Buying Power to size trades is a mathematical path to ruin during volatility,.
2. The "Finished Trade": Regarding a UPS spread that was fully in the money, Phil taught that once a position is maxed out, price no longer matters—only the cost of the roll matters. Patience in rolling is where the edge remains.