Transcription
Okay, so we're about to finish off 2025 and 2026 is about to begin. So, I felt it may be a good timing to recap 2025 and also think about some things to watch out for in 2026.
First, on 2025 market recap, I've been covering the market for the entire year. So, for those of you who have been following my channel, you would have a pretty good idea on what happened in the market. But, let's do a quick recap with a few keywords.
First quarter 2025, the market was betrayed by Trump. From late 2024, the market was expecting another Trump put to be in place, which will drive the market up. This sentiment continued until early February, but almost right after Trump's inauguration, Trump started to destroy the market by implementing nonsense tariffs to all key countries. The market panicked and the market plummeted by around 20%.
Second quarter 2025, Trump regained the market's trust and AI stocks rallied. In early April, Trump postponed and rolled back quite a lot of tariff measures which led to a significant rally. Trump and the Treasury also announced the pro market initiatives like the One Big Beautiful Bill Act and the Genius Act. Most of the indexes hit a fresh all-time highs and the Fed started to cave in to Trump and change this position towards a potential rate cut. The market was going frenzy with three puts which are the Trump put, the Fed put and the treasury put. In fact, the rally in second quarter of 2025 was one of the strongest rallies in the history of the stock market. The rally was mostly driven by AI stocks like Nvidia which rallied over 50% in two to three months time.
Third quarter of 2025 curious kind of balance and one-off. The Fed reaffirmed the market's conviction by saying that the labor market is in a curious kind of balance and the tariff's impact on inflation is a one-off. Basically, the Fed was officially saying that number one, the labor market is shaky, so we need to cut the rates. And number two, we don't need to worry about the inflation that much because tariff impact is going to be a one-off. The market was parting harder now because the Fed's words sounded so lucrative to the market. People started to build more leveraged positions to aim for maximum gains.
Fourth quarter of 2025 shutdown and Fed's betrayal. The government went through a shutdown period which prevented some key data to be publicly released. The Fed leveraged the situation to roll back some of their positions. The Fed started saying that a further rate cut will need to wait given the lack of data. And they also started saying that while the labor market is shaky, inflation is still a concern. Overall, the Fed cut the rates three times this year, but based on the dot plot, they only expected one more rate cut in 2026, which was not something which the market liked.
Okay, so that was 2025 in simple terms, ups and downs, but mostly up throughout the year. And there were three things that moved the market up. Trump, AI, and the Fed, which was pressured by Trump.
Okay, so in 2026, I'd like to note five things which we need to monitor carefully to get a sense of where the market will head next. Obviously, the usual key indicators like the interest rate trajectory, the Federal Reserve balance sheet, and key macro data are the most important metrics to monitor. Those stuff are so obvious, so I won't mention them here. Now, as I say all the time, it is impossible to speculate whether the market will go up or down. But what we can do is list up some of the things to watch and act accordingly to number one, maximize gains, and number two, minimize losses. Okay, so here are the things to watch.
Number one, the new Fed chair. Okay, so Pal's term will expire in May 2026. However, Trump said that he'll announce the new Fed chair in early 2026, which means that it could be earlier than the expiration of the term. Now, this is a very important point to monitor given the new chair will inevitably be affected by Trump's agenda and will determine the midterm monetary policies, which is the most crucial thing for the market. The candidates who are currently being discussed are in the order of most discussed Kevin Hasset the National Economic Council director, Chris Waller, the current Fed governor, and Kevin Walsh, the former Fed governor. Now, Kevin Hasset is reportedly a critic of slower rate cuts and argued that the Fed should lower interest rates more aggressively than Powell has. Therefore, we can assume that if Hasset becomes the next chair, he'll bring down the interest rate a lot more. Waller and Wars are more neutral and data dependent. They're likely to stay closer to the institutional norms and care about inflation a lot more than Hasset. However, we need to keep in mind that the fact that these two individuals are being discussed means that they may have changed their view on the market. If they're still extremely data dependent, Trump will use everything in his power to block them from being the chair. So, we need to see how things pan out.
Okay, so the second thing to watch in 2026, number two, Elon Musk. Okay, so you might think it's a bit weird that I'm laying out an individual as the most important thing to watch in 2026. Now, the reason I'm saying we need to watch this guy is because I genuinely believe that he's the most market savvy guy. If you look at all the market activities that Elon Musk has been doing in the past decade, he basically sells his Tesla shares at short-term peaks, issues shares at the peaks, and avoids large dilution and IPOs his companies at perfect times. Now, given the guy's market heaviness, we need to monitor the SpaceX IPO closely. It's already been publicly reported that SpaceX is preparing for an IPO in 2026 at 1 to 1.5 trillion valuation, which could be one of the largest IPOs in history. Now, the reason this IPO is important is because generally a very large IPO like this one, especially at a ridiculous valuation, represents number one, how liquid the market is, number two, how much demand for stocks there is, and number three, how positive the investors are about the short-term outlook of the market. Now, on top of that, as I just said, Elon Musk is super market savvy that he would try to IPO his company when he believes that he can get the best valuation for his company. If there's any and I mean any news on the delay of the IPO or lack of demand for the shares of the company, we need to assume that this is a very negative sign to the overall market.
Okay, moving on to the next point. Number three, AI stock IPOs. Okay, so this is one of the most important things to watch in 2026. Right now, there are multiple key AI stocks which are either preparing or rumored to IPO in 2026, including Cerebras Systems, Anthropic, and Open AI. Now these companies are aiming for valuation in the range of hundreds of billions to trillion and if any and I mean any of these IPOs either fail or does not meet the originally targeted valuation the entire market may face a serious damage. The current market is a thematic market driven by AI which is supported by Trump and Fed. Therefore, if the new AI stocks which are set to IPO face challenges, the entire market will have to fight huge question mark on whether the AI sector is already becoming commoditized and there will need to be much stronger monetary policies backing the market to overcome such damage in the market sentiment. If any of the IPOs fail, it'll lead to a huge challenge for the entire market. But on the other hand, if all of the IPOs are successful, there's a chance of the market heading towards a huge bubble which we need to watch as well.
Okay, moving on to the next point. Number four, labor market and inflation. Okay, so as I said in my 2025 recap part of the video, Fed policies in 2025 revolved around the labor market and inflation rate. And I strongly believe that this trend will continue in 2026. As I mentioned all the time, whether the tariff impact on inflation is a one-off will be more clear as we approach second quarter of 2026. And if we still see any signs of further upticks in the rates, this will be a challenge not only for the Fed, but also for Trump and the Treasury to continue with aggressive fiscal and monetary policies. In the last FOMC statement, the Fed clearly noted that they have a target inflation rate which still remains at 2% and we're still far from that point. Also as we experienced there are a lot of external factors which impacts inflation such as geopolitical tensions and wars. So all internal and external factors will need to be monitored carefully to get a sense of where the monetary policies will head next on labor market. The reason I'm saying that we need to keep monitoring the data is because the recent data has been quite volatile. For example, we saw the overall unemployment rate rising to 4.6% 6% in the latest data and also weekly jobless claims have been fluctuating up and down from the 220k mark which makes it quite hard to read the future trajectory. But whatever the case, what matters to us is not the number itself but the Fed's reaction to the numbers. So we need to monitor the Fed's nuance around these points carefully.
Okay, moving on to the next point. Number five, bank reserves, repo and reverse repo. Okay, so in my previous few videos, I talked about the importance of bank reserves, repo and reverse repo and why the Fed is initiating a buyback program in relation to these liquidity constraints. To recap, repo and reverse repo balance is lending and borrowing activities conducted by the Fed. And when there's ample reserve, this allows the Fed to control the market rates towards their target rate. But repo balance was running out because the bank reserves were also running out because of QT and Treasury issuances. Now this led to the Fed getting worried that they might not be able to control the market rates. Now I made it clear that any buyback in relation to these constraints is not a QE and will not move the market upwards just because the Fed is buying securities. Rather, if the Fed has to conduct more of these short-term Treasury buybacks because of liquidity constraints, it could lead to a further negative sentiment on the market because number one, it signals stress, not stimulus. Number two, long-term liquidity expectations are still uncertain. And number three, it may trigger confusion in the market with conflicting messages from the Fed and the Treasury. So, as I say all the time, whenever you see more of these short-term buybacks happening, just remember that A, it is not money printing, B, it is not a QE, and C, we need to be a bit careful given the market is going through a stress.
Okay, so that's all I wanted to share today. Now, just to note one thing, it was an honor for me to have this journey with all of you in 2025. There were a lot of volatilities in the market this year, but I hope that my videos at least gave you guys some comfort to survive the tough times. We're living in a world where inflation is high and job seekers, especially if you're new to the job market, are having hard times to find a job. So, I totally understand the frustrations a lot of you may be going through. But at least when it comes to macro and investing, I hope you remember that I am in this together with you guys and I always be here to share my thoughts regardless of the market being high or low. Christmas is already over, but I hope you all had a wonderful Christmas with your family and friends. I wish all of you a happy new year and I'll see you guys in 2026. Thank you guys.