Transcription
No doubt that 2025 was a rocky year, and I've heard from a lot of you that it was a struggle. From some of you more experienced people, say that this was one of the best buying opportunities, as we got a seemingly random 20% drop in the S&P 500. However, we ended up the year 17.12% up year to date. If you bought from the bottom of Liberation Day, you made upwards of 40% this year. Those aren't numbers to laugh about.
So, in 2026, what do we expect from the market going into a midterm election year? A year where we're going to have a new Fed chief. A year where we are going to see some massive tax cuts initiated by the big beautiful bill that are set to go into place in 2026. The fact that the Fed is admittedly going to start printing money again. The fact that we are likely going to see lower interest rates and the crazy rally in commodities, more specifically silver and gold.
In this video, I want to break down what to expect, or at least what I'm going to expect from 2026 and some of the broader moves that I'm likely going to make. So, we're going to be talking about obviously stocks, silver, gold, and everything under the sun. Let's get right into it.
First, let's start talking about the S&P 500 forward PE ratio. Now, the 4P is still hovering around 24. Not the most overpriced market that we've ever seen, and it's a sign that earnings continue to grow because as the earnings come in higher than expected, then the forward PE actually goes down. PE is literally just price over earnings per share. And if you combine all of the stocks prices with all of the earnings of the S&P 500, if you expect higher earnings, which is the denominator, then the PE or the forward PE is actually lower, which means that the market is not as overvalued as anticipated. So, as long as earnings continue to grow in 2026, from a just strictly PE valuation perspective, we are not in the worst territory we've been. It's certainly nowhere near 2000, 2008, or even 2020.
Now, GDP, which isn't the greatest measure of the market or the economy, is higher than expected at 4.3%. There's going to be a lot of quibble as to whether this has to do mostly with uh financial re-engineering of AI capex numbers, but still, 4.3% was much higher than expected. Where I think we start getting into trouble, and why I said that I think that towards the end of 2026, potentially going into 2027, we are starting to see some recessionary signals, and mainly the unemployment rate going from a low of 3.4% in April of 2023 to hitting 4.6% in November of 2025. And we've never seen unemployment start to trend upwards and then just drastically fall back down. So unless we get some sort of economic miracle that magically creates hundreds of thousands of new jobs, this right here is something that we need to keep an eye on for sure, especially when you match this with what is going on with the yield curve.
The 10-year and 2-year yield curve is now uninverted and it is steepening sharply. Now, if you look at the percent of the yield curve, we we start getting into recessionary trouble as we head towards one. We are currently at the 68 level, and it could take a long time for this to trickle upwards. Now, the yield curve steepening doesn't necessarily mean that the 10-year is rising faster than the 2-year. It could also mean that the 2-year is dropping faster than the 10-year. And the Fed interest rates mainly affect short-term rates as opposed to long-term rates. Long-term rates are still largely affected by the bond market. And if bond traders see that there is potential inflationary pressures upcoming, they're going to want a higher yield from long-term treasuries. Either way, once we start getting towards that one level, we have always hit a recession historically. We have never not hit a recession after doing that. And that is why I say this, along with the unemployment rate, both are pretty negative signals in my view for what's to come after 2026.
So in 2026, I am expecting another up year in the stock market, although I do think that it will be shaky, at least in Q1 or shortly thereafter. We are entering a midterm year 2026 under a second term president. And when that has happened, we have never had a max draw down of more than 19%. As a matter of fact, the average max draw down in the year was around 10%. The median was 7.7%. What's even more impressive is 100% of the time the year ended positive, and the average gain for the year was 21%. The median was 15%.
Also, according to strategist James Thorne, a 20% S&P 500 correction in a midterm election year immediately following a 20% correction in the prior calendar year, which we had during Liberation Day, has never occurred outside of a recession or financial crisis. And it's not surprising, just as people saw with Liberation Day this year, that when we do see those large pullbacks during midterm years, the average return off of those lows is almost 32%. And it constitutes the largest average return of the S&P 500 out of all presidential cycle stats, which practically means that you better hope and pray that we do get a nice correction of at least 10% in the S&P 500 because in my opinion, it will be a viable opportunity uh for the end of 2026 to ride it out.
And as of the time of this recording, December is not over yet. Although we are up 1.18% in the S&P 500. But if December ends green, that'll be eight straight months of positive gains for the S&P 500. And the S&P 500 was never lower a year later after this has happened. But like I said in my previous videos, I do expect us to get a little Santa rally that will take us near 7,000. We have hit an all-time high on the S&P 500 as of December 26th. We capitalized on a few opportunities, played the breakout on QBTS. I'm also in a short-term Google position, as well as holding the stock long-term because in my opinion, this technical setup here is perfect.
And although I'm bullish on 2026 based on the technicals and the fundamentals I talked about, including the Trump tax cuts finally kicking in, the fact that the Fed is going to start printing money, remember the everyone's going to have more cash in their hands, which yes, is inflationary in the longer term, but because of the money printing, no tax on tips, the Trump tax cuts for the wealthy, the new Fed chair likely going to slam rates down, the Fed printing money, when people have more money in their hands, we tend to more inflows into the market. But until those things really kick in and after this 8-month euphoria, I would not be surprised by seeing a slowdown in Q1 of 2026, whether it happens in February or March. And once again, I think that is a buying opportunity.
There was also this narrative this year that the S&P 500's rise was mainly due to the MAG 7. And I think it is extremely bullish that that's not true. As you can see that the S&P 500 X technology, meaning if you remove the XLK, the technology ETF from the S&P 500, you can go to SPXT, and that's the ticker symbol for this index. You can see that SPXT also made an all-time high, which means that the S&P 500 is really healthy this year after Liberation Day in terms of breadth.
Now much is made of the rally in silver specifically, as well as gold, but more so silver because it has rallied disproportionately to gold. And silver is obviously seen as the red-headed stepchild to gold. And so when it starts spiking above $60-$70, it is going to make headlines. Now let's talk about silver and what is going on here and what I expect in the coming year.
So first of all, this is not the most expensive that silver has ever been. Yes, in terms of notional value, silver futures did hit a high of almost $80, currently trading at $77 in the US, trading at a premium in China, as well as India and some other Asian countries. But if we adjust it for inflation, the price of silver actually hit $145 an ounce back in 1980 when inflation was way worse than it is today. And in today's dollars, the price of silver is actually around $56 bucks. So it's not even as high as it was in 2011 when it hit an adjusted for inflation cost of $70 per ounce.
Now I think a lot of people are going to get hurt with silver, just as they do entering the top of any bubble. And if you take a look at 1980 when silver did hit a high of $67 notional, remember, not adjusted for for inflation. Silver had a lull, three dead decades, and for 30 years, silver was in the dumps until it hit that high in 2011. Now, it's very important to mark what happened in 2011 because we are seeing it happen right now. There is a lot of manipulation as it relates to the futures market with silver, which I'll talk about in a second. But silver did not hit the 1980 highs until 2025. That's 45 years. And everyone's saying, "Oh, this time it's different." No, it isn't. We were battling much worse inflation in 1980. We had a much bigger crisis in the year 2000 as it relates to the economy and the stock market. A much bigger crisis in 2008 than we have now as it relates to the economy and the stock market.
The reason that silver is spiking has to do with the fact that silver is way more useful than gold because it's used in EV batteries. It's used in chips. It's used in solar panels. The fact that ETFs are bigger than ever. So as more speculation in silver happens, the ETF managers have to buy more silver because that's what underpins that ETF. The fact that China has placed restrictions on silver exports and the fact that there is a negative picture surrounding inflation and money printing. So some of it is driven by speculation, some of it is driven by money managers having to buy the stuff. And I said I'll talk about 2011 in a second because what is happening, the manipulation that we are seeing that we saw at the top of 2011 is happening at the top here.
But one thing that's important to note is that copper and silver joined the list of critical minerals. And what this means is the Trump administration brought into scope of which commodities it sees vital to the American economy and national security. So if it adds that to the list, then obviously now it is potentially the subject of trade wars. And China, which controls a massive portion of the world silver supply chain, refining 60 to 70% of global processing, is obviously going to use the fact that Trump had added it, that the Trump admin had added it to the list of uh metals or commodities that is vital to national security. China is going to use this as a bargaining chip in the back and forth trade war.
Now, what happened in 2011 that crashed silver prices from $60 bucks all the way down back to $18, and why is it happening now? So, the CME Group, for those of you futures traders, know that the CME Group controls a number of commodity futures, and one of them being silver. What it did was it raised its margin requirements five times in April and May of 2011. What this means is the margin required in order to trade silver, they they rose it, and they can do so at their own discretion, but they rose it five times within the period of a month. So say that it required you to have $10,000 to trade one f silver futures contract. If they raise that to now $30,000, that obviously kills the margin on speculation. And what that happened is it triggered force liquidations of big silver positions because now those traders are under capitalized. And you can see here the margin percentage of the notional value of silver at that time was the highest ever in 2011 to almost 10% of margin required. And now you could see here it's not even comparable. It's almost double what it was back in 2011. And on December 29th, they're going to raise the margin requirements once again. I'm recording this on December 28th. So, the territory that we're currently trading in, in my opinion, is very dangerous in the short term if they continue to raise margin requirements because the squeeze already happened, and they are raising requirements into the squeeze.
Now I don't think the case for silver is over yet uh because of the fact that it's eating into profits of solar companies, of EV companies, etc. And we are also waiting for a report from the commerce secretary as to the recommended actions on silver and other commodities that are now deemed vital for national security. And as you see here, it says the most of the world's or much of the world's available silver remains in New York as traders await the outcome of a US commerce department probe on whether critical minerals imports threaten national security, which could lead to tariffs or trade restrictions on the metals. So I do think that the volatility in silver is going to continue because of this. But there is a ton of silver sitting in the vault in New York. And I do think there will be some massive opportunities to trade silver in 2026. But at the end of the day, I do not think that this ends well. And I don't think that there's going to be a perpetual pump in silver, as we've seen this before.
Also, I do see some post signaling that this run on silver could affect the stock market or that it it shows that the stock market is in trouble. Uh people don't realize that in 2011, this was the start of one of the longest bull runs in history for the stock market. And in 1980, when silver crashed from here, the S&P 500 rallied by 40%. Now, although I do have physical gold locked up in the bank, I quote unquote missed the boat on silver. But in my opinion, I would not jump on the bandwagon here. You don't need to grab every opportunity. If you made 200% on Nvidia or 100% on Google, in my opinion, you're going to get yourself hurt buying silver at $80 an ounce.
Also, pay attention to the gold and silver ratio when it is trading at these levels. Actually, I don't think it's ever traded at these levels, but when it has traded at 30 times or 40, when silver has traded at 30 times or 45 times uh gold, this has historically led to silver pullbacks and not gold rallies. But like I said, now we have the element of the China trade war. And it'll be interesting to see what type of volatility we experience in silver. And that will likely lead to some very significant trades for 2026. That will definitely be the trade to watch is silver.
So there is my market outlook. As I said, I do expect to see a pullback at some point in Q1 of 2026. You can see in 2025, the pullback started in February. In 2024, we had a little pullback of about 6% starting in March. In 2023, we were coming out of the bare market, but we had a really weak January to March, a really weak Q1, and we pulled back almost 10% before we had the rally. In 2022, the draw down started almost exactly in January. In 2021, we had a pullback in February of about 6%. In 2020, the bare market started in February. In 2019, we had a pullback of about 7% in April. In 2019, we had a pullback of about 8% starting in April. In 2018, starting in January, we had a pullback of almost 12%. So, you get the picture.
There are some stocks in my opinion that are in undervalued territory. Not a ton, but there are some. I talked about Netflix. I talked about Costco. Meta to me is an obvious buy here in my opinion. I do think that Amazon could have a technical long setup soon. I think Microsoft at some point will get too cheap to ignore. I think some of the healthcare stocks such as United Healthcare, Nova, Nordisk, I think some of these are buys at this level.
If you look at Nvidia, one of the bullish characteristics here is we had a humongous head and shoulders at the all-time high. We have seen this before. If you go back to 2023, we had a head and shoulders on Nvidia at the all-time high. Now, once that that head and shoulders was invalidated, Nvidia went on another generational run. Now if you look here, we had a head and shoulders invalidated because we went above the right shoulder and we also went above the neckline after closing below it. So even though I pointed out this head and shoulders like everyone in their mom probably right now, to me this looks like a breakout of the downtrend, and I think Nvidia could start making a run back for the 200s in 2026.
Anyway traders, that is it for this video. That is my general outlook for 2026. Obviously, I will be doing regular videos in 2026. I'm not retiring, but I keep getting asked about this topic. So, I wanted to not leave you hanging, give you my general sentiment for 2026, but I'm going to be right here for you guys, updating you every single week. So, make sure you tune in to the channel. If you want to trade live with me every single morning at market open, do not let 2026 be the year that you do not take your trading to the next level. Come and watch me trade every morning at market open. You also get the full breadth of my writeups, my analysis, my swings, my long-term holds, and you get them in real-time fashion before anybody else does. Subscribe to the channel. Hope you guys had a good holiday. Hope you guys have a good New Year. Hit that notification bell. Stay safe out there, traders. Peace.