Some major themes for 2026
- Fed is in cutting cycle, in dovish mode, economy is weakening but in a perverse way it is giving reasons for fed to cut; There is going to be plenty of liquidity;
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- On going AI boom will continue data center buildout, and other energy related infrastructure
- Industrial renaissance across sectors like aerospace, defense, manufacturing, biotech, and technology/automation
- Higher stock market will continue to support consumers through wealth effect; Auto-loan default has peaked, credit card delinquency has stabilized and coming down;
- Tariff tantrums will settle down, deregulation will pick up speed
Market thoughts:
- Banks, financial are well positioned. All the big banks earnings will increase, revenue increase supported by NII, coming out of decade low M&A, buyback, lesser regulatory burden. I like C, WFC. JPM is the biggest and strong player, and BAC has some catalysts.
- Industrials have a huge tailwind, PMI below 50 for a very long time is a major tailwind; see below graph
- Small caps will benefit from deregulation, lower interest rate, and industrial renaissance; R2K vs SP500 ratio is down forever, and at last $IWM has a chance to catch up
- I am bit skeptical on Crypto, because cyclically it is a bad time, the crypto treasury excess might peak and probably blow-off, just need to position to benefit from it
- I am expecting both Gold and Silver to correct, position for that, and may buy gold on dip…
- REIT’s benefit from lower interest rates, already they have moved up a bit, some re-rating is possible, I am not sure I want to allocate money to that, and options are not a good options, :), as they are thinly traded
