A proprietary model tracking investor positioning shows a historic degree of credit bullishness, second-highest on a median basis. Such extremes typically precede adverse outcomes in financial markets, increasing the probability of a violent correction or choppy trading over the next one to three months.
Foreign central banks, the Fed, and commercial banks—buyers who are insensitive to price—are shrinking their share of the Treasury market. This forces price-sensitive investors to absorb a massive supply of new debt, structurally increasing bond volatility and pushing institutions to adopt gold as a more reliable portfolio diversifier.
AI is creating a secular trend of higher productivity but lower labor demand, leading to a 'jobless recovery' and structurally higher unemployment. This consistent threat to the Fed's maximum employment mandate will compel it to maintain dovish monetary policy long-term, irrespective of political pressures or short-term inflation data.
Market fears of Venezuelan oil flooding the market are misplaced. Experts estimate it will take at least three years and significant investment to bring just one million barrels per day of production back online. The immediate supply Venezuela can offer is minimal, making the news irrelevant to the 2026 price outlook.
The current AI-driven CapEx cycle is analogous to historical bubbles like the 19th-century railroad buildout and the dot-com boom. These periods of intense capital investment have historically led to major economic downturns and secular bear markets, suggesting a grim multi-year outlook beyond the current cycle.
The market's recent strength is not being driven by the mega-cap MAG7 stocks, which are underperforming. Instead, leadership has rotated to sectors like basic materials, healthcare, industrials, and financials. The breakout in the equal-weight S&P 500 confirms this widening breadth is occurring under the surface.
The 2026 market outlook is not linear. It involves a turbulent first few months due to crowded positioning, followed by a 'last gasp higher' rally as monetary and fiscal policy turn into tailwinds. This medium-term strength will likely precede a long-term secular bear market driven by the AI CapEx bubble burst.
The 'One Big Ugly Bill' has already passed and its main effects will be felt in 2026-2027, creating a 1-2 percentage point positive fiscal impulse to GDP in each year. This pre-programmed stimulus, combined with runaway mandatory spending, suggests US growth could hit 3-4%, far above consensus expectations.