My view on trading markets is that it’s more like cricket than chess. Instead of trying to predict what’s coming next, you accept you don’t know and act accordingly.
If a bouncer is aiming at your head, duck.
It’s pointless ducking while the bowler is on his run up.
As a batter, you practice and practice, so when you are at the crease you can trust yourself to respond adequately to whatever is coming your way.
Even in chess, your view of what is coming is often wrong, and you have to adjust course constantly to cope with the new set of conditions.
If you asked me at the start of a game of chess what the board will look like in the middle game, how valuable do you think my comment would be?
But does the lack of value in my view mean I will play chess badly?
I try to follow that philosophy as I comment on markets, but when faced with a ‘give us your prediction of what will happen in 2026’ request, I have nowhere to hide.
So I’m going to have a solid crack at predicting exactly what will happen next year, but I will deny ever having written it if you show it to me next Christmas.
I reckon there are two key things to focus on as we consider what may be coming our way next year.
Trump is expected to install a yes-man into the Fed in May, and the midterms elections will take place in November.
The only way Trump is going to have a chance of seeing positive results in the midterms is if the economy is absolutely humming.
How can they get the economy humming?
By lowering interest rates.
If a yes-man is in the top job, you can bet they will be under immense pressure to go hard early so the economy is hitting its straps by the time the election is held.
The funny thing about markets is that they often don’t want to cooperate with you.
If the market thinks the Fed has been captured by Trump and interest rates will be lowered regardless of economic conditions, just watch the selling unleashed on the long end of the yield curve.
The lower the rates go, the higher 10-year bond yields will go, and mortgage rates along with them.
Instead of inspiring a fabulous bull market, Trump will unleash inflation onto the economy again and eventually the Fed will be forced to change course and start raising rates instead.
Trump will have a conniption, spewing bile on Truth Social about the traitorous Fed Chairman for daring to defy him.
Oil prices will continue to sell off until Saudi Arabia gets sick of flooding the market with oil to placate Trump ahead of the midterms.
They will say they need to see higher oil prices to fund domestic investment. So they will order a big cut in production around the middle of the year, which will see the low of the bear market in oil prices and the beginning of a new bull market as inflation starts to bubble away.
The first half of the year will see the steepest drop in US interest rates, with the US dollar getting crushed alongside them.
That will spark commodities into gear, and copper will be the one to lead the charge, steadily climbing to hit US$6.00/lb by June.
Stocks will love the prospect of interest rates plunging back to negligible levels with Trump’s yes-man feeling trigger-happy.
It will inspire a huge spike in stocks that will resemble a blow-off rally.
But as inflation starts to show up in the figures later in the year and 10-year bond yields continue to climb, stocks will have second thoughts and the hot air will come out of the balloon.
The S&P 500 will tap 8,000 in September, which will mark the high of the bull market as inflation picks up and the steep yield curve starts to bite.
The middle class will continue to get battered from all corners as inflation rips and their mortgage rates don’t fall as expected due to the steepening yield curve.
Consumer discretionary stocks will see their sales flatline. Auto loans will continue to see defaults, and even mortgage stress will start to show up in the figures later in the year.
Trump will tell the Fed to start Operation Twist again to force the long-end of the yield curve down. That’s where the Fed increases the duration of its portfolio by selling short-term debt and buying long-term debt.
Stablecoins will continue their ascent as citizens of developing countries decide that having a few US dollars makes sense.
There will be a flood of money going into the short-end of the yield curve in the US as a result, and Trump will try to figure out how he can make them buy 10-year bonds instead.
China will continue to play cat-and-mouse with Trump.
Orders for rare earths will get lost down the back of the couch. Their trade surplus will continue to rise, and Nvidia Blackwell chips will mysteriously turn up on their shores.
The Europeans and Americans will get together and say that something must absolutely be done about China’s beggar-thy-neighbour trade policies.
There will be a lot of talking and nodding, but nothing will happen because the Europeans would rather shoot themselves in the foot than help Trump.
In Australia, inflation will continue to rise as the electricity rebates roll off and electricity prices keep rising.
Bowen will tell Australians their electricity bills are actually falling; they are just looking at their bills upside down.
Interest rates will rise, and since the US will be cutting rates dramatically, the Australian dollar will spike towards 74 US cents, a 12% rise from current levels.
Those are my predictions.
One shouldn’t put too much stake in anyone’s predictions.
Just as past performance is not a guide to the future.
That said… the past performance of my Retirement Trader advisory… where I use my trading strategy to help you grow the equity part of your retirement portfolio… is pretty damned good!
An average gain of 39% across all 18 open positions.
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Happy New Year and see you in ’26!
Regards,
Murray Dawes,
Retirement Trader and International Stock Trader
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