2026: Record Dislocation

It's that time of year when Wall Street pundits gaze into their Magic 8 ball and goalseek the exact level of GDP, earnings, and stock prices for the year ahead. Personally, I will not attempt voodoo to guess the exact level of unknowable future economic and financial metrics, I will merely predict that all of Wall Street's predictions will be off by a minus sign. And that their predictions will implode before the end of January.

Google Gemini:

"Wall Street analysts largely predict a positive outlook for 2026, expecting solid, albeit slower, global economic growth, moderating inflation, and continued gains in U.S. equities, driven primarily by artificial intelligence (AI) investments and expected interest rate cuts by the Federal Reserve. The S&P 500 is projected to reach targets ranging from 7,100 to 8,100 by major banks."

The year isn't over yet, but bulls are taking a victory lap on 2025 and Wall Street is already making their predictions for next year. Consider the most salient economic fact which is that we've had no economic data for the entire fourth quarter but yet Wall Street is making forecasts with strident conviction. What we are witnessing is a buffoonish level of over-confidence. It's impossible to make confident predictions for next year, when we have no idea how this year turned out from an economic standpoint. Which shows that Wall Street predictions are always just extrapolated bull shit.

"However, the central bank is facing an unusual challenge, per NBC: a shortage of fresh government data due to the recent federal shutdown."

What we do know is that all of the divergences that were piling up before 2025, went into overdrive during Trump's first year in office. In particular divergences in wealth. It comes as a total shock to Trump voters that a billionaire would increase the wealth of other billionaires at the expense of the majority:

Here is a chart showing consumer sentiment one year ago versus today. What we clearly see is that stock prices went up, but consumer sentiment collapsed during the past year.

Due to inflation.

"It's politics".

No it's not:

The real story is that all year long Trump has waged a war against the Federal Reserve to get them to lower interest rates which they have been cutting since September, but the plan has backfired because long-term rates are going up, not down. Apparently Trump and his economic team don't understand monetary policy or basic economics. The key drivers of long-term interest rates are not short-term Fed rate cuts, they are inflation and fiscal profligacy aka. the deficit. And the key driver of inflation is loose monetary policy which means that Fed rate cuts, the tax cut, the trade war (tariffs) are driving long term interest rates higher - all of which have been championed by Trump. We can add in the AI asset bubble as another driver of inflation via the commodity and electricity markets. We can thank Sam Altman and the Tech oligarchs for that.

The combination of which has kept interest rates too high for too long, which is now imploding BOTH the housing market and consumer confidence.

I would also point out that rate cuts attended the worst stock market declines of the past 25 years in 2001, 2008, and 2020. So this prevailing view that Fed rate cuts are always bullish is totally unfounded.

Another massive divergence in 2025 continued within the stock market as well. For the third year in a row, the Tech sector alone has been the major driver of market gains. Which is well known by pundits, but concentration risk is something they are willing to still assiduously ignore going into 2026.

In the chart below we see that semis are back at all time highs in a double top 50% gain. The S&P 500 a more moderate 16%. And the average stock has been underperforming t-bills all year.

Bear in mind there are three trading weeks left in 2025, so this is by no means the final tally.

One of the market divergences I've pointed out all year are in the Transportation stocks which never confirmed the Dow's November all time high.

Here we see trucking stocks made their all time high last November 2024 then imploded in Q1 along with everything else, and they are still diverging massively at the end of 2025. It's an indicator that the real economy is floundering outside of data center construction.

The predominant economic theory going into 2026 is that we will all build data centers for the next three years and then everyone will get laid off when they are done. That's the bullish argument in a nutshell.

Oil has been warning on global growth all year, but it has yet to break the April lows which would likely confirm global recession:

In summary, for 2025 global monetary easing has driven a record divergence between oligarch wealth and economic reality for the majority.

Wall Street is betting that divergence will grow in 2026.

I am saying that divergence will be closed.

The hard way.