Unhedged Podcast Episode Summary

Episode Title: Can 2026 match 2025?
Release Date: December 11, 2025
Hosts: Katie Martin (FT), Rob Armstrong (FT), Ian Smith (FT)
Theme:
This episode examines whether the buoyant optimism characterizing 2025's financial markets can be sustained into 2026. The hosts dissect Wall Street consensus, reflect on extraordinary resilience in global equity markets, debate the AI boom’s sustainability, and flag macro risks along with under-the-radar threats that could spoil the bull case.

Main Discussion Points and Insights

1. 2025 in Review: Wall Street Optimism and Resilience

• Setting the scene:

  • Investment banks and asset managers are rolling out rosy 2026 forecasts, describing the market "mood" as “very warm and fuzzy.” (00:42)
  • Quote — Katie Martin:
    “Markets have swatted off a whole range of horrors. Tariffs, geopolitical splits, institutional degradation, all the scary stuff. And that means... investors are feeling pretty good about what markets will deliver next year.” (00:42)

• US resilience explained:

  • Despite expectations of meltdowns (trade policy shocks, politics), US equity indices hit all-time highs, bonds remained stable, and AI hype did not derail positive sentiment. (02:14–05:09)
  • Rob Armstrong: “That moment in April was a moment when it looked like the President had lost his damn mind... But he consistently shown willingness to back off whenever tariffs really pinch.” (02:53)

• Corporate earnings as the engine:

  • Ian Smith: “Earnings…has been the rocket ship for the stock market. They've just been amazing…” (05:09)
  • The US outperformed Europe in USD terms, but European and Asian markets (UK FTSE, Spain, Korea) did exceptionally—especially with currency effects. (07:01–08:23)

2. The “Taco Trade” and Political Backdrop

• The taco trade explained:
  • “Trump Always Chickens Out” (“TACO”)—coined by Rob Armstrong—became a market meme and even annoyed the President. (03:59–04:25)
  • US market resilience partly credited to Trump pulling back on potential trade disruptions.

3. Currency Moves & Global Markets

• FX surprises:

  • Expectations for dollar strength in 2025 were upended—the USD weakened dramatically, benefiting non-US portfolios. (08:25–09:05)
  • This altered relative performance, with EMs and Europe posting strong returns for USD investors.

• AI’s global ripple:

  • Performance in Korea, Taiwan, and other Asian markets closely tied to AI supply chain (chip manufacturers etc.). (09:51–10:16)

4. 2026 Bull Case: Consensus and Its Logic

• S&P 500 Targets:
  • Wall Street is calling for further rises: Deutsche Bank sees the S&P 500 at 8000, HSBC and JPM around 7500. (11:03)
• “Rational exuberance” not irrational:
  • Bubble talk dismissed by asset managers: “Bubble framing is not helpful here.” (11:07)
• Fiscal expansion as fuel:
  • 2026 to see more fiscal stimulus due to new policy (One Big Beautiful Bill Act); retroactive tax refunds expected to deliver “much bigger” corporate and household returns. (11:48–12:32)
  • Rob Armstrong: “We're going to have fiscal expansion that we know for sure… corporate and household tax refunds are going to be much bigger this spring…” (11:48)

Key Concerns & Bearish Scenario Analysis

1. AI Bubble? When Does It Burst?

• Uncertainty over timing and impact:

  • “Even if it is a bubble, we don’t know when it’s going to burst… could have another month, another year, another five years…” (13:35–14:49)

• Proof Points Needed:

  • Ian Smith: “You're going to need some return on some of the capital that's been deployed… Either people… show they’re willing to pay for this technology or companies [must show] it is really increasing their productivity…” (14:49)

• Monetary tightening as threat:

  • A tightening Fed is seen as the bigger threat than disappointing AI narratives.

• Tech concentration risk:

  • Rob Armstrong: “Let's say [Nvidia] goes down by 25%... every active money manager in the world is overweight that stock... a trillion US dollars have sprouted little wings and flapped off to money heaven, never to be seen again.” (16:16)

2. Inflation and Fed Policy

• Historical pattern: inflation comes in clusters (18:49–20:10):

  • Misjudging inflation has been a persistent problem.
  • If inflation returns, it could “ruin that whole bull case” built on monetary and fiscal expansion.

• Fed leadership change risk:

  • Jay Powell set to step down; concern over Trump’s likely preference for a dovish replacement (Kevin Hassett is “heir presumptive”).

• Host skepticism:

  • Rob Armstrong: “I would like to make the following bold prediction, which is that it's going to be fine at the Fed... Once you're in that chair, your eyes turn from the President and turn towards history. And you don't want to be Arthur Burns…” (23:00–24:18)

• Two inflation risks:

  • 1. Fed can't cut as much as market expects, hurting equity/bond returns; 2) new chair caves to political pressure, breaking inflation credibility. (21:54–22:39)

Other Market Risks Highlighted

1. Japanese Government Bonds & Global Debt Markets

• Key point:
  • If Japanese yields rise, domestic buyers may “stay home,” reducing bid for global bond markets—potentially “taking another guaranteed buyer out.” (27:05–28:32)
  • Japan’s new PM is unexpectedly expansionary, compounding risks.

2. Crypto Volatility Spillover

• Host worry:
  • Retail-driven crypto markets are now tangled up, both through stablecoins (linked to US treasuries) and “liquidity link” between crypto and equities. (30:10–32:16)
  • Rob Armstrong: “Crypto markets are very much entangled with the US debt markets at this point, that the state stablecoins link short term treasuries to basically the whole crypto ecosystem.” (31:04)

Market Sentiment: The Danger of Consensus

• No bears left:
  • Even perma-bears are “capitulating”—noting overvaluation but seeing “no imminent macro trigger for a major bear market.” (32:59)
• Katie Martin: “When the pessimists are slightly throwing in the towel. There's a part of me that thinks I don't know, man. I feel like I've seen this movie before and it did not end very well.” (33:15)

Notable and Memorable Quotes

• Katie Martin:
  “Markets have swatted off a whole range of horrors… investors are feeling pretty good about what markets will deliver next year.” (00:42)
• Rob Armstrong, on the ‘taco trade’:
  “Trump Always Chickens Out. That’s my single greatest contribution to human knowledge, is it not?” (04:01)
• Ian Smith:
  “Earnings…has been the rocket ship for the stock market.” (05:09)
• Rob Armstrong:
  “Once you're in that [Fed] chair, your eyes turn from the President and turn towards history…” (23:36)
• Katie Martin:
  “If you can’t find any pessimists, that can be alarming.” (33:15)

Timestamps for Important Segments

• [00:42] – Setting the warm and fuzzy market mood
• [02:14] – Reflection on market resilience: April panic vs. year-end euphoria
• [03:59] – The genesis and meme-ification of the “taco trade”
• [05:09] – Earnings as the “rocket ship” for stocks
• [07:01] – Europe and Asia’s market performance, FX effects
• [11:03] – Street forecasts for the S&P 500 in 2026
• [11:48] – The “One Big Beautiful Bill Act” and 2026’s fiscal stimulus
• [13:35] – Early warning signs and AI bubble debate
• [18:42] – What if inflation isn’t really defeated?
• [23:00] – Will a new Fed chair under Trump undermine inflation control?
• [27:05] – Japanese bonds as global volatility risk
• [30:10] – Crypto and its links to regular markets
• [32:59] – Pessimists throw in the towel; “capitulation worries”
• [33:15] – When there’s no one left to argue the bear case

Long/Short Segment – Hosts’ "Trades" for 2026 (34:37)

• Ian Smith:
  • Short: The peak cultural grip of “K Pop Demon Hunters” (film+music craze among kids).
• Rob Armstrong:
  • Long: “Fuddy duddy old man stocks”—quality, value, slow growth in 2026 as AI and hype might falter and value could outperform.
• Katie Martin:
  • Long: “Buying the dip”—retail investors have outperformed using this strategy in 2025. But warns listeners: “This is not investment advice... and if it was, it would be terrible.” (36:19–37:07)

Conclusion

The episode paints an unusually united front of optimism among market pros, but the hosts caution: bubbles and inflation can sneak up, and risks like Japan’s bond market and crypto remain wildcards. Listeners are left with the sense that, while 2026 could build on 2025’s surprising strength, periods of unanimity and euphoria have historically preceded turning points.

For further detail or to connect with the hosts:

• Email: unhedged@ft.com
• Newsletter via FT.com (for FT Premium subscribers or with 30-day trial)