Tom Lee: What's in store for markets in 2026? [18:29]

YouTube transcript reformatted at textformatter.ai
Get right to it. So, we're going to 7,700. That's the headline. So, that's a pretty decent year in the year ahead. Not quite as robust as we had this year. Why that target?

Uh, well, we're 3 years or 20% gains because the S&P probably closes 7,000 or so this year. And so, I think there's a deceleration of what the market can do next year. But that 10% I think belies what will be a very turbulent year similar to this year where this year we had tariffs and sort of a Fed that became hawkish again. Next year is a year where we have a Supreme Court potentially overturning tariffs and then a new Fed which will be tested. So I think we could have what looks like a bear market in 2026. We exit strong. I mean, even with a new Fed and you know, it's divided obviously, as we learned yet again yesterday, we know from what the president wants to do in terms of who he wants to appoint that the bias is going to be towards easing. Correct.

So why so much turbulence around that particular issue?

Um, you're right. I think next year the real message at the end of the year will be there's the Fed put back in play. So then you have a White House put and a Fed put which are tailwinds for stocks. But before all that happens, the new chairman has to be confirmed. It takes about 90 days from the time that his nomination takes place in the confirmation and the markets always test a new Fed chair. So I think that that is the January to October period is that the Fed is being tested even though we know it's going to be a dovish Fed and a Fed put comes out of that. We think we're going to get, I mean at least if you believe the outlook which that's, you know, it's your own prerogative. Um, a cut into a strengthening economy though. I mean at the end of the day that supersedes everything. Isn't that partly what the last couple of days yesterday and today are about?

Yeah. I mean, this was a, in my mind, even though people positioned it as a hawkish cut, it's actually quite bullish for stocks because um the Fed again is now weighing the downside risk to the economy, which is the Fed put coming back into play. Plus, as you know, QT ended and even though it's not officially QE, it's the absence of tightening, which is QE. I mean, you call it whatever you want. Um, if the effects of whatever they're doing are nearly the same as if you want to call it QE, the bottom line is stocks went up and rates came down. And if that continues to be the picture, it's going to be hard to lean against the equity market in that scenario. Correct. And the right groups are responding as you highlighted, small caps hitting record highs, um financials rallying, and now what we just want is the ISM to turn. But if housing can turn, then you've got a real broadening taking place next year.

See, when you still talk about a wall of worry, um I feel like that's debatable now. I mean, I felt like it's debatable for the last few months, but once you get into the new year, do we really have a wall of worry? As I said, we expect the economy to strengthen. The Fed's going to have a more dovish tilt even with a new person. You're going to have some of the impacts of the big beautiful bill. You're going to have what should be a better environment for M&A and even IPOs. We may get some of the largest we've ever seen from the AI space, not to mention the AI trade in and of itself. Is that really a wall of worry?

Well, those are definitely all tailwinds, Scott, but in our conversations with clients, we find skepticism about valuations.

Okay.

Fears of an AI bubble.

Fair. Uh, the Supreme Court overturning tariffs does create turmoil at a time when the midterms are now in people's minds.

Would that be a plus for stocks?

Well, it is and it isn't because now it makes policy uncertain again and the economic ripple effects uncertain because if the tariffs stay in place and remember markets don't expect the tariffs to hold then we can anniversary a lot of the effects. But if now we're talking about them being reversed, some companies suing to get refunds and then new tariffs coming, it adds to the lack of visibility.

So on the issue of AI, how does the breakdown happen in what leads the market to your target of 7,700 and what lags?

Uh, well, I think tech is going to be a group that probably has to digest the prodigious gains made this year into early next year. And we know that whenever tech starts to stall, people wonder is that the leadership ending so the market will fall or is this a rotation? And that's controversial. Isn't that what's happening right now?

Yeah. And you can see sentiment has not improved in the face of that. People have turned bearish because of that. They've turned bearish. I feel like this is confirmation of exactly what a bullish story would want to be that you could have, uh, you know, a step back in the tech trade. But man, if you get a pickup in equal weight and you get a pickup in the Russell and you get a pickup in all these other areas, that's what keeps the market from being upset by the lack of performance from tech.

That's a rational explanation. It makes perfect sense. But in our client conversations, people are more bearish now because tech is stalling. And it's in the backdrop of 75% of the weeks this year, sentiment on AI has been negative. It is only something you see in the middle of a bear market. So I think people are sort of entrenched in their bearishness even as we exit strong. And I think that carries into next year.

Man, I mean, I don't know who you're talking to. I feel like it's hard to find people who are bearish, which is why we've got a couple of people on the desk that we're going to bring into the conversation now and see where they stand. New Edge Wealth's Cameron Dawson, Invesco's Brian Levit, both here at Post 9. You guys aren't bears. You're not bearish, are you?

It is really hard to fight a market that's in a clear uptrend that has Fed support, that has fiscal policy support, where earnings estimates are still going up, GDP estimates are still going up. But this market is priced for perfection and it's expecting perfection. You have a 22 and a half times forward multiple. Earnings estimates look to be very wholesome. $39 a share. That includes 200 basis points of operating margin expansion. So it is definitely something you don't want to bet against the great American might of margin expansion. However, that's a pretty high bar. But to Tom's point, you are only in the 60th percentile in institutional investor positioning survey. So there is still room for people to get dragged kicking and screaming into this market.

Well, those are two different ideas. There is the idea, as Cameron says, of FOMO, of chase for performance. Then there's the realization of whether earnings are going to live up to the hype to justify the valuation that Cameron suggests that we are at and we may expand too.

Yeah. And I think we will. And you know, it's funny when I when you talk about hearing people's concerns. I mean, I think that's what I do for a living. I hear people's fears all the time. So, it always sounds like they're somewhat pessimistic, but the backdrop continues to be quite good. You're in an environment where leading indicators are picking up a bit. The Fed wants to ease. Inflation expectations are contained. I mean, it's a good backdrop and our outlook coming into the year at Invesco was about this broadening out. It, you know, a lot of the concerns we hear is valuations concentration. And what's nice about an environment with easing and a pickup in economic activity is you can build better value portfolios whether that's non-US, whether that's down capitalization, equal weight. You can build a better value portfolio and participate.

I mean, 6,900 right now, S&P's never been higher in terms of where it might close and we're going to track that right to the end. It just shows you the optimism. You're bullish. I'm bullish. I'm bullish.

And look, I, um, when do I get less bullish? If um, I have inflation expectations breaking out, if I have credit spreads, they're not. If I have the Fed having to become more hawkish and they're not. If credit spreads are blowing out, and they're not. So, you know, this to me it's more about leadership. I'm very convinced that this cycle is continuing. The question that we've been debating is the direction of it. Are we gathering momentum here? And I believe we are. And as you gather momentum, you want a different type of risk in the portfolio rather than 2023-2024 where global growth was kind of not doing anything.

All right. Well, let's stay on that theme and welcome in another guest, Jonathan Kinsky. BTI has a new note on the small caps today. So, we wanted to bring him in to talk to you about it. It's nice to have you, especially given this move we've seen in the last few days at least. Um, we getting confirmation of a bigger breakout.

Hey, Scott. So, I mean, yeah, there's a couple of points here. One, um, you know, we had this the Russell 2000 breakout in September, two new all-time highs, but the S&P 600, which is a small cap index that has the profitability component, um, really continued to struggle even despite that breakout. So, it was more of a speculative lower quality breakout. Um, and what we have the last couple of days is that S&P 600 actually joining the Russell 2 and is within, you know, a very close margin of hitting its own all-time highs. And, you know, when we think about small caps, they've essentially we're basically at the same level as we were four years ago in November of 2021. So, you know, if this breakout can hold, then you know, there could be meaningful upside to the small cap trade. And at the same time, um, you know, we're noticing some moderation or relative weakness in some of the MAG 7. Um, Nvidia's been trading a little bit poorly. Meta is below its 200 day. So, when you look put all together and you look at the ratio of small caps to MAG 7, we're now really just starting to break out above a multi-year downtrend that started, you know, back in 2022, 2023. So, I do think there could be some runway and it's definitely a theme we'll be watching as we head into 26.

So, it's okay that there's relative underperformance from the MAG 7s. You're telling me there's runway despite that fact as long as the other parts of the market that you're citing here continue to participate. All is well.

Well, yeah. I think there's a difference between relative underperformance and absolute weakness, right? And up to this point, I think it's really just the relative underperformance. I think the pullbacks in Nvidia and Meta are, you know, you could argue Meta is potentially changing the trends. Um, it's probably one of the weakest of the MAG 7 where you actually have the price under the 200 day and the slope of the 200 day is potentially inflecting lower. Um, so if you were to start to see more MAG 7 as have that setup happen, that would be a big concern for the market. As it stands now, I think it's a function and kind of what Tom was saying is maybe you get just some lagging or underperformance from the S&P. Maybe it does grind a bit higher, but you know, the alpha is going to be in small caps.

Okay, interesting. Uh, we saw your note. We needed to talk to you about it. Jonathan, thanks for making time for us. We appreciate you. Jonathan Kinsky, BTIG, Mr. Small Cap, um, we have a good year. We're up 16%. Okay. Okay. And a lot of it's been done in the la well well not a lot of it but a good amount of it we uh have watched in recent trading sessions. Yeah.

You want to make a big call about this again? Small caps in 2026. You know I just don't want to jinx it, Scott. That's why I'm silently watching it because every time I kind of feel confident about small caps, there's a bit of a rug pull. But it makes sense that small caps should outperform because the Fed's dovish and the ISM, which has been below 50, is finally going to break out and small caps valuations relative to large caps have never been cheaper. So but you made the point already though that there's going to be this tension within the Fed complex because of a new chair. Will that also, if it leads to some sort of volatility or um turbulence as you use, won't that upset that trade?

Yeah, I mean in the short term it will. I mean I just think next year it's going to feel like a full cycle again. You know a rally in the beginning, turbulence, and maybe a bear market, you know, 20% decline like we had this year, but then we exit really strong and maybe a rally to end all rallies type at the end. What do you think about that?

Small caps have been the quintessential here for a good time, not for a long time trade. Because since they peaked in 2021, we've had these little bursts of relative outperformance and then they give it all back up. So, you've made unrelenting new relative lows. And the reason for that is because earnings estimate cuts for small caps have been unrelenting. You came into this year expecting 40% earnings growth. You've gotten six. Next year, there's an expectation for 50% earnings growth. That's why small cap valuations on the surface look so cheap relative to large caps. However, I don't think small cap earnings necessarily deserve the benefit of the doubt that they can deliver that 50%. Rate cuts help because small caps have a lot of debt and a lot of floating rate debt which should help with some interest expense. But again, just because consensus expects it doesn't mean you're going to get it.

I'm still hung up on this idea that Tom's talking about that you could have a bear market moment in 2026 before things resolve themselves. That's not going to feel very good. You agree with that? I mean, let's look at a year-to-date of the S&P also because we have had an incredible ability in this market and you see a couple of moments where we needed a V-shape recovery from big dips and we got it every time, including the most recent one where we now have completed the cycle and finished the V. As Mike Seni likes to say, we've actually finished the V and we were able to close it at record highs. Does that sound like a scenario that could happen in your mind?

Well, there would have to be a catalyst for, I mean, you have a 5 to 10% downturn almost every year. To get to a 20% downturn, you would probably need a decent amount of policy uncertainty or something going awry with the AI trade. And so, um, my sense is it won't be the AI trade in 2026. So the idea of policy uncertainty, I mean this, the backdrop really since liberation day has been increasing policy improvement or a movement towards greater clarity. I don't personally think that a new head of the Fed is going to drive that. Largely to your point, Scott, is because they're going to lean dovish. Now, if the market gets a sense that the Fed funds rate is going to 2% and long rates have to adjust, then yeah, valuations need to adjust in the market. But if it's, well, we may see low threes on the funds rate instead of three and a quarter or three and a half, I don't think that's a 20% downturn in the market.

You mentioned AI stocks. I mean, they obviously are underperforming today, but there is still plenty of news being made in that space. OpenAI rolling out its latest version of ChatGPT. Sam Altman was live on this network in an exclusive interview earlier today. Mackenzie Sagallos for us even deeper look at some of these stocks. Are we going to see more dispersion within the group? Like you can't you talk about the Mag 7 as if they continue to trade as a monolith? They don't and they probably won't, right?

They do and they don't. They're all largely connected to the same mega theme. So, I would say the answer is yes and no. It's like they're all genetically related, but they don't all have to have the same career, you know. Um, so I don't know how to answer that, Scott.

Well, I mean, right, there was a time where you just you talk about the Mag 7. Do you want to own the Mag 7 as if it's this monolith group that all trades together? But now, um, what has been an arms race is a battle. They're fighting with each other for everything, you know. They're doing business with each other, but they're also battling it out with one another for AI supremacy.

Now, when we look back at the last industrial revolution, which was the internet buildout, which had internet infrastructure and mobile and Cisco and switches and telecom infrastructure and the mobile carriers and spectrum, they all peaked within months of each other and their correlation went to one when the bear market started. So they are going to trade as a group even if we think they're differentiated. Do we agree with that?

I think that we're learning that AI is extraordinarily competitive and this is what we're seeing with this switch between Google and OpenAI, which one is better. This is starkly different than the very near monopoly businesses that these companies have been able to use to generate extraordinary supernormal profit growth. So a competitive business that's very capital intensive implies lower return on invested capital which is very different than what these businesses used to be.

How would you see that?

I agree completely and I was going to use the word monopolistic also. It's a sea change, right? These are businesses that, you know, if you were using social, you knew where you were going. If you were shopping online, you knew where you were going. And they're all competing in the same space and it's investment heavy. So it is a bit of a difference. And you see it even with Oracle, not necessarily a Mag 7 name, but one of the big hyperscalers. Um, you know, you're starting to look at where debt to EBITDA is on some of these companies and that becomes a challenge. So yeah, I don't think that they all are going to trade in uniform here. There will be winners and losers.

All right. It's going to be fun to watch and it's going to be fun to talk about it many times in 2026, which I know we will. Guys, thanks so much for having everybody here.

silver [Schwab network video search]
Growth Stocks & Small Caps Overtake Mag 7 Momentum,
GLD 15% Rally Potential | 8:49
Schwab Network | 248K subscribers | 346 views | December 12, 2025
The Benner Cycle is a market timing model developed by Samuel Benner, an Ohio farmer and ironworks businessman, in the late 19th century. It is based on historical patterns observed in agricultural commodity prices, particularly pig iron, and aims to predict recurring economic cycles through a series of repeating intervals. The cycle categorizes years into three phases: Panic Years (marked by irrational market swings and extreme price movements), Good Times (periods of high prices and strong markets, ideal for selling assets), and Hard Times (years of low prices, considered optimal for buying and holding assets until the next boom). Benner proposed that financial panics occur on a cycle of roughly 18, 20, and 16 years (18-20-16), followed by approximately 7 years of Good Times, 11 years of transition to Hard Times, and a 9-year recovery period back to Good Times (7-11-9). The model, first published in his 1875 book Benner's Prophecies of Future Ups and Downs in Prices, has been used by some analysts to forecast market events, with claims of predicting major crises like the 1929 crash and the 2008 financial crisis, though its accuracy is debated, especially in modern, complex markets.
AI-generated answer. Please verify critical facts.

They should be more scared of a housing bubble.

[This segment originally aired on Thursday, September 4, 2025] David McAlvany examines the metals markets, calling them a "core allocation, not a trade." He compares holding the metals themselves with investing in mining companies. He thinks gold is in a "big, bullish trend" as central banks move away from the dollar and into gold – investing "double" what they did in 2022 in the yellow metal. David looks at the gold/silver ratio, calling silver an "amplifier" and describing its usual relationship to gold. He thinks they can end the year at $4,000 for gold and $50 for silver.
The Gold & Silver Ratio: "Stabilizer" vs "Amplifier" Near Record Levels | 8:44
| 248K subscribers | 2,636 views | September 6, 2025
...And you know, gold gets expensive relative to silver and vice versa. I've always sort of seen silver as just a much higher beta, but also a lower, you know, barrier to entry with the lower price point, particularly for those who are, you know, actually stacking these bars. Where do they both fit? Because I know there's also industrial uses for silver as well.

"Be fearful when others are greedy, and greedy when others are fearful."
-- Warren Buffett

Fears of an AI bubble.

Says those who are shorting.

/bingo

They tried this about two weeks ago and got NVIDA to drop and all the articles were on it dropping more, but then it reversed course and came back up. Looks like they are worried about covering their shorts.

Trump’s Golden Age

So shall it be written, so shall it be done.

I just readjusted this morning.

40% cash
30% BND (investment grade bond ETF)
30% VTV (Large cap value (PE 20ish) ETF)

I think I’ll just sit tight for awhile and see how this unusual situation develops.

December's often a bit down during the month. I'd guess that retailer stocks will slide after Xmas, with the usual fallout (teetering chains will drop over the edge). Any industry group that burns off could be a pretty great buy. The second vid 'stars' a technical guy, and they tend to rate a $4 stock 'avoid', and then when it rises to $19 in a recovery, they tend to rate them a 'strong buy'. 😎

“The second vid ‘stars’ a technical guy, and they tend to rate a $4 stock ‘avoid’, and then when it rises to $19 in a recovery, they tend to rate them a ‘strong buy’.”

That’s why you should never listen to analysts. They have interests that are contrary to yours.

I’m glad the technical traders around, they help the rest of us make money. Off them. 😁