{"id":311708,"date":"2025-12-12T08:39:07","date_gmt":"2025-12-12T08:39:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/311708\/"},"modified":"2025-12-12T08:39:07","modified_gmt":"2025-12-12T08:39:07","slug":"transcript-can-2026-match-2025","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/311708\/","title":{"rendered":"Transcript: Can 2026 match 2025?"},"content":{"rendered":"

This is an audio transcript of the Unhedged<\/a> podcast episode: \u2018Can 2026 match 2025?\u2019<\/a><\/p>\n

Katie Martin
It\u2019s the most wonderful time of the year, folks, when investment banks and asset managers roll out their big predictions for markets in the year ahead. Are these predictions right? Not necessarily, but trawling through these outlooks is a fantastic way to judge the market mood. Right now, let me tell you, that mood is very warm and fuzzy. In 2025, markets have swatted off a whole range of horrors, tariffs, geopolitical splits, institutional degradation, all the scary stuff. And that means that now even with what seems to be a big fat AI bubble inflating in plain sight, investors are feeling pretty good about what markets will deliver next year. Today on the show, we\u2019re gonna run you through the key calls on Wall Street where the consensus is, what can go right, and of course, what can go wrong? <\/p>\n

[MUSIC PLAYING]<\/p>\n

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. A very warm welcome to new listeners today who are tuning in as part of the FT\u2019s Global Boardroom event.<\/p>\n

I\u2019m Katie Martin, a markets columnist here at the FT in London, and I\u2019m joined by two of my favourite colleagues. In the studio with me, I have FT markets workhorse Ian Smith, one of the\u2009.\u2009.\u2009.\u2009<\/p>\n

Ian Smith
Hi, Katie.<\/p>\n

Katie Martin
.\u2009.\u2009.\u2009fine people here who does the hard work of reporting on what markets are up to every day. And my usual co-pilot, Rob Armstrong, who harvests the organs of all that reporting and pontificates on it from his perch on the\u2009.\u2009.\u2009.\u2009<\/p>\n

Robert Armstrong
I\u2019m gonna get that on a business card: Rob Armstrong, organ harvester. <\/p>\n

Katie Martin
Organ harvester. So both of you like, I think it\u2019s kind of important that we pause just for a tiny second here and reflect on how incredibly resilient markets have been this year. You know, one investor put it to me the other day that if you\u2019d said to her in April, right, the stock market was absolutely a meltdown, and if you\u2019d said right by now, by the end of the year, stocks would be at all-time highs, bonds would be nice and well behaved, she would\u2019ve said: Come on, you\u2019re bonkers. So I mean, let\u2019s start with Rob. Like what went right here? <\/p>\n

Robert Armstrong
Well, I hate to toot my own horn, but I will invoke Taco here. Trump always chickens out. That moment in April was a moment when it looked like the president had lost his damn mind and was going to be, it was gonna be an absolutely crushing tariff regime. And since then, he has consistently shown willingness to back off whenever tariffs really pinch. And he\u2019s also shown that when other countries negotiate hard with him, he backs down there too, right? Brazil, China, they\u2019ve mixed it up with him and it\u2019s gone OK. So I think what you, when you look at the market since April, that\u2019s the market saying we can live with the president\u2019s ill-considered trade policies.<\/p>\n

Katie Martin
For listeners who may have missed this little\u2009.\u2009.\u2009.\u2009Rob Armstrong\u2019s 15 minutes of fame earlier this year\u2009.\u2009.\u2009.\u2009<\/p>\n

Ian Smith
How could they have missed it? <\/p>\n

Katie Martin
.\u2009.\u2009. how could they, because it went kind of nuts. Like Rob was the person who coined the Taco trade, right? Trump always chickens out. It started off as a lame joke on one of your newsletters, and then it became just like canon on Wall Street, and then the president was upset about it and there were TikTok videos of people singing Taco songs that this, Rob, this is your single greatest contribution to human knowledge, is it not? <\/p>\n

Robert Armstrong
It\u2019s true, and the whole thing has culminated, as regular listeners will know, with Taco the reindeer, who is the show\u2019s mascot, who is a, was bought one of our, our colleagues found it on the street. It\u2019s a reindeer with a label around her neck saying, \u201cTaco\u201d, and that\u2019s kind of where it all this is for me, that\u2019s where the whole thing peaks. <\/p>\n

Katie Martin
Yeah. You must be so proud. But so Trump does pretty regularly chicken out, Ian, but it\u2019s not just that, right? That investors have been quite positive about this year. Like the main thing is you just cannot argue with the corporate earnings or the kind of, you know, chaotic politics aside, companies are doing fine. <\/p>\n

Ian Smith
Yeah. Earnings, as one investor put it to me a few weeks ago, has been the rocket ship for the stock market. They\u2019ve just been amazing. In terms of that strong performance in the US, it\u2019s a good reason why the US, which underperformed Europe at the start of the year, caught right back up. If you look just, you know, on local currency terms, I would add that, you know, the US is still, you know, behind Europe when you kind of look in kind of constant currency terms. But yeah, this AI theme in the markets has just been absolutely dominant and it\u2019s helped stocks come back from that trade shock. And it\u2019s helped these stocks shrug off worries over valuation. Because the earnings are coming through and the investment is there. <\/p>\n

Katie Martin
Yeah, yeah. So you have\u2009.\u2009.\u2009.\u2009<\/p>\n

Robert Armstrong
I would also add, if I can interrupt here as I often do, I would also add that the economic strength has been broader than just the kind of data centre boom. There was this idea going around that without all these data centres, the US would not be growing at all. And this turned out to be a mistake to think this. And up until quite recently, broad-based economic growth in the United States supported the earnings that you and Ian are talking about. That may be slowing down now, we can talk about that. There\u2019s sort of some rumblings in the economic picture, but growth has been OK. <\/p>\n

Ian Smith
Yeah. The fears that people had around recession coming and partly from like some of the economic disruption from President Trump\u2019s own policies hasn\u2019t played out as badly as people worried about. The inflation that people feared from the tariffs has not come through to the degree that people worried about. So you had those major things that were kind of holding back that have dissipated. I think the president now are looking at where things have ended up. Stocks are high, but you know, the US dollar has weakened. He\u2019s getting some of his interest rate cuts that he wanted. It\u2019s playing out in a way that some of\u2009.\u2009.\u2009.\u2009some people had really pushed for at the start of the year. <\/p>\n

Katie Martin
Yeah. Now, one thing I think is really worth underlining here is that, you know, as usual, the US like blocks out all of the sun. Nothing else gets much of a look in. But the rest of the world in terms of stock markets has been performing incredibly well. <\/p>\n

Ian Smith
Are you gonna mention the plucky FTSE 100? <\/p>\n

Katie Martin
I am, Ian. I am. <\/p>\n

Ian Smith\u2009
.\u2009.\u2009.\u2009with year-to-date performance outstripping the blue-chip S&P 500. <\/p>\n

Katie Martin
Nicely put, Ian. But, yes\u2009.\u2009.\u2009. <\/p>\n

Ian Smith
By 3 percentage points, so my number\u2019s key. <\/p>\n

Katie Martin
So if you look at the S&P 500, the big US index, in dollars, I gotta hand it to him. Good year. From the (inaudible), you\u2019re up 16 per cent there year to date from America. But if you flip that into euros, if you\u2019re a euro-based investor and you\u2019ve been in the S&P 500 this year, guess what you\u2019ve made. <\/p>\n

Ian Smith
3 per cent. <\/p>\n

Katie Martin
Three. You\u2019ve got that written down.<\/p>\n

Ian Smith
I looked at it before we came in. <\/p>\n

Katie Martin
It\u2019s 3 per cent. So, you know, first of all, Europe, just on its own terms, has done incredibly well. You look at like stock markets like Spain, which is up, I think about 45 per cent or something. If you\u2019re a dollar-based investor and you\u2019ve been in Europe all year, you have absolutely killed it. So I absolutely hand it to the States. It\u2019s had a fantastic year, but the rest of the world is off to the races. Like Korea is up, I\u2019m gonna say 50 per cent, something like that. Japan has had a fantastic year. You know, it\u2019s not all about the States. <\/p>\n

Robert Armstrong
Hong Kong, Taiwan, the list goes on.<\/p>\n

Ian Smith
And the FFX has been hugely important this year because of the trade policy, a larger\u2009.\u2009.\u2009.\u2009<\/p>\n

Katie Martin
So the currency bit, like, really matters.<\/p>\n

Ian Smith
The currency bit in a way that it hasn\u2019t before. So where you are sat is crucial to how you look at this year and how you look at next year. And that\u2019s the most interesting story of the year for me, in a way is coming into it, everyone thinking the dollar\u2019s gonna strengthen because of tariffs. Then the dollar dramatically weakens worse start to the year since the 1970s because people worry about the domestic economic impact of those policies. And is there gonna be an exodus or out-of-dollar assets? And then we\u2019ve kind of seen a kinda stabilisation in the, towards the end of the year, but still the dollar\u2019s quite weak for the year and it really has mattered where you sit.<\/p>\n

Robert Armstrong
While we are on the topic of global stocks, I should mention, though, I was rambling on somewhere about how amazing the results from Asian markets have been. And a young man \u2014 listeners, longtime listeners to this show might remember \u2014 a guy called Ethan Wu, who\u2019s now at some\u2009.\u2009.\u2009.\u2009<\/p>\n

Katie Martin
Ethan, who? Who\u2019s that guy?<\/p>\n

Robert Armstrong\u2009
.\u2009.\u2009.\u2009he\u2019s now at some second-rate weekly financial publication we will not name.<\/p>\n

Katie Martin
Formerly of the FT. <\/p>\n

Robert Armstrong
Formerly of the FT. And he emailed me to point out that the Asian stock markets are very much intertwined with the AI trade because it\u2019s chipmakers and chip-testing companies and chip foundries and like all the kind of backdrop electronic equipment that the boom requires.<\/p>\n

Katie Martin
I\u2019ve written this myself this year, Rob. You obviously don\u2019t read anything that I\u2019ve put out there, but fantastic. No, it is important. Like the Korean market is absolutely jampacked with semiconductor companies like the emerging markets, big EM stocks indices, like 10 per cent of that is in TSMC, the Taiwanese semiconductor company. So this\u2009sort of\u2009.\u2009.\u2009.\u2009<\/p>\n

Robert Armstrong
Samsung Electronics, SK Hynix, the list goes on here. <\/p>\n

Ian Smith
And there\u2019s also been some corporate governance reforms in Asian markets that investors have cheered as well, that have helped. <\/p>\n

Robert Armstrong
Yeah, good point.<\/p>\n

Katie Martin
Made a big difference, especially in Korea. Yeah, yeah. But so look, the dollar thing really matters and the rest of the world has done really well. Nonetheless, the US is still the global benchmark effectively because it is just so gigantic as an individual market. And from what I can gather from the sort of outlooks that are coming out so far from the banks and from investors, people are feeling very positive about how that\u2019s gonna perform next year. So, you know, some of the, so Deutsche Bank, for example, Binky Chadha, the US stock strategist, is looking for the S&P 500 to be at 8,000 at the end of 2026. <\/p>\n

Robert Armstrong
We\u2019re at 6,843. I\u2019m looking at it right now. <\/p>\n

Katie Martin
So Deutsche is kind of on the kind of top end there, but like HSBC, JPMorgan, are more like 7,500. That\u2019s still a good jump from where we are now. You know, people can see that there are some valuations in AI stocks, for example, that look super, super bubbly. But for example, DWS, the German asset managers, is calling this rational exuberance. You know, it makes sense. It\u2019s not irrational. BlackRock is saying, look, bubble framing is not helpful here. JPMorgan asset management is saying there is more fuel in the tank. I could go on, right? <\/p>\n

Ian Smith
These guys are never wrong. <\/p>\n

Katie Martin
These guys, luckily, never wrong. <\/p>\n

Robert Armstrong
I will make the case that they are right right now. Yeah, and I think it, one, I like my bull cases simple and I think the bull case for next year is simple, which is we\u2019re gonna have fiscal expansion that we know for sure because the One Big Beautiful Bill Act, it comes into effect and that is gonna push money into the economy. Just to pick one example, because the tax part of that bill goes into effect retroactively to this year, corporate and household tax refunds are gonna be much bigger this spring than they were last year. <\/p>\n

Katie Martin
You\u2019re gonna get a checque in the post? You don\u2019t deserve one, Rob. <\/p>\n

Robert Armstrong
I know I\u2019m gonna pay for some tacos. So that\u2019s just one example of this. So I think that is gonna happen. We know, and I think in general, we have an administration that is very powerful and very activist that is rolling towards midterm elections that could make them irrelevant if they lose control of Congress in the midterm elections. <\/p>\n

Katie Martin
Which are when, for those of us not in the States?<\/p>\n

Robert Armstrong
Which are in November. If the president loses control of Congress, he\u2019s basically sitting alone in his office for the two following two years watching TV and so they\u2019re gonna throw everything at this market and this economy to make sure people are feeling good. <\/p>\n

I\u2019ve said this on the show before and I think that\u2019s a very simple case. I think that\u2019s Wall Street consensus. I think it\u2019s quite logical. Thank you very much. <\/p>\n

Katie Martin
Yep. Yep. Job done. Now, the, because we are miserable journalists, we have to talk about stuff that can go wrong. The first big one is that this really is a bubble that we\u2019re seeing developing in AI. <\/p>\n

Now, you know what the, sort of, what cleverer investors say to me right now is: Listen, we don\u2019t know if this is a bubble. Even if it is a bubble, we dunno when it\u2019s gonna burst. We could have another month, we could have another year, we could have another five years before this thing goes wrong.<\/p>\n

So you don\u2019t know whether this is a thing that can go wrong, but everybody accepts on some level that there are some frothy elements here. So my expectation would be, not that the entire tech sector, you know, takes a huge hit, but that some of the sort of sketchier projects, some of the more sort of, you know, overly optimistic private equity or venture capital backed things are gonna fall over next year. There will be little accidents, but I don\u2019t think Nvidia, for example, is gonna get zeroed, right? This is a $4tn company and it will still be worth something in between, I would guess $3tn and $5 trillion next year at a complete, off the top of my head guess. So I don\u2019t think tech necessarily spectacularly blows up, but everyone accepts that I think it\u2019s time for a few little pullbacks, a few little drawdowns. <\/p>\n

Ian Smith
Yeah. Someone put it to me like there\u2019s gonna have to be proof points from AI next year. <\/p>\n

Robert Armstrong
That\u2019s a good way of putting it. <\/p>\n

Ian Smith
And the sense there is that you are gonna need some return on some of the capital that\u2019s been deployed, or that either people, ordinary people are gonna have to show that they\u2019re willing to pay for this technology or companies that it is really increasing their productivity in the way that the kind of proponents of the technology have advocated.<\/p>\n

I just wonder whether you do need proof points in something that is driven a lot by narrative and hype around particular stocks. You know, you might have some disappointments on projects. Will that stop kind of the broader stock rally? It\u2019s not kind of clear to me that it is. I think it\u2019s\u2009.\u2009.\u2009.\u2009what\u2019s more convincing to me is that something on the monetary side, and I know we\u2019re gonna come on to talk about, you know, the threat from inflation potentially. The expectations on the Fed to cut. If there\u2019s gonna be something that kind of kicks the legs from underneath the tech rally, you think it might be somewhere around the tightness of money by project not playing out. But yeah, I mean there are lots of red flags and so yeah. You know, are we in, you know, the dotcom era or are we something where like 1997 where people are starting to get worried about valuations, but then they go up for the next few years?<\/p>\n

Katie Martin
Yeah. It\u2019s worth remembering that when Alan Greenspan, who was the chair of the Fed when he talked about irrational exuberance and evidence of bubbles in markets, that was like years before this thing blew up. So we could be years away from any sort of reckoning here. <\/p>\n

Robert Armstrong
I think Nvidia\u2019s actually quite scary. Not because of any particular feature of its business model or the narrative around it, but instead just because of the number you just mentioned. Four points\u2009.\u2009.\u2009.\u2009it\u2019s a $4tn company. So let\u2019s say that goes down by 25 per cent because somebody else\u2019s chips turn out to be good, or there\u2019s not a proof point or something happens. So now $1tn have sprouted little wings and flapped off to money heaven, never to be seen again. And by the way, every active money manager in the world is overweight that stock. They have to be, because yeah\u2009.\u2009.\u2009.\u2009<\/p>\n

Katie Martin
If you\u2019re active, which means you\u2019re a stock picker, or if you\u2019re passive, which means you\u2019re tracking an index, doesn\u2019t matter. You are still up to your eyes in this thing. <\/p>\n

Ian Smith
And we\u2019re all on the AI train now, you know, as the point we kind of made, but you know, credit investors more now we\u2019re seeing some credit issuance coming through linked to the theme. They\u2019re asking the same questions about sustainability. A decent proportion of the US economic growth and like investment is tied up with this now. So the worry you would have is if you really start to get a slowing of some of that investment or some surprise on that, or you know, some external factor that questions that, then it has then that knock-on impact for the economic outlook, which also hit stocks. You know, that\u2019s maybe more the scenario. I would worry about, that double effect.<\/p>\n

Katie Martin
Yeah, so with the sort of caveat that we don\u2019t know if this is a bubble, and if we do, if it is, we don\u2019t know when it\u2019s gonna burst. Every investor and banker that I, and analyst that I speak to at the moment, accepts on some level that this is a possibility for at some point in the next few years, so, OK. That\u2019s big risk number one. Big risk number two is the macro, right? So everyone is assuming that, you know, hooray, inflation is defeated, inflation\u2019s coming down, and there\u2019s no need to worry about inflation anymore. So the US Federal Reserve can keep cutting interest rates. There\u2019s just something in the, in just tinkling away in the back of my head that says, yeah, but what if, because it turns out one thing that the economists and investors have been absolutely rubbish at for like the past five years is inflation, which is like, the market just keeps calling it wrong over and over and over again. What if it\u2019s wrong this time? I mean, like, Rob, to you, how big of a possibility is this? <\/p>\n

Robert Armstrong
Well, first of all, it\u2019s the people have been bad at calling inflation for a lot longer than five years, Katie.<\/p>\n

Katie Martin
Yeah. But especially though\u2009.\u2009.\u2009.\u2009<\/p>\n

Robert Armstrong
I always say this, but I don\u2019t think it can be said enough. Inflation is the thing everyone thinks they understand. And they really don\u2019t. Because there\u2019s always, there\u2019s all these really simple explanations of what causes inflation. Like when there\u2019s too much money chasing too few goods. And that sounds like, oh, now I understand. But it turns out to be a much more complex phenomenon and hard to predict and multi-faceted. And we don\u2019t really understand why we had the inflation burst that we did a couple of years ago, why it was so big, why it ended so quickly. So it\u2019s this big thing that we don\u2019t really have our arms around, but one thing we do know, Katie, is that historically inflationary incidents tend to bunch together.<\/p>\n

In other words, they show up in little packs and then they go away for a while. And so, you have to at least be open to the possibility that the story on inflation is not over. Which kind of brings us back to the bull case that everyone believes in for next year, which is that it\u2019s gonna be kind of monetary and fiscal nirvana. A burst of inflation just ruins that whole bull case because you can\u2019t have the fiscal and monetary stimulus under inflation. It doesn\u2019t work. <\/p>\n

Katie Martin
Yeah. And then again, like, so Rob and I were speaking to Adam Posen from the Peterson Institute about this just the other day on an earlier podcast. Listeners, do check that out if you missed it, but that inflationary risk is like very, very pronounced in a year when, you know, not to worry anyone or anything, but we do have a changeover at the top of the Fed. So the Federal Reserve chair, Jay Powell, he\u2019s due to step aside in May. He may find another slot inside the Fed somewhere, but kind of not really the point.<\/p>\n

We are going to have a new chair of the FOMC, which is the rate-setting committee at the Fed. Now, it seems likely to me that the Trump administration will seek to appoint someone into that position who\u2019s going to be of a mind with Trump about Trump\u2019s always been a low interest rate kind of guy, love low interest rates, so there\u2019s going to be pressure on this new Fed chair most likely to keep interest rates nice and low, keep borrowing costs nice and low, which is all well and good unless you have inflation either really digging its heels in or worse, kicking higher again. Because at that point, you have nowhere to hide, right? You have probably a stock market that doesn\u2019t like that much, and you probably have a bond market that doesn\u2019t like that much if the Fed is not willing to tap the brakes on.<\/p>\n

In that scenario, you have a 2022-style situation where there are no mainstream assets that are gaining in price and everyone gets completely hosed. This is not my central scenario, but this is a risk that I think people need to take pretty seriously. <\/p>\n

Robert Armstrong
And it all starts with inflation. <\/p>\n

Katie Martin
As ever.<\/p>\n

Ian Smith
Yes, and as you say, there\u2019s two ways that inflation is bad. One is that the Fed can\u2019t cut by the three or four times in terms of quarter percentage point cuts that the market is currently expecting. And then that has that ripple effect for your markets that you guys are talking about. And another is that the new Fed chair, you know, lead the pack there that doesn\u2019t respond to it in a way that makes people really worried about its ability to control longer run inflation like long-term inflation expectations have been well behaved this year, even with the worries around Fed independence. But that will get, that will come back up again if there\u2019s any signal that the new chair will not bear down on inflation or will be willing to run it higher or, you know, run interest rates lower than they need to be. <\/p>\n

Katie Martin
And then the dollar impact that we\u2019ve seen on global portfolios this year will be a walk in the park. You know, if we see a proper downdraft in the dollar, which I think you would see if you had a Fed that was not willing to tamp down on inflation, then we\u2019re in trouble. I mean, Rob, from your perch over there on the other side of the Atlantic, how is this situation looking to you? <\/p>\n

Robert Armstrong
There is a lot of noise about Kevin Hassett, who is now the heir presumptive to the throne of Jay Powell, being very much in the thrall of the president, not being the kind of person who will stand up to the president\u2019s demands for low rates. And I would like to make the following bold prediction, which is that it\u2019s gonna be fine at the Fed. I don\u2019t think it matters loads if it\u2019s Hassett or one of the other top candidates. <\/p>\n

Katie Martin
I\u2019m just writing this down so that I can timestamp it \u2014 Rob says it\u2019s fine. <\/p>\n

Robert Armstrong
OK. I\u2019m just saying that I think that once you\u2019re in that chair, you are\u2009.\u2009.\u2009. your eyes turn from the president and turn towards history, and you don\u2019t want to be Arthur Burns, the Fed chair who famously, from the decades ago, who famously led inflation run out of control. You\u2019re secure in your position. The markets exert a lot of pressure on you, not just the president. And I think it will be fine, you know. And I\u2019m also in general a bit of a sceptic about the power of the Fed. I think the Fed is sometimes\u2009.\u2009.\u2009.\u2009<\/p>\n

Ian Smith
That\u2019s OK because they\u2019re gonna take some of it away, Rob. <\/p>\n

Robert Armstrong
So, but look, I think it\u2019s important, don\u2019t get me wrong, all what, what I\u2019m saying is that in a lot of cases, the market leads and the Fed follows, rather than the other way around. And we attribute a lot of powers to the Fed because it sort of makes the universe look like a simpler place when there is a group of women and men in a room pulling a lever that is controlling the economy. But it ain\u2019t really like that. So I don\u2019t think Hassett will make a massive mistake with inflation, and I don\u2019t think the Fed is as powerful as people generally say anyway. What I\u2019m saying, Katie, is I\u2019ve given you tons of opportunities to make fun of me when I turn out to be wrong about this next year.<\/p>\n

Ian Smith
I mean, it\u2019s such an interesting question. Yeah. It\u2019s a rationalisation that I hear a lot from international money managers. Yeah. It comes down to, yeah. When they are in the seat, do they make decisions based on their view of economic growth and inflation? Or do they succumb to political pressure? And you have the question live now already with Stephen Miran.<\/p>\n

Katie Martin
One of the Trump appointees to the Fed. <\/p>\n

Ian Smith
You know, are, is he currently making decisions based on his, you know, deeply held economic beliefs as he said? Or is he calling for lower interest rates because he knows that\u2019s the job he\u2019s supposed to do? And it\u2019s definitely something that divides international investors, you know, and the worry is that there is an economic veneer that is very convincing. But really we know what decision they\u2019re gonna be taking. And I just think\u2009.\u2009.\u2009.\u2009<\/p>\n

Robert Armstrong
Ian, though, you have to keep in mind there\u2019s a big difference between being a member of the committee and being the chair. If you are the chair and you cut rates in the face of rising inflation, you will spend the rest of your days on Earth as the butt of people\u2019s jokes. You will hear about nothing for the rest of your life. <\/p>\n

Ian Smith
It will turn up at your house on a Saturday morning. <\/p>\n

Robert Armstrong
Yeah exactly. It\u2019ll come to your house with a bullhorn. And so it\u2019s gonna be the first line in his obituary and he\u2019ll tough it out. <\/p>\n

Ian Smith
I agree with you on that. And also, you know, the 10-year, you know, looking at the 10-year US Treasury, you know, it\u2019s down from the start of the year. It\u2019s hard to look at the market now and say there are huge worries around this, but yeah, we have seen a steepening in the yield curve, so long-term rates rising faster and then short-term rates. And we have had, outside of the US, wobbles in big bond markets such as France and to a degree, Japan\u2019s coming on the radar now where people are saying, well, you know, that\u2019s maybe signs of things to come at the long end of government yield curves that there could be some like sources of volatility there. But yeah. Rob, I take your point. <\/p>\n

Katie Martin
So that\u2019s a nice segue there, Ian. Thank you. So two main risks so far are: AI goes pop, inflation goes bang. These are the two things you really need to worry about. But there are other things that could upset the apple cart and people are feeling incredibly optimistic about next year.<\/p>\n

One of them is like, weirdly, as you mentioned, the Japanese government bond markets. So it\u2019s certainly starting to look like the Bank of Japan is raising rates a little bit too slowly for the markets liking and inflation. Like there\u2019s been no inflation in Japan for like ever, and now suddenly they\u2019ve got quite sticky inflation. It looks like the Bank of Japan is raising rates a little bit too slowly to deal with that. And so what you\u2019re seeing is some long-term Japanese government bond or short-term, even Japanese government bond yields are kicking higher. That matters globally because at a certain point, Japanese investors are not gonna see the rationale of putting money to work overseas.<\/p>\n

They\u2019re just gonna stay at home. And Japan is a massive buyer of US, UK, European loads of different types of different government bonds. This has been flagged as a risk to like global macro for years and years and years and years. But now when people talk to me about it, they\u2019re a bit more like, I think this could actually be on, you know, like maybe it is time for Japan to really forcefully step back from global debt markets. Ian, you speak to a lot of debt investors. How seriously are they taking this? <\/p>\n

Ian Smith
Yeah, very seriously. We saw times earlier in the year, April, May, where there was kind of weak auctions of long-dated Japanese government debt that added to people\u2019s anxiety that there\u2019s maybe this glut of long-term debt, that there aren\u2019t the buyers that there once were pension funds and life insurers might not need as long-term debt as they once did. And at the same time, governments are issuing record amounts and there might be a bit of a supply-demand problem for very long-term debt. And Japan, as you say, if yields rise to points where people don\u2019t want to invest or pull money home from, you know, Eurozone government debt, for example, and invest it at home, then it\u2019s like taking another kind of guaranteed buyer out of other international debt markets that are experiencing some of the same dynamics.<\/p>\n

And I think that\u2019s compounding it in Japan is a new prime minister who came in presented as, you know, Margaret Thatcher of Japan and one fund manager put it to me the other day is kind of put in a Keynesian policy. So in some ways the market, you know, the spending announcements that have come through are way more than some\u2009.\u2009.\u2009.\u2009what some in the market were expecting.<\/p>\n

So you\u2019ve kind of got this free-spending governments theme at a time where long-term bond yields are already quite high. And in the UK the 30-year is higher since 1998 this year. So you\u2019re seeing some dramatic kind of moves higher, or at least a kind of gradual shift higher. And it\u2019s just something to be looked at next year. It could be a source of volatility in markets outside of Japan where government bond yields just hit a level where it drags, you know, it remunerates people more and drags people out of risky assets like stocks. Or Japan, as you say, you might see that repatriation of capital. <\/p>\n

Katie Martin
The other like potential curve ball that I think we do need to keep a little bit of an eye on this coming year. And I hate to say it, it is crypto because I\u2009.\u2009.\u2009.\u2009it\u2009.\u2009.\u2009. we\u2019ve seen a big pullback in bitcoin prices over the past few weeks, and that has tended to coincide, you know, here and there with pullbacks in riskier bits of the stock market. What you\u2019ve got here is a market that is dominated by retail investors in crypto, and they\u2019re the same people who were dominating large parts of the US stock market, for example.<\/p>\n

So I don\u2019t think it\u2019s impossible that you see wobbles stemming from the crypto market leak through into more established markets like stocks in a way that I just think is worth keeping an eye on over the course of this year. Like, Rob, what\u2019s your take on that? <\/p>\n

Robert Armstrong
I think Adam Posen, to invoke his name again, was very good on this, making the point that the crypto markets are very much entangled with the US debt markets at this point, that the stablecoins link short-term Treasuries to basically the whole crypto ecosystem. So there, we know there is some connective tissue between what I think of as the real world and the fake world of crypto. And so I don\u2019t know how that\u2019s gonna play out. But I\u2019m just, I\u2019m agreeing with your point that crypto world is connected to the other parts of the market now in ways we\u2019re gonna discover possibly the hard way. <\/p>\n

Ian Smith
Yeah, I think those are the two links. Few stablecoins, but also as you say, the kind of retail link between crypto and stocks, you know? And it does feel like from some of the market moves and speaking to investors. Recent sessions where you\u2019ve seen stocks sell-off with crypto, they\u2019ve talked about that kind of liquidity link between the two. Whereas, you know, if they need, if they\u2019re getting margin called, because they\u2019ve made, kind of bought crypto and margin and what do they sell? They sell some of the stocks they\u2019ve bought. It\u2019s not, it\u2019s a plausible kind of causality. That does seem to be happening.<\/p>\n

Katie Martin
Yeah, so we do need to watch it. One final thought to leave you with, because I think we\u2019ve covered a lot of ground about what\u2019s likely to happen next year is one thing that is worrying me slightly at the moment is that I can\u2019t find anyone who\u2019s taking the other side of this. Everyone agrees with everybody else. That is generally not a good sign in markets. So even Albert Edwards at SG, the French bank, he\u2019s like, he\u2019s a perma-bear. He\u2019s always bearish. And I was just reading his latest note and he was saying: Look, I do think this is going to be horrible and I do think it\u2019s all gonna fall over and I think stocks are overvalued, but, and I quote, I struggle to see an imminent macro trigger for a major bear market. <\/p>\n

Ian Smith
It\u2019s the capitulation worries. You know, when you start to see those signals, right? It\u2019s what, when people start to say, well maybe the price-to-earnings ratio should just be higher than it has in history, you know? So, you know. And you saw in the dotcom is it like per click, like, you know, new valuation metrics come through, you know.<\/p>\n

Katie Martin
So when the bears, you know, when the pessimists are slightly throwing in the towel, there\u2019s a part of me that thinks: I don\u2019t know, man. I feel like I\u2019ve seen this movie before and it did not end very well. So yes, if you can\u2019t find any pessimists, that can be alarming f you are a listener and you are a pessimist, feel free to drop us a line unhedged@ft.com. But we are gonna have to be back in just one sec with Long\/Short.<\/p>\n

[MUSIC PLAYING]<\/p>\n

Okie doke. It\u2019s time for Long\/Short, that part of the show where we go long a thing we love or short a thing we hate. Ian, last time I asked you this, you came out with a long list of animals. What have you got this time? <\/p>\n

Ian Smith
I\u2019m going to, I\u2019m gonna go short a thing I love, which is, it hurts me to say this, but I think K-Pop Demon Hunters might have reached its peak in terms of its grip on the world\u2019s children and young adults. <\/p>\n

Katie Martin
I still don\u2019t really understand what it is.<\/p>\n

Robert Armstrong
And I think you, you\u2019re not allowed to know. You\u2019re too old. You\u2019re not allowed. <\/p>\n

Katie Martin
I\u2019m not too old. <\/p>\n

Ian Smith
You know what the Taco trade is, but you dunno what K-pop Demon Hunters is. So I mean\u2009.\u2009.\u2009.\u2009<\/p>\n

Katie Martin
Sorry, sorry. I\u2019m very old and very square. <\/p>\n

Ian Smith
Well, this is an excellent film based on a South Korean pop group who are demon hunters, an animated movie and it\u2019s got incredible songs and like, my children are addicted to it, and now all parents are addicted to it who have young children. It\u2019s just been incredible hype. Kind of think Frozen on steroids. But I feel like we\u2019ve reached the peak. <\/p>\n

Katie Martin
OK. It\u2019s a good one from Ian. And he\u2019s younger than us, Rob, so he\u2019s more down with the kids. What have you got, Rob? <\/p>\n

Robert Armstrong
I am gonna do a real old-man long, which is I think 2026 is gonna be a good year for the kind of fuddy-duddy, old man stocks that I like. Quality businesses, value businesses that are businesses that are steady, have high returns, aren\u2019t growing really fast, that\u2019s been a neglected class of stocks much of this year. And if any of the bad stuff that we talked about on this show happens, these kind of solid producers are gonna do well. So quality, value, the stuff I grew up with, I\u2019m long it all. <\/p>\n

Katie Martin
One funny thing that people often say to me is that like, you know: Yes, we like the AI trade, but within that we want to buy quality. And I\u2019m like: What, do you normally just buy like any old rubbish, like this is just like slightly silly, but I do take your point nonetheless.<\/p>\n

I am going to be long of buying the dip. Like say what you like about this as a dumb strategy, but I\u2019ll tell you what: it works. Like it worked really well for people this year in 2025. It\u2019s been a consistent strategy for retail investors who are wiping the floor with the professional as usual. So yeah, you know, if you find a dip. This is not investment advice. And if it was investment advice, as I always say, it would be terrible. But buying a dip works for people. <\/p>\n

Ian Smith
So you\u2019re saying Rob was right all along? Sounds like a bit like that. <\/p>\n

Katie Martin
No, I\u2019m not saying that. Yeah. No, I wouldn\u2019t go that far. Definitely would not go that far. OK. That is all we have time for today. Ian and Rob, thank you so much, listeners, especially those who\u2019ve come through the FT Boardroom event, thanks for sticking with us. Hope you\u2019ve enjoyed the show. We\u2019ll be back in your ears on Thursday, so listen up then.<\/p>\n

[MUSIC PLAYING]<\/p>\n

Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. Topher Forhecz is the FT\u2019s acting co-head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler. FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com\/unhedged offer. I am Katie Martin. Thanks for listening.<\/p>\n","protected":false},"excerpt":{"rendered":"This is an audio transcript of the Unhedged podcast episode: \u2018Can 2026 match 2025?\u2019 Katie MartinIt\u2019s the most…\n","protected":false},"author":2,"featured_media":311709,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,1294,56,54,55],"class_list":{"0":"post-311708","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-uk","11":"tag-united-kingdom","12":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/311708","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=311708"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/311708\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/311709"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=311708"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=311708"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=311708"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}