2026: Trump's dream year?
I think the bull case for Trump in 2026 is meaningfully more likely than the market implies, though still far from assured. My estimate is that there is roughly a 38% chance the favorable Trump-and-markets narrative remains intact through 2026.
Analysis
The core argument for Yes is that the relevant “bull case” does not require perfection; it mainly requires the continuation of a recognizable pro-growth market narrative. The recent backdrop still includes strong equity performance, AI-led capital spending, resilient corporate earnings, and substantial buybacks, all of which can keep the Trump-era market story alive even if politics remain noisy. History also offers some support for the idea that late-cycle or second-term political periods can still be market-friendly when investors expect policy gridlock rather than major disruption.
At the same time, the case is fragile because the market is already expensive and depends heavily on a narrow set of supports. Elevated valuations, especially if rates stay high or rise further, make the equity bull case vulnerable to any disappointment in earnings, liquidity, or growth. The legal and political setbacks described in the news are not necessarily fatal to the market narrative, but they do increase the odds of volatility, which is often enough to interrupt a clean “bull case” outcome if the question is interpreted as sustained favorable momentum rather than a brief rally.
Compared with the current market price, I think 4% is too low. The market appears to be pricing in something close to near-impossibility, but the news flow does not justify that level of certainty against Yes: there is still a credible path where AI strength, earnings durability, and investor tolerance for gridlock keep the bullish Trump narrative dominant through 2026. I do not think Yes is the most likely outcome, but the combination of strong structural market support and limited evidence of an imminent collapse makes this look materially mispriced on the low side.
Arguments
For
- Arguments for Yes: The post-2024 market rally gives the bull case an existing foundation, so it does not need a fresh catalyst to persist.
- Arguments for Yes: Historical patterns and investor comfort with divided government can support the idea that gridlock is not necessarily bad for markets.
Against
- Arguments against Yes: Valuations are stretched enough that even a modest macro or earnings disappointment could end the bullish narrative.
- Arguments against Yes: Fed tightening or rising rates would directly pressure the risk assets that underpin the bull case.
Key drivers
- AI-driven earnings and capital expenditure can keep equity performance strong enough to sustain the bull narrative.
- High valuations make the outcome sensitive to any rate shock, growth slowdown, or policy disappointment.
Risk factors
- If the Federal Reserve remains restrictive, higher financing costs could quickly undercut the market story.
- Legal or political setbacks could increase uncertainty and trigger a correction even without a broader economic downturn.
Scenarios
Best case
Equities keep advancing on AI spending and strong earnings, rates stabilize, and the Trump-era market narrative remains broadly positive through 2026 despite political noise.
Most likely
Markets remain volatile but not catastrophic, with intermittent gains and setbacks; the bull case survives in parts, though not with the uninterrupted strength needed to feel unequivocal.
Worst case
A valuation reset, tighter monetary conditions, or a policy/legal shock triggers a broad market correction and the bull case clearly fails.
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