Why 2026 Will Be a Volatile, Politically Driven Market w/ Mel Mattison

Quick Overview

Mel Mattison predicts that 2026 will be a volatile, politically driven market characterized by necessary liquidity injections, likely taking the form of Quantitative Easing (QE) orchestrated by the Treasury buying longer-term notes and issuing bills, while the broad indexes like the S&P and NASDAQ will underperform, making it a stock-picker's market favoring areas like emerging markets and equal-weighted indices.

Key Points: The market will likely engage in Quantitative Easing (QE) in 2026, potentially involving the Treasury increasing buybacks of 10-year notes and issuing bills, which is "more or less the same thing" as direct Fed buying. Mattison anticipates further Federal Reserve rate cuts in 2026, moving the rate closer to 3%, driven by a more dovish Fed willing to focus on employment after the new Fed chair takes office in May. 2026 will be a "stock pickers market" where broad indexes like the S&P and NASDAQ will not have spectacular years, expecting common 5% to 10% pullbacks. Emerging markets, specifically Brazil (EWZ), are strong plays, having already gained 49.57% year-to-date compared to the S&P's 15% to 18%, with Mattison increasing exposure after a recent dip. AI-related trades will shift from building infrastructure to identifying margin improvement opportunities, exemplified by trades like Capital One, which allocates significant expense to call centers that AI can automate. The October 10th event marked a shift into a higher volatility, rockier regime, evidenced by the Bitcoin complex recovering slower than equities due to devastation among crypto market makers from instant 80-90% coin drops. Tokenization will be a major shift in financial infrastructure, driven by entities like the DTCC and BlackRock's Larry Fink, potentially opening up 24/7 markets, but likely will not significantly affect security prices for the end-user.

Context: The interview on Milk Road Macro features host John Gillan and guest Mel Mattison, a fintech executive with over 20 years of experience, discussing market takeaways from 2025 and forecasting conditions for 2026. The discussion centers on Federal Reserve policy, the impact of political dynamics (including the upcoming administration's focus on housing), the volatility stemming from the AI trade, and structural shifts like tokenization, all set against a backdrop of high government debt and lower-than-expected liquidity in late 2025.