# Why 2026 Will Be a Volatile, Politically Driven Market w/ Mel Mattison Source: https://www.youtube.com/watch?v=dOJ_s0syXnM Recap page: https://rapidrecap.app/video/dOJ_s0syXnM Generated: 2025-12-30T16:12:02.766+00:00 --- ## 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. ## Detailed Analysis Mel Mattison projects that 2026 will be defined by necessary liquidity injections, essentially QE, which the Treasury may execute by buying 10-year notes and issuing bills, signaling a move toward lower rates, potentially near 3%, as the Fed becomes more dovish post-April QT conclusion coinciding with a new Fed chair in May. He warns that broad market indexes (S&P, NASDAQ) will likely stagnate or see modest gains, making 2026 a stock-picker's year featuring frequent 5-10% pullbacks, favoring the equal-weighted S&P 500 over the cap-weighted index, and strongly recommending emerging markets like Brazil (EWZ) which has shown triple the performance of the S&P. In technology, the AI trade will evolve from infrastructure buildouts, constrained by power, toward identifying companies that achieve margin expansion through AI adoption, citing Capital One as an example of targeting large call center expenses. Regarding crypto, Bitcoin is recovering from the severe October 10th market structure break, and potential catalysts include announcements regarding the sovereign wealth fund in Q1. Finally, Mattison sees tokenization as a fundamental rewrite of financial plumbing, ensuring the collateralization mechanisms used by clearing houses like the DTCC persist, though its direct impact on retail investor pricing remains unclear. ### 2026 Macro Outlook - Volatility expected with 5-10% pullbacks common - Broad indexes to underperform - Stock picking becomes essential - Government needs lower rates due to $970-980 billion interest expense. ### Federal Reserve Policy Path - T-bill purchases signal need for liquidity; Fed will become more dovish, focusing on employment - Rate cuts anticipated in 2026, moving rate closer to 3% post-April QT end. ### Investment Themes for 2026 - Emerging markets like Brazil (EWZ) offer triple the performance of the S&P - Equal-weight S&P 500 favored over cap-weighted due to focus on cash-flow positive mega caps. ### AI Trade Evolution - Shift from infrastructure spending (data centers facing power constraints) to margin improvement in established companies (e.g., Capital One automating call centers) - SpaceX IPO potential in 2026 could drain some AI investment funds. ### Crypto Market Structure - October 10th event devastated market makers, causing a slow recovery in the crypto complex relative to equities - Potential catalyst: Sovereign wealth fund announcement in Q1 could restoke animal spirits. ### Financial Infrastructure Shift - Tokenization is coming, driven by DTCC and BlackRock; aim is to maintain collateralization infrastructure behind the scenes - This shift opens up potential for more 24/7 trading but may not significantly alter security prices for the retail user.