Hello reader, welcome to the latest issue of HX Weekly!

Each week we bring you a new edition of HX Weekly that includes three distinct sections.

In the first section, Thoughts on the Market, we'll offer insights into current economic and market news.

In the second section, HX Daily Redux, we'll revisit investing concepts, tactics, and more from past issues of HX Daily.

And in the third section, Market Wizard’s Wisdom, we’ll share thoughts, quotes, and theories from the greatest investing minds of all time.

Now, let's dive in!

Thoughts on the Markets

2026: The Leaders, the Laggards, and a Wild Card

Today we are re-sharing Enrique’s article he wrote for Paradigm’s Truth and Trends on Monday about his out-of-consensus views for 2026.

It’s the first full trading week of 2026, and prediction season is in full swing.

To kick off the new year, I wanted to share some of my surprise predictions for the next 12 months.

Like stock picking, predictions are all about probability. There are no guarantees.

What I’m presenting here are some out-of-consensus views that I think aren’t just possible — they’re probable.

Outcomes that, if they happen, are going to surprise a lot of folks.

And I don’t want you to be caught off guard. So here we go…

The Mag 7 (Barely) Underperform

It’s been an incredible few years of outperformance for the Mag 7. Below is a chart showing how these leading stocks performed over the past three years.

After surging 75% in 2023 and rallying another 60% in 2024, the Mag 7 finished last year with another solid return of over 20%.

But 2025 was the year these stocks outperformed the least, with half of them underperforming the S&P 500’s 17% return.

I think 2026 will be the first year in a long time that these stocks underperform as a group. But I don’t think it bodes as badly for stocks overall as you may think.

The root of the underperformance is going to be Nvidia and issues around the growth and development of AI.

At some point in 2026, I think OpenAI will run into difficulties getting the financing for its trillion-dollar buildout. Ultimately, I think there’s no chance they get as much as they need.

When this happens, we will see a major scare in everything AI. But after this steep selloff, I still believe the AI rally continues.

How can this happen?

Well, AI is much bigger than OpenAI. The company may be relegated to “Netscape” status, but the other leading companies (including some of the Mag 7) will be big beneficiaries.

They will benefit as AI revenues ramp, their existing businesses continue to perform, and (most importantly) they slow down their capital expenditure, allowing their cash flow to explode higher.

The bad news? Nvidia is where all that money was going.

By the end of this year, I think the OpenAI crash and Nvidia’s decline will keep the Mag 7 from outperforming the market as a group.

But I still think several of the Mag 7 are going to be incredible opportunities.

Small Caps Finally Outperform

In the long term, I’m not a fan of small-cap stocks. They’re sub-scale companies with inferior balance sheets and more exposure to variables like inflation, interest rates, and commodities.

But right now, they have undemanding valuations. Look at this chart showing the valuation of the mid-cap stocks over the last few decades. 

Valuations are back down to relative levels last seen in the late 1990s.

Back then, we saw a rotation into technology leaders (think today’s Mag 7), causing increased multiples in those stocks and lower multiples in everything else.

With an acceleration in non-AI economic growth and lower interest rates, I think the setup for smaller stocks is superb.

Remember that in 2000, the S&P 500 was down 9% and the Nasdaq was down 40%. But the Russell 2000 was only down 4%, while the equal-weight S&P 500 was up 12%.

We don’t think the major indices will be down as much as they were in 2000. But the outperformance of smaller stocks could be just as much.

Rates Matter Again (But Not Inflation)

For the last several years, I have maintained that neither interest rates nor inflation mattered much to the stock market.

The reason was simple: neither was doing very much. After some big moves post-COVID, both have been in relatively narrow ranges.

Remember the important thing with inflation and interest rates is if they are moving a lot quickly (they have not been) or if they are at high absolute levels (they are not.)

Here are the charts of the yield on the U.S. Government 10-year benchmark bond and the leading measure of inflation (the Consumer Price Index or “CPI”)…

Interest Rates: U.S. Government 10-Year Bond Yield

Inflation: Year-Over-Year Change in Consumer Price Index

Both rates and inflation have been going down for a while now. Perhaps not as much or as fast as some would like, but they are definitely going down.

This has been a tailwind for stock prices in the last couple of years, but not a major driver. I think that changes in 2026.

I think that the combination of weakening employment, a new Fed Chair, political pressure from Trump, and the OpenAI crash will lead to the Fed cutting rates — a lot.

How much? We could see -100bp to -150bps in the next 18 months. This will be substantial enough to have a major impact on stocks.

I think it will help stocks recover from the AI volatility and then could be the rocket fuel for a 1999/2000-type blow-off top.

Get ready for a wild ride! Speaking of which…

The Market Gets Volatile — But Ends 2026 Up

I think we will see volatility return to the stock market this year. But I also predict the market indices will be higher by year-end.

They could be substantially higher if the long-awaited melt-up materializes. That event could wait until 2027, though.

Either way, I think the combination of earnings growth, economic growth, and lower interest rates means stock prices move higher this year.

There has never been a prolonged stock market selloff without the Fed raising rates. Until they are ready to do that, stocks will continue to go higher.

The difference between this year and recent years may be volatility.

I think that 2026 could look like 2025, but with the “OpenAI-pocalypse” replacing the “Trump Tariff Tantrum” as the mid-year catalyst.

Given the market capitalization of leading AI stocks like Nvidia, this means the indices could move a LOT.

When looking at the direction of the stock market, you really want to focus on earnings. If earnings grow, then the stock market is likely to go up.

Here is a table from Charlie Bilello that demonstrates this point.

On the chart, you can see that there’s a high correlation between growth in earnings at the S&P 500 and price performance. Valuation didn’t really matter.

Next year could get pretty scary, but with continued growth and materially lower interest rates, stocks go higher.

Unfortunately, so will volatility.

Bitcoin Hits $250k

As you may recall, I made this same prediction last year. It was the only 2025 stock market prediction that I got wrong.

Although it feels further away than ever, I think 2026 is the year it will finally happen.

Lower interest rates, economic and earnings growth, and risk assets driven higher by increased liquidity can lead to explosive growth in cryptocurrency prices.

A move to $250k seems like a lot. But I think Bitcoin is headed to $1 million in the next few years, so this is just a step on the journey.

I may be right, or I may be proven wrong. But never let it be said that I’m afraid to take a stance on the market!

Hopefully, this will make you think about what’s possible out there.

Now let’s go out and make some money!

HX Daily Redux

The Case for a 2025 Market Melt-Up

Now that you’ve read Enrique’s surprise predictions for 2026, we want to re-share the case we set out last year. The market didn’t melt-up but had a very a good year up 17%, and we still think the case for a melt-up exists for 2026.

Prediction season is upon us!

Over the past week, I shared 10 scenarios that could shock investors and the market in 2025. To be clear, I view the list as a set of likely surprises, not predictions.

They’re events that I strongly believe could happen — but will catch most investors completely off guard.

Today, I wanted to dive deeper into one of those surprises.

In my view, the stock market will be up again in 2025 — either by a lot or by a little — but NOT down, like many anticipate.

Allow me to explain.

Stocks Will See Green

The outlook is simple. Stable(ish) interest rates and stable(ish) inflation, along with positive economic growth and corporate earnings growth, will push the stock market higher.

If I’m wrong about any of those four variables in a big way, then the outcome will be different. For now, though, I think this is a reasonable view.

The idea that the market might be up by a little is probably most folks' base case, and I agree.

Here’s a chart from our friend Ryan Detrick at Carson Group showing the history of bull market performance by year.

You can see the third year of a bull market is usually the most difficult.

A choppy stock market in 2025 makes a lot of sense. After two strong years (and quite a few political and economic crosscurrents), it would seem to be the consensus.

But what if this is wrong?

This gets back to our conversation about a potential “melt-up” in the stock market.

The Trend Is Your Friend

Most investors see the stock market up by a lot and expect that trend not to continue.

That’s not how the stock market works in the intermediate term, though, as the biggest rallies in history have happened in succession.

Below is a pair of great charts from Bespoke Investment Research. The first is a little busy, but it shows the performance of the Nasdaq Composite after the introduction of major new technologies.

Think of the introduction of Microsoft DOS back in 1981, the launch of the first major internet service provider, America Online, in 1991 and the iPhone in 2007. Significant technological advances that changed the world.

Here’s the chart, along with one specific example highlighted underneath.

This shows how artificial intelligence and ChatGPT compare to some of the big, game-changing trends of the past.

So far, ChatGPT looks most similar to the introduction of Netscape back in 1994.

While the internet first burst onto the scene in the late 1980s and early 1990s, it wasn’t until the consumer-facing and user-friendly Netscape browser was introduced that it became widely known among consumers.

This is similar to what has happened with AI and ChatGPT. Developments in AI have been happening for years, but ChatGPT brought it to the mass market.

Based on the above charts, you can imagine the potential upside in the stock market.

The S&P 500 was 24% in 2023 and 23% in 2024. Can buyers sustain a double-digit rally in 2025?

While the third year of a bull market is usually difficult, there’s something special about having two solid 20%+ years in a row…

Strength Begets Strength

Here’s another table from Detrick showing how the stock market has performed after two back-to-back 20% years…

Getting two strong years like that is pretty rare and has only occurred four times since 1950.

All four times, the market has been higher the next year. This adds to my conviction that the stock market will not finish the year lower.

The average gain has also been strong, with only 1954 coming in with the “up a little” scenario. The other years in the late 1990s averaged over a 25% return.

I am confident THAT outcome is not in the consensus!

Here’s a quick table showing that period from the late 1990s that I referenced above…

Will this happen again? I can’t say for sure, but being open to the idea is a good strategy.

I challenge myself every day to be prepared for the downside. However, being prepared for unexpected upside also makes a lot of sense.

Market Wizard’s Wisdom

Psychiatrist to the Market Wizards

One of the great aspects of having worked on Wall Street for so many years is the experience of having met so many smart and talented people.

Several decades ago, I had the opportunity to have a very unusual meeting. One with a brilliant psychiatrist who was most interested in – me!

His name was Ari Kiev.

Kiev was a native New Yorker who eventually headed the department of psychiatry at the University of Cornell. While his original focus was on suicide-prevention, his background as an athlete led him to a focus on sports psychology. He was one of the early pioneers in this field.

Understanding the psychiatry of performance led to one of the most famous hedge fund managers of all-time – Steve Cohen of SAC Capital (now Point72) – hiring him to coach his staff. Many of the same challenges that faced Olympians faced traders, and Ari dove in to figure out how to help them.

He eventually authored four books about stock trading. You can see them all here and we encourage you to buy them…

I had the pleasure of meeting Ari in the early 2000s when he reached out to me about the success of our hedge fund, Stadia Capital. We were one of the youngest teams of managers to ever reach $1 billion of assets under management, and he wanted to speak with me.

I fondly remember spending several hours with Ari and – while his goal was to learn what made us successful – the truth is, I learned just as much from him.

As a psychiatrist, Ari’s focus was as much on life as it was on Wall Street, and here are some great quotes of his from across the years.

Enjoy!

He packs a LOT into this quote, and Steve Cohen’s influence is evident.

Cohen is known for his “mosaic” approach which says that there are many variables in a successful trade, and they can be different for each trade. While there are always consistent variables, some become relevant at a specific time.

Part of building the mosaic is having great access to information. The successful managers of the 1990s had a huge advantage in this area. Remember, this was essentially before the internet.

Ari also references the idea of new ideas and taking recommendations. An openness to learning from other talented managers is a key to success. Almost all of my best ideas came from other smart people.

Finally, “…the ability to correct your habits…” is probably the most powerful quote he ever said. An ability to learn from your mistakes is vital to survival in this business.

What Ari describes here is the development of a real PROCESS.

A routine that is repeatable and adaptable. One based on data and experience.

Importantly, he once again focuses on the “mosaic” where this process needs to have many aspects. Not just fundamentals. Not just technical analysis. Not just psychology. ALL OF IT.

This is great advice for both investing as well as life.

With the flood of information that we all face in the modern world, it can feel overwhelming to figure out how to make successful trades.

One of the keys is to figure out exactly WHAT is your goal.

Is it capital appreciation? Income? Short-term profits?

Once you set your objective, then you can focus your short-term plan and properly digest the information.

In recent years, I have thought about this concept a lot.

As you get older, you realize that life isn’t about sudden moments where you achieve a goal. It is about consistent, thoughtful action with a goal in mind.

Then “when” it will happen is often unknown, but the “if” is something you can influence through your discipline and process.

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].