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In-Depth Research Analysis:
1 Executive Summary:
Core Thesis: Liquidity Support, Efficiency is King, and Hard Asset Hedging
Looking ahead to 2026, the US financial market finds itself at the center of an unprecedented macroeconomic tug-of-war: on one side lies unsustainable structural debt pressure (with total national debt surpassing $36 trillion and interest expenses approaching $1 trillion), while on the other side sits a short-term pulse of extreme liquidity abundance (an estimated release of approximately $7500 billion via fiscal and policy stimulus).
Under the tension of these two forces, we believe the market in 2026 will exhibit three core characteristics:
1. Macro Environment: A "Liquidity Feast" Under a Debt Overhang
Despite looming long-term debt risks, the short term will likely see a robust injection of liquidity, driven by potential fiscal stimulus legislation, tariff policy adjustments, and TGA (Treasury General Account) releases. This environment will highly likely support nominal prices of risk assets but simultaneously exacerbates the long-term fragility of the USD credit system. The market will oscillate between a "Goldilocks" scenario (high growth, low inflation) and a "Liquidity Squeeze" scenario (high growth, high inflation). Regardless of which scenario plays out, the implicit cost of holding cash is rising sharply.
2. 2025 Retrospective: From the "Illusion of Broad Rallies" to "Asset Bifurcation"
Reviewing 2025, the market did not deliver the comprehensive bull market that optimists anticipated; instead, it demonstrated extreme "K-shaped" divergence. Capital no longer blindly chased all risk assets but concentrated heavily on sectors with "high-conviction growth" (primarily AI infrastructure). This trend indicates that against a backdrop of ample liquidity but persistent macro uncertainty, capital is not the scarce resource—quality assets capable of delivering on earnings expectations are.
3. Investment Themes: Shifting from "Grand Narratives" to "Return on Invested Capital (ROIC)"
Entering 2026, the investment logic for the US tech sector will undergo a qualitative shift. The market will no longer pay a premium for grand AI visions; instead, we are entering a strict "Performance Verification Phase."
- Equity Strategy: Focus on "Capital Efficiency." Prioritize companies that can overcome the "CapEx Paradox"—efficiently converting massive capital expenditures into high-margin software/service revenue—as well as upstream "pick-and-shovel" players with monopolistic pricing power. Maintain high vigilance regarding assets where valuation has decoupled from growth or where core businesses face structural challenges.
- Asset Allocation: Adopt a "Barbell Strategy." On one end, allocate to high-efficiency tech growth stocks to capture alpha; on the other, overweight hard assets (Gold, Copper) to hedge against structural USD weakness and potential reflation risks. Concurrently, we recommend underweighting long-duration US Treasuries to avoid valuation pressures stemming from fiscal deficits.
Conclusion: 2026 is not a year for "blind buying," but a year requiring granular selection. Investors should leverage the opportunities presented by the liquidity feast to optimize portfolio structures, embracing "High-Efficiency Growth" and "Hard-Credit Real Assets."
2. Macro Environment Deep Dive: A Liquidity Feast Under the Shadow of Debt Overhang
The macro narrative for 2026 is not a simple binary of "recession" or "recovery." Rather, it is a tightrope walk performed between fiscal limits and monetary illusion. Investors must grasp the "Impossible Trinity" currently facing the US economy: the struggle to simultaneously maintain high deficit spending, control inflation expectations, and preserve the creditworthiness of the US Dollar.
2.1 The Endgame of the Debt Cycle: From "Unrestrained Borrowing" to "Interest Crowding-Out"
The US debt issue has transitioned from a "long-term concern" to an "immediate pain point."
The Oppression of Absolute Scale: By the end of 2025, the total US national debt has breached the $36 trillion mark. Even more alarming is the slope of debt growth—the deficit ratio remains at a high 6%-7% of GDP during a non-recessionary, non-war period. This represents a level of fiscal indiscipline rarely seen in history.
The "Black Hole Effect" of Interest Expenses: As the rollover of existing debt into higher interest rates completes, the US government's annual interest expense is rapidly approaching, or even exceeding, $1 trillion—a figure that now surpasses the national defense budget. This implies that a significant portion of every new dollar of tax revenue must be used to service old debt interest rather than being invested in productive sectors.
Market Implications: This "Ponzi-like" characteristic of borrowing new money to repay old debt dictates that long-end US Treasury yields will struggle to decline significantly. Structural "High for Longer" long-term yields will become the norm, creating permanent pressure on the denominator side of all asset valuation models (DCF).
2.2 The 2026 Liquidity Pulse: The Last Hurrah?
Despite the looming debt clouds, the first half of 2026 is highly likely to witness a "liquidity feast" driven by policy. This is not derived from endogenous economic growth, but from artificial policy intervention.
The $750 Billion "Flood" Expectation: We project that through the release of the TGA (Treasury General Account) balance following debt ceiling adjustments, potential tax cut extension bills, and the final draining of the Reverse Repo (RRP) facility, the market could see a liquidity injection of approximately $750 billion within a short window.
The Monetization Impact of Tariff Policy: If the new administration pushes aggressive tariff policies, while this may drive up import prices (inflationary pressure) in the short term, the increased fiscal revenue could be used as leverage for tax cuts. This effectively releases more nominal purchasing power into the private sector via tax reduction.
The Federal Reserve's Predicament: In an era of Fiscal Dominance, the Fed's independence is challenged. Faced with massive Treasury issuance, the Fed may be forced to maintain liquidity in the Treasury market through some form of balance sheet expansion (such as halting QT or restarting a form of QE), which essentially serves as a backstop for the market.
2.3 Two Core Scenario Analyses
Based on these contradictions, we have established two core macro scenarios for 2026:
Scenario A: The Last Glimmer of Goldilocks (Probability: 40%)
Characteristics: Productivity gains (cost reductions and efficiency from AI) temporarily outweigh inflationary pressures. The economy maintains moderate growth of 2%-3%, with inflation receding to around 2.5%.
Market Performance: A classic "Stock & Bond Bull" illusion. Tech stocks continue to lead, with market breadth expanding slightly.
Triggers: AI technology achieves rapid implementation in the real economy creating deflationary effects, and geopolitical tensions remain relatively subdued.
Scenario B: Reflation and Liquidity Squeeze (Probability: 60% - Base Case)
Characteristics: Fiscal stimulus combined with tariff barriers causes inflation to rebound to 3.5%-4% by mid-2026. The Fed is forced to keep rates high, yet the Treasury continues massive issuance.
Market Performance: Severe Asset Bifurcation. Cash depreciates, long-term bonds are sold off (yields spike), and within the stock market, only companies with extreme pricing power can beat inflation. Commodities (Gold, Copper, Energy) outperform significantly.
Triggers: The labor market remains tight, the wage-price spiral restarts, or energy prices spike due to geopolitical conflicts.
2.4 Macro Conclusion: Cash is the Biggest Risk
Under either scenario, holding large amounts of cash is an implicit loss strategy in 2026.
In Scenario A, you face the opportunity cost of missing asset appreciation.
In Scenario B, you face a direct erosion of purchasing power.
Therefore, the core macro strategy for 2026 is: Utilize the short-term liquidity pulse to convert cash into "inflation-resistant" or "high-growth" hard assets, while strictly avoiding "zombie companies" that rely on low interest rates for survival.
3. 2025 Market Review: The Ultimate Deduction of K-Shaped Bifurcation
To forecast 2026, we must first deeply dissect the "scars" and "glory" of 2025. The U.S. stock market in 2025 did not exhibit a standard bell-curve normal distribution; instead, it forged an extreme "K-shaped Bifurcation." This was not merely a divergence in stock prices, but a fundamental decoupling of corporate destinies.
3.1 The Upper Arm of the K: The Coronation of the "Efficiency Monarchs"
The upward trajectory of the K was dominated by a specific class of companies. Their success in 2025 was not due to AI hype, but rather the substantive realization of AI monetization.
Validation of the "Capex-Revenue" Flywheel: In 2024, the market questioned whether massive AI capital expenditures (Capex) would yield returns. By 2025, the top players provided the answer. The "Magnificent Seven" (along with a few new challengers) successfully converted billions of dollars in GPU investments into high-margin SaaS revenue, enhanced advertising efficiency, and automated code production.
The "Zero-Headcount" Growth Model: A daunting yet lucrative trend emerged in 2025. Several tech giants achieved double-digit revenue growth while simultaneously laying off 5%-10% of their workforce. This "non-linear growth"—where expanding revenue scale no longer requires a linear increase in labor costs—led to an unprecedented expansion in net profit margins.
Cash Moats: In a high-interest-rate environment (with the Federal Funds Rate maintained in the 4.5%-5% range), these cash-rich giants effectively became "banks" themselves. Their interest income alone exceeded the total net profits of many S&P 500 constituents.
3.2 The Lower Arm of the K: The Clearing of "Debt Zombies"
Conversely, the downward trajectory of the K was crowded with companies that failed the "Capital Efficiency Test."
The Collapse of the Russell 2000: Small-cap stocks (Russell 2000) underwent a brutal "valuation compression" in 2025. Approximately 40% of these companies were operating at a loss. As the cheap debt they borrowed in 2020-2021 matured, they were forced to refinance at rates of 7%-9%. Interest expenses devoured operating cash flows, leading to a wave of defaults and take-private deals at low valuations.
Disenchantment with "Fake AI": In 2024, simply mentioning "AI" on an earnings call could boost stock prices. In 2025, the market started checking "receipts." Companies that merely wrapped a shell around AI without proprietary data or unique business logic saw their valuations collapse. The market ruthlessly punished stocks that had "only narrative, no performance."
The Squeeze on Traditional Retail and Manufacturing: Caught between sticky wage inflation and an inability to pass costs onto increasingly price-sensitive consumers, low-margin (3%-5%) traditional industries saw their profits wiped out.
3.3 Key Takeaways from 2025 for 2026
This extreme polarization of 2025 provides three crucial axioms for formulating our 2026 investment framework:
Cheapness is Not a Reason to Buy: In an era of high capital costs, undervalued "value stocks" are often value traps if they lack the ability to generate organic cash flow.
Efficiency > Growth: The market no longer pays for "growth at all costs," but instead rewards "high ROIC (Return on Invested Capital) growth."
Winner-Takes-All is Structural: The efficiency dividends brought by AI possess a strong "Matthew Effect," and the scenario where the strong get stronger is likely to intensify in 2026.
4. The 2026 Macro Scenario: The Fed's "Tightrope Walk" and the Liquidity Inflection Point
If 2025 was about "survival of the fittest" at the micro-enterprise level, then 2026 will be the pivotal year determining the "water level" at the macro level. The market will shift its focus from obsessing over decimal-point fluctuations in inflation data to gaming the substantive pivot in Federal Reserve monetary policy—moving from "restrictive" back to "neutral," or even shifting to "accommodative" to counter a potential recession.
4.1 The "Long Tail" of Inflation and the "New Normal"
By 2026, we expect the US CPI (Consumer Price Index) will no longer be the market's primary source of panic, but neither will it return to the docile sub-2% levels seen pre-pandemic.
Inflation Pivot Point Shifts Up to 2.5%-3%: The costs of supply chain restructuring driven by deglobalization, the stickiness of service sector wages, and long-term investments in energy transition dictate that the era of low inflation is gone forever. The market will gradually accept the implicit consensus that "3% is the new 2%."
The Disappearance of "Imported" Deflation: For decades, the US relied on cheap imports to suppress inflation. However, in 2026, as protectionist trade barriers solidify, this dividend will be significantly slashed, causing Goods Inflation to rear its head once again.
4.2 The Fed's Policy Path: From "Higher for Longer" to "Precautionary Rate Cuts"
The Fed maintained high interest rates in 2025 to thoroughly stifle inflation expectations, but this simultaneously planted hidden dangers for the real economy. In 2026, the Fed's policy scales will inevitably have to tip.
First Half: The Last Stand of the Hawks. In Q1 2026, the Fed will likely remain verbally tough, emphasizing "data dependence" and refusing to declare victory prematurely. At this stage, real rates (nominal rates minus inflation) will remain elevated, putting pressure on highly valued assets.
Second Half: Confirmation of the Liquidity Inflection Point. As the lagging impact of 2025's high rates on Commercial Real Estate (CRE) and SME credit fully manifests by mid-2026, the unemployment rate may breach the 4.5% warning line. To prevent the economy from sliding from a "soft landing" into a "hard landing," there is a high probability the Fed will initiate a "precautionary rate cut" cycle in Q3 2026.
The End of Quantitative Tightening (QT): More critical than rate cuts is the balance sheet. It is expected that in 2026, the Fed will officially halt balance sheet reduction, and potentially restart some form of liquidity injection tools if stress appears in the repo market. This would be a substantial positive for US equity market liquidity.
4.3 Economic Growth: The Macro Reflection of a K-Shaped Recovery
Macroeconomic growth (GDP) in 2026 is expected to follow a "low start, high finish" trajectory, with the full-year growth rate maintaining around 1.5%-2%. However, this masks intense internal divergence:
The Pains and Rebirth of Manufacturing Reshoring: Long-term capital expenditures benefiting from the CHIPS and Science Act and the Inflation Reduction Act will begin to translate into production capacity in 2026, but this growth will be concentrated primarily in high-end manufacturing and energy sectors.
Consumption Stratification: The "wealthy class," benefiting from the wealth effect of the stock and housing markets, will continue to consume robustly; meanwhile, the "working class," having depleted excess savings, will face the dilemma of rising credit card delinquency rates, causing the Consumer Discretionary sector to come under pressure.
4.4 The "Gray Rhino" Risks of 2026
Within this macro scenario, we must remain vigilant against two risk factors that could disrupt the rhythm:
US Debt Ceiling Crisis 2.0: 2026 could be the year the US fiscal deficit issue erupts again. If Congress enters a gridlock and rating agencies downgrade the US sovereign credit rating once more, it would trigger a spike in Treasury yields, indiscriminately hitting all risk assets.
Geopolitical Energy Shocks: If the situation in the Middle East or Eastern Europe deteriorates, pushing oil prices past $100/barrel, inflation will stage a comeback, forcing the Fed to abandon rate cuts. This would lead to the "stagflation" scenario the stock market fears most.
5. 2026 Investment Strategy: Seeking "Antifragile" Assets and AI's Second Growth Curve Based on the previous assessment of the macroeconomic environment shifting from "tight to loose" and the micro-level focus on "efficiency first," the investment strategy for US stocks in 2026 can no longer simply rely on "buy and hold" broad market indices. Investors need to be as precise as a scalpel, stripping away zombie companies that survive on cheap capital and heavily weighting "antifragile" assets that actually benefit from volatility.
5.1 Core Strategy: The Barbell Strategy
Facing the potential aftershocks of high interest rates in the first half of 2026 and the expectation of rate cuts in the second half, the most robust strategy is a Barbell Configuration: one end weighted with aggressive tech growth, and the other with defensive high-dividend cash cows.
A. The Aggressive End: The "Application Landing Year" for AI & The Second Growth Curve
While 2024-2025 was the explosion period for AI infrastructure (chips, large models), 2026 will be the year where AI Applications (SaaS, vertical models, Edge AI) truly deliver on earnings.
From "Selling Shovels" to "Mining Gold": Although computing power giants like Nvidia will remain strong, the baton for excess returns will pass to software companies. Focus on B2B software giants (such as CRM, workplace collaboration, and cybersecurity) that successfully monetize AI features and significantly increase ARPU (Average Revenue Per User).
The Explosion of Edge AI: With the popularization of AI PCs and AI smartphones in 2025, 2026 will see the peak of a device replacement cycle. Consumer electronics giants (like Apple and its supply chain) possessing strong hardware ecosystems and edge model capabilities will see valuation reshaping.
Separating the Wheat from the Chaff: Be wary of small-cap tech stocks that have only "AI concepts" but no actual data on cost reduction or efficiency improvement. In 2026, the market will ruthlessly abandon companies that are still just telling stories without generating Free Cash Flow (FCF).
B. The Defensive End: High Dividends & "Bond Proxies"
Before the Fed's rate cuts are firmly established, or even during the early stages of cuts, high-dividend stocks with bond-like attributes will serve as a safe haven for capital.
Utilities & Energy Infrastructure: AI data center energy demand will reach staggering scales in 2026. Traditional Utilities are no longer just defensive sectors; they will command a new premium as "AI Energy Suppliers" due to their control over power supply and grid resources.
Healthcare: Especially pharmaceutical giants and medical device companies with abundant cash flow that are immune to economic cycles. With the maturity of the GLP-1 (weight loss drug) supply chain and the expansion of indications, the earnings certainty of related leaders is extremely high.
5.2 Tactical Opportunities: The "Counterattack" of Small-Caps
The Russell 2000 Index has underperformed the S&P 500 for years due to the high-interest-rate environment. In the second half of 2026, with the opening of the rate-cut cycle, small-cap stocks may see their biggest Mean Reversion opportunity in recent years.
The Logic: Small and medium-sized enterprises are more sensitive to floating-rate debt. Once rates trend downward, their interest expenses will drop significantly, offering profit elasticity far higher than that of large-cap stocks.
Screening Criteria: Do not buy index ETFs blindly; select individual stocks. Look for niche industry leaders (such as niche industrial manufacturing or regional bank survivors) that remained profitable during the harsh environment of 2025 and maintain a relatively healthy debt structure.
5.3 "Minefields" to Avoid
In the investment landscape of 2026, some areas may be value traps even if they appear cheap:
Legacy Commercial Real Estate (Legacy CRE): Although rate cuts benefit real estate, the structural decline of the office market is irreversible. The normalization of remote work means Class B and Class C office assets will still face huge write-down risks in 2026.
Low-End Consumer Discretionary: Facing the lower half of a K-shaped recovery, retailers and restaurant chains relying on borrowing-fueled consumption by low-to-middle-income groups will face the double blow of shrinking revenue and rising bad debts.
6. Risk Factors: The "Grey Rhinos" and "Black Swans" of 2026
While our baseline scenario predicts improved liquidity and the realization of AI applications in 2026, investors must remain vigilant against potential tail risks. The path through 2026 will not be smooth; several critical macro and micro variables, if pushed beyond their tipping points, could completely overturn the optimistic assumptions outlined above.
6.1 The Specter of "Reflation" and Fed Policy Errors (Grey Rhino)
This is the most significant macro risk for 2026. The current market consensus is that inflation is under control and interest rates will trend downward. However, if the following factors converge, inflation could stage a "comeback" in 2026:
The Cost of Deglobalization Materializes: The rigid cost increases brought about by supply chain restructuring (Near-shoring/Friend-shoring) could fully transmit to end-consumer goods by 2026.
AI-Driven Energy Inflation: The insatiable demand for electricity by AI data centers could cause utility prices to soar, thereby pushing up production costs across the entire economy.
Stickiness of the Wage-Price Spiral: Structural labor shortages in the service sector could prevent wage growth from cooling down.
Consequences: If CPI returns to above 3.5%, the Federal Reserve will be forced to halt rate cuts or even resume hiking. This would lead to a recurrence of the "double kill of stocks and bonds," with high-valuation tech growth stocks facing the most brutal sell-offs.
6.2 The "Darkest Hour" for AI Capital Expenditure (Black Swan)
Our strategy favors AI applications, but this is built on a premise: that massive corporate investment in AI yields a return on investment (ROI).
ROI Misses Expectations: If, by 2026, the vast majority of companies find that purchasing expensive GPUs and Copilot subscriptions has not resulted in significant revenue growth or cost reductions (layoffs), CFOs will not hesitate to slash AI budgets.
A Cliff in Hardware Demand: Once downstream application providers cut spending, upstream chip manufacturers (such as Nvidia and AMD) will face an excruciating inventory correction cycle.
Consequences: The Nasdaq could experience an adjustment similar to the bursting of the Dot-com bubble in 2000. While AI is the future, 2026 could be the painful year of "weeding out the pretenders" and market clearing.
6.3 The US Debt Tsunami and the Return of "Bond Vigilantes" (Grey Rhino)
Regardless of who occupies the White House, the expansion of the US fiscal deficit seems inevitable. In 2026, the US Treasury will face immense pressure from rolling over maturing national debt.
Supply-Demand Imbalance: If overseas buyers (such as Japan and China) continue to reduce their holdings of US Treasuries, and the Fed is still engaging in Quantitative Tightening (QT), who will absorb the trillions of dollars in newly issued debt?
Surging Term Premiums: "Bond Vigilantes" may protest the lack of US fiscal discipline by selling off long-term bonds, causing the 10-year Treasury yield to spike even during a rate-cutting cycle (a "bear steepener").
Consequences: A loss of control over the long-term risk-free rate would crush the valuation anchor for all assets, particularly interest-rate-sensitive sectors like real estate and small-cap stocks.
6.4 Geopolitics and Election Cycle Disturbances (Black Swan)
The 2026 US Midterm Elections: The midterms in November 2026 could plunge Washington into deeper political gridlock. If extreme policy swings occur (e.g., sudden tax hike proposals or antitrust breakup bills targeting Big Tech), market risk appetite will plummet.
Escalation of Local Conflicts: Whether it is a blockade of energy corridors in the Middle East or a disruption of key supply chain nodes in East Asia, any geopolitical "accidental discharge" could instantly ignite risk-aversion sentiment, causing capital to flee en masse from equities into gold and cash (USD).
Disclaimer:
The Information presented above is for information purposes only, which shall not be intended as and does not constitute an offer to sell or solicitation for an offer to buy any securities or financial instrument or any advice or recommendation with respect to such securities or other financial instruments or investments. When making a decision about your investments, you should seek the advice of a professional financial adviser and carefully consider whether such investments are suitable for you in light of your own experience, financial position and investment objectives. The firm and its analysts do not have any material interest or conflict of interest with any stocks mentioned in this report.
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