31 January 2026
2025 began largely as we expected up to the April crash. In retrospect, many professional investors — us included — were likely too bearish on the back-end of the tariff crash. There is a certain irony in modern markets where ignorance appears to be its own reward. While many participants were focused on the bond markets, tracking whipsawing yields and the widening spreads that followed the April 2nd Trade War 1.0 announcement, a different unsophisticated cohort was tracking memes and social posts. This group, along with the hold-and-hopers, got their very own 2008-level bailout with the birth of the “TACO trade” on April 9th. Despite rethinking — industry euphemism for chopping lower — for three weeks after the market’s epic single day rally, a new Bull Market was born.
Retail investors’ self-described “degen” approach to yolo every market dip, along with the WWE-style of ultra-partisan politics permeating everything in the world and markets, resulted in a rally that defies logic. It is reminiscent of the post-COVID crash recovery: a period where asset prices were inflated by unprecedented money printing and in spite of logic, only to face the inevitable payback — that time in the form of the slow and steady beatdown that was 2022. During the 2022 correction, many of hottest companies from 2021 saw valuations slashed by 75% or more as the markets got carried away in the other direction.
The question for 2025 and 2026 is simple: how can the market justify sitting near all-time highs when the post-WWII global economic order was lit ablaze? The EU was the US’s largest, most predictable, and rules-based trading partner. Japan and China remain the largest foreign holders of US debt. None of those countries, other than Japan, have anywhere near the debt problems of the US. Moreover, whatever leverage the US once had was entirely based on its global image as the beacon of international stability — that clearly no longer exists, nor will it likely ever again.
When a market’s resilience is predicated on ignoring these facts or relying on the “TACO trade” to work indefinitely, then our conviction for the beginning of 2026 became clear: reduce long exposure, hedge the remaining core (protect large unrealized gains but postpone the tax event for now), and actively take the other side of the trade.
Disclosure: This is an opinion article not intended as investment advice. Always do your own work and/or consult a competent advisor. Any opinions expressed are as of the date of publication.
