Hedge Fund CIO: Everyone is preparing for 2026, "Trump will win the midterms at all costs," "People expect a surge in the first quarter, then sell in May."

On Monday, Eric Peters, an analyst at One River Asset Management, cited the views of hedge fund managers in his latest column, pointing out that investors are betting that the political cycle of 2026 will dominate market rhythms.

These seasoned traders expect a strong rebound in the first quarter, but the market will face challenges after the new Federal Reserve Chairman takes office in May, and Trump will use all possible means to win the midterm elections.

According to Peters' article, multi-strategy hedge fund manager Alpha stated that the market will raise global growth expectations, with U.S. nominal GDP growth potentially rising to 5% or even higher. Fiscal stimulus will boost demand, and early tax filers will receive substantial refunds, significantly driving consumption.

This demand-driven growth will force the Federal Reserve to reconsider its interest rate policy. When total demand exceeds total supply, whoever leads the Federal Reserve will be compelled to raise rates rather than cut them. Short-term government bonds face a sell-off pressure of 40-50 basis points.

AI Demand Explodes Instantly, Supply Improvement is a Long Way Off

Alpha pointed out that the speed of different phases of the economic cycle varies greatly. The supply-side boost from AI investments will take years to materialize, with supply-side improvements typically taking up to 10 years.

Meanwhile, the response to demand is immediate, while the overall supply capacity of the economy has actually declined in the short term. The labor market and immigration policies have limited supply elasticity.

Alpha warned that inflation expectations are no longer stable; if inflation rises early next year, the market will see inflation exhibiting self-reinforcing and expectation-driven characteristics. This is different from the situation in 2022, when the market had not experienced inflation for 40 years.

Wall Street Strategist: No Need for a Sprint by the End of 2025

Biggie Too, the global chief strategist at a large Wall Street firm, stated that the biggest concern for the market at the beginning of 2025 is that the yield on the 10-year U.S. Treasury bond reaches 6%, while the decline in yield to 4% has provided significant support for the market this year.

Biggie noted that while some believe 2027 will be a disastrous year, investors need to focus on the profit opportunities in 2026. Currently, no one needs to sprint by the end of the year; this year has already performed well, and traders are cleaning up their books to position for next year.

Political Cycle Dominates Trading Logic

According to Peters' article, the consensus trading path in the market has become clear: a prosperous first quarter, followed by challenges when the new Federal Reserve Chairman Kevin takes office on May 15. History shows that new chairpersons always face market tests.

The midterm elections on November 3 will be a key turning point. Biggie pointed out that if the Republican Party loses, Trump will face impeachment and legal battles. But one thing is certain: Trump will use every imaginable means to ensure he wins the midterm elections. This political logic is shaping investors' positioning.

Alpha emphasized that this is the first time in his career that betting on right-tail risks has become reasonable. For at least a period, risk assets will perform well. However, when consumer conditions improve and real consumption begins, the market will digest rate cut expectations, and the front end of the yield curve will face adjustment pressure