Why Stocks Will Keep Going Higher Into 2026 (Even If You Think It’s a Bubble)
Many investors worry that a market crash is imminent. Yet, despite these concerns, stocks seem to be making new all time highs every day. Two reasons we believe why this is happening are the U.S. administration’s aggressive push to grow and inflate its way out of the debt problem, and the performance-chasing behavior of underperforming hedge funds.
1. The Administration’s Strategy: Inflate the Problem Away
Whether or not anyone agrees with the approach, this administration has made its strategy clear:
Grow or inflate the economy out of the debt burden.
Inflation doesn’t make the debt go away, but it makes the debt smaller relative to the GDP.
This improves the debt-to-GDP ratio, a key metric for fiscal health. For instance, if debt stays flat at $37 trillion but inflation drives nominal GDP up by 3-4% annually, the ratio drops, making the debt appear more manageable.
Inflation acts like a slow erosion of the real value of the debt. The government collects taxes in inflated dollars, while repaying debt issued in old dollars.
So if an administration believes: “We can outgrow or inflate our way through the debt problem,” then the policies will naturally lean toward:
supporting equity markets
maintaining liquidity
promoting credit creation
stimulating demand
In other words: they are trying to push stock prices higher because they see it as part of the solution.
2. Hedge Funds Are Underperforming So Now They Are Forced Buyers
The majority of hedge funds are lagging this year because they believed we were in a bubble the whole year. Many were underexposed or hedged too aggressively. So many funds now must buy stocks even if they don’t want to.
Underperformers become price-insensitive buyers.
The Point: Markets Don’t Need to Be Healthy to Go Higher
Markets rise for many reasons:
monetary policy
fiscal support
liquidity injections
structural flows
buybacks
pension rebalancing
FOMO from underperforming funds
The current rally should not be interpreted as evidence that risks have disappeared. Rather, it reflects the reality that the institutional and political forces driving asset prices higher are stronger, more persistent, and more structurally embedded than many market participants appreciate.