One River Asset Management analyst Eric Peters cited hedge fund managers in his latest commentary, noting investors are positioning for the 2026 political cycle to dictate market rhythms.

Seasoned traders anticipate a robust Q1 rebound, but markets will face turbulence when the new Fed Chair takes office in May. Meanwhile, former President Trump is expected to deploy every possible tactic to secure midterm election victories.

Multi-strategy hedge fund manager Alpha, referenced in Peters' piece, projects upward revisions to global growth forecasts, with U.S. nominal GDP potentially accelerating to 5% or higher. Fiscal stimulus will boost demand, while early tax filers receiving substantial refunds could significantly propel consumer spending.

This demand-driven expansion may force the Fed to reconsider rate policy. When aggregate demand outstrips supply, any Fed leadership would face pressure to hike—not cut—rates. Short-term Treasuries could see 40-50bps selling pressure.

**AI Demand Surges While Supply Lags** Alpha highlighted stark disparities in economic cycle timelines. AI-driven supply-side improvements may take years—even a decade—to materialize, whereas demand responds immediately. Meanwhile, constrained labor markets and immigration policies have reduced near-term supply elasticity.

The manager warned inflation expectations are no longer anchored. A 2025 inflation resurgence could reveal self-reinforcing, expectation-driven characteristics—unlike 2022’s shock after four decades of price stability.

**Wall Street Strategist: No Year-End Rush Needed for 2025** Biggie Too, global chief strategist at a major Wall Street firm, noted that while 10-year Treasury yields hitting 6% was Q1’s top concern, their retreat to 4% provided critical market support this year.

Though some fear 2027’s potential turmoil, Biggie emphasized 2026’s profit opportunities. Traders are already unwinding books to position for next year, having delivered strong 2025 performance without needing a late-year sprint.

**Political Cycle Dictates Trading Playbook** Peters outlined the consensus trade: Q1 exuberance, followed by a stress test when new Fed Chair Kevin assumes office on May 15—a historical pattern for incoming chairs.

The November 3 midterms emerge as the ultimate inflection point. Biggie cautioned that Republican losses could trigger Trump’s impeachment and legal battles, but one certainty remains: Trump will exhaust all conceivable measures to secure victory. This political calculus is reshaping investor positioning.

Alpha stressed this marks the first time in their career that betting on right-tail risks appears justified. Risk assets may thrive temporarily, but once improved consumer conditions fuel spending, markets will price rate cuts—pressuring the front end of the yield curve.