Hong Hao: The market in 2026 will be very unusual, and the commodity market will continue

Renowned economist Hong Hao has shown foresight and accuracy in his market predictions over the past two years. Today, he shared his market outlook for 2026 at an event. Unlike his previous views, this time Hong Hao clearly pointed out the volatility and challenges the market may face in the Year of the Fire Horse. He provided a detailed analysis of the challenges facing various asset classes and major national markets, particularly highlighting the issues facing the overseas AI industry, U.S. stocks, and U.S. dollar interest rates. He also mentioned a relatively optimistic outlook for domestic equities and the commodity market, suggesting that there may not be an urgent need to bottom-fish the Hang Seng Index. For specific detailed views, please refer to the text below (in the first person, with some content edited). Key Quotes: This year is the Year of the Fire Horse; the Fire Horse belongs to the Li hexagram, and both the heavenly stems and earthly branches are associated with fire. Chinese people often say "red horse, red sheep," indicating that this year will be very unusual. Since January of this year, the market has deeply felt the impact of these changes. These historic fluctuations are something we have not seen since we have had data, especially in the precious metals sector; and the South Korean stock market has experienced consecutive days of circuit breakers, which is also rare. The Middle East is currently in an unconventional war. Since the U.S. is not playing by the rules, we cannot expect Iran to play by the rules either, and indeed Iran has not played by the rules. For the market to "stabilize" in the future, we must see a turning point in the war. It is not about the end of the war, but the emergence of a turning point in the war. Financial markets price expectations, not "what has actually happened." The pricing of AI in financial markets may have gone too far ahead, possibly exceeding what can be realized in the future. The semiconductor cycle is gradually peaking, but both U.S. institutions and retail investors have very high positions in semiconductors; a high cycle combined with high positions is a very typical and unfavorable combination. This year, 2026, happens to be the 17th year since 2009, which is the center of a 35-year cycle. Therefore, at the peak of the cycle, any situation could bring about earth-shattering changes. Gold, as a safe-haven tool, is a good hedge against geopolitical risks and stock portfolio risks. If a risk-off market trend emerges, we believe gold will still be in demand. Liquidity conditions indicate that copper prices may have room to rise; oil prices have begun to soar due to geopolitical factors. This aligns with the sequence we proposed last June: gold/silver/precious metals → industrial/non-ferrous metals → energy/oil → agriculture. Comparing the trend of 10-year Treasury bonds with commodity prices, it is clear that commodities lead 10-year U.S. Treasuries. Therefore, with the current "divergence," I believe the yield on 10-year U.S. Treasuries is more likely to rise rather than fall. The World Has Changed Dramatically From November of last year (2025) to now, we have observed dramatic changes in the entire world and market. This year is the Year of the Fire Horse; the Fire Horse belongs to the Li hexagram, and both the heavenly stems and earthly branches are associated with fire. Chinese people often say "red horse, red sheep," indicating that this year will be very unusual Since January, the market has deeply felt the impact of these changes: for example, the historic surge and plunge of gold and silver. We have also seen geopolitical changes, such as the Venezuela incident in January and the current war in the Middle East involving Iran; as well as the storage sector, where there have been dramatic fluctuations in the Japanese and South Korean markets. These historic fluctuations are something we have never seen since we have had data, especially in the precious metals sector; and recently, we have seen the South Korean stock market experience a circuit breaker for two consecutive days, which is also rare. What the market needs to "price" now is how much risk premium should be assigned to this geopolitical uncertainty. I believe there is currently no conclusion. Even if you ask Trump himself or American generals, they may not know. The majority consensus in the market currently believes that the war will probably end in about four weeks, that is, by the end of April. At the same time, looking at predictions, about two-thirds of people voted that it would end by the end of this month, which is roughly four weeks. However, since this is an unconventional war—previously, leaders were generally considered "untouchable" during wartime—this is not a conventional war. Since the U.S. is not playing by the rules, we cannot expect Iran to play by the rules either. We are now seeing Iran retaliate fiercely. Although everyone thinks its missiles are about to run out, its series of strikes against neighboring countries tell us that it is not an ordinary country, and it is not playing by the rules either. We are now entering the phase of blocking the Strait of Hormuz, and as you can see, oil prices are skyrocketing. Capturing Key "Turning Points" In the future, if the market is to "stabilize," and fully price the geopolitical risk premium, we must see a turning point in the war. We do not need to assume that the war will only last four weeks, nor do we need to wait until four weeks later to see how the market prices it; we only need to see the turning point. This turning point could be, for example, the emergence of a pro-U.S. organization in Iran; or the shipping capacity in the Strait of Hormuz returning to more than 70% of normal; or the U.S. delivering a fatal strike on nuclear facilities, or if there is evidence that Iran's nuclear facilities have been completely destroyed, this could also be considered a turning point. When these turning points appear, the market can slowly "reinvest," and the risk premium will be fully priced. But when will this time actually come? I believe no one in the world knows; we can only wait. Please note, it is not the end of the war, but when the turning point appears, we can basically determine that the market has entered a scenario where "risk premium is fully priced." AI Pricing May Have Overshot As everyone knows, I have developed some quantitative models to track market and economic cycles, market sentiment, positions, valuations, and various fundamental indicators. The model I use most often and believe to be the most accurate is the "cycle model" we see now. First, let's look at the semiconductor cycle in the United States. Since the beginning of this year, there have been many historic market performances, such as the South Korean stock market rising nearly 50% from the start of the year to its peak, followed by a sharp correction; the main driving factors are companies like Samsung Electronics and SK Hynix that are involved in storage The market claims that with the development of AI, "storage is running out." However, if we look at the short cycle of semiconductors, we find that the quantitative indicators fitted from a series of semiconductor industry data in the United States often experience a cycle from low to high and back to low over a period of 3 to 4 years. At the same time, we see that the semiconductor cycle indicators in the U.S. are generally consistent with the direction of the S&P 500. Therefore, if the short cycle of semiconductors has reached its peak (the peak is a process), we can basically conclude that the upward space for the S&P 500 is very limited. The large semiconductor cycle is gradually peaking, and we also see that the ability of the three major U.S. stock indices to reach new highs has been weakening recently, with momentum gradually being consumed. Semiconductors are a global cycle, not just a cycle of a single country. They are a key input implanted in all important computers, software, and AI. Since last year, we have seen related prices soar, which has fully priced in these expectations. This is also why we pointed out in October to December last year that the AI sector was experiencing a bubble. When I say "bubble," I do not mean that AI technology will not continue to develop; on the contrary, the speed of AI development may be exponential. However, financial markets price expectations, not what "AI has actually achieved." The pricing in financial markets may have gone too far, possibly ahead of what can be realized in the future. Therefore, the U.S. semiconductor cycle is gradually entering the process of peaking in the short cycle. This year, our theme is called "Hold and Profit," meaning to take profits when the situation is good. For example, if storage has increased three to four times, and if the subsequent profit space is not large, we can take profits. We cannot always sell at the highest point, but selling at a relatively high point is much better than when everyone is rushing to sell and cut losses after the peak. The risks in the U.S. stock market are higher than imagined Looking back at previous peaks in the semiconductor cycle, such as at the junction of December 2015 and January 2016, we made a similar judgment—that the semiconductor cycle was gradually peaking and that a significant correction would occur in the U.S. As expected, in April 2025, the U.S. stock market experienced a historic correction from its peak to its lowest point. Looking further back, we had judgments at the peak in March 2021 and at other points like November 2019. Cycle indicators tell you where the cycle is positioned, but we do not know what will trigger a "cycle reversal." The cycle can only tell you that at this position, any significant news could become a catalyst for the cycle to peak and then plummet. We are currently standing at the top of the cycle, which is indicated by actual industry data, not subjectively drawn; it is the most intuitive representation of the economic cycle's operation. Looking at positions, while the semiconductor cycle is gradually peaking, both U.S. institutions and retail investors have very high positions in semiconductors; a high cycle combined with high positions is a very typical and unfavorable combination. Historically, peaks in the semiconductor cycle often occur near peaks in positions. Because at the cycle peak, people are more excited and feel invincible. But no matter how strong AI is, it must follow economic laws. The current positions may feel very "comfortable," but they are often the most dangerous Re-evaluating retail investor sentiment, it remains largely unaffected. In recent days, while we were sleeping, U.S. stocks fell sharply, dropping over two points at the open, but managed to recover about half of the losses by the close. However, even if the U.S. can win the war, it cannot win the economic cycle—the rules are laid out here. Market sentiment is severely mismatched with the developments. We can also see that extreme risk insurance prices have surged. Historically, tail risk prices have a strong predictive capability for the S&P 500, often leading the S&P's movements by about 1 to 4 weeks. As shared in February this year, tail risk prices were already high at that time, but the S&P remained unmoved, creating a clear divergence. Combining positions with cycles, sentiment with cycles, and sector cycle positions, a series of major indicator divergences tell us that the U.S. market may be too complacent, and the risks are higher than everyone thinks. The Dollar is Just a Technical Rebound Looking at the dollar again. The dollar tends to rebound when it reaches the lower trend line. For example, during the massive waves in 2021 and 2020, as well as during the U.S. debt default period in 2014-2015 and 2011. Currently, the dollar may be experiencing a technical rebound due to the impact of war. Only a few things in the market are rising: gold, oil, freight rates, and bond yields. The dollar's rebound symbolizes a contraction in dollar liquidity within the system; however, we do not believe that such a small rebound has successfully broken through the lower boundary of the upward trend over the past decade. If the rebound continues and liquidity tightens, it would be very unfavorable for risk assets. This also resonates with the previous points. Next, looking at liquidity indicators. The dollar exchange rate is influenced by multiple factors (war, Federal Reserve policy, policies of other countries, etc.), so liquidity conditions cannot be measured solely by the dollar. To measure changes in liquidity conditions, we have gathered major currency data and monetary policy data from central banks around the world, compiling dozens to hundreds of data points to create a global liquidity condition indicator. We see that liquidity indicators have peaked, but I believe they will soon decline. Furthermore, in the more than 20 years since we have had data, the dollar's movements have generally aligned with global liquidity indicators. Currently, due to heightened risk aversion, the dollar is rising; at the same time, due to war risks, gold is also performing well, reflecting its traditional safe-haven attributes. Global liquidity conditions have entered a regionally high position; if there is a pullback, it indicates liquidity contraction, which resonates with the previously mentioned downward cycle, risks to risk assets, and positions. Next, looking at the U.S. 10-year Treasury bond (since 1960). I often use the 850-day moving average indicator, which reflects trends more than precise timing. 850 trading days is about 3.5 calendar years, resonating with the previously mentioned average cycle of 3-4 years. We see that U.S. Treasuries have started to rebound near the 850-day trend line, with a strong rebound in the last two days. Now looking at positions. Retail investors are long on U.S. Treasuries (believing that the U.S. will cut interest rates), with positions reaching the highest level since we have had data; however, institutions are taking the opposite stance, shorting at the largest scale in recent years, firmly believing that the yield on 10-year U.S. Treasuries will rise rather than fall. In early February, we did not know there would be a war, nor did we anticipate such intense geopolitical risks; however, market price movements reveal underlying connections. At that time, we did not know "why" there would be a rebound, but we knew "there would be" a rebound Later geopolitical events have made us understand this more clearly, prices often precede the final catalyst, indicating future direction. The simultaneous rise of gold and U.S. stocks is a sign of impending storm Looking at "gold and U.S. stocks soaring together." On November 6th last year, we observed that gold and U.S. stocks rose simultaneously. Historically, apart from the late 1970s to early 1980s, gold and U.S. stocks have rarely soared together; usually, when U.S. stocks rise, gold does not, and when U.S. stocks fall, gold tends to perform well (for example, during the post-2000 wave). Therefore, gold should be a risk-hedging tool worth having for every investor, as its trend often moves in the opposite direction to the largest holdings in the portfolio (stocks), reflecting its hedging function; the higher U.S. stocks go, the more prominent gold's hedging function becomes. Currently, the S&P is still hovering around 6800-6900, close to historical highs. Last year, we saw gold and U.S. stocks soar together, hence saying "the simultaneous rise of gold and U.S. stocks indicates an impending storm." We did not expect this year to evolve into such a situation. When Trump took office, he said, "I am not a warlike president; I want to bring peace to the world." Looking back now, he may actually be the president who has initiated the most geopolitical crises. This year happens to be the midpoint of a major cycle From a long-term perspective, we look at the U.S. S&P index (approximately from the 1980s/90s to the present, over 160 years). We see each return cycle: from low to high and back to low, roughly every 35 years. For example: around 1939 (after experiencing the Great Depression and World War II that boosted the U.S. economy); 1974 (two oil crises and the Middle East war); 2009 (subprime mortgage crisis and recovery). These low-to-high and back to low cycles are roughly every 35 years. This year, 2026, happens to be the 17th year since 2009, which is the center position of the 35-year cycle. Therefore, at the top of the cycle, any situation could lead to earth-shattering changes, and many unprecedented situations may arise. The situation in the Year of the Horse is still ongoing; it has only been two months this year, but we already feel like "days are like years," because geopolitical risks have a significant impact on the portfolio. Many people say cycles are an obscure ancient science, and some even believe cycles are merely technical analysis. But how do we explain the recurring nature of these cycles? At the same time, significant historical events often occur at the turning points of cycles? I believe this is worth discussing and observing. Global liquidity is generally peaking and retreating Returning to liquidity, we have aggregated and quantified hundreds of currency data from major global central banks to form a liquidity indicator. This indicator is clearly approaching a peak and retreat. Looking at gold. In the more than 20 years since we have had data, the trend of gold has been basically consistent with the liquidity indicator. We have always emphasized that gold is a good risk-hedging tool in the portfolio. We also emphasize that the correlation between gold and stocks is negative. On January 29, 2026, gold prices experienced a dramatic surge, (later) gold fell from 5500 to 4400, a drop of 1000; silver fell from 121 to about 70 These all suggest that liquidity conditions may change. However, gold, as a safe-haven asset, is a good hedge against geopolitical risks and the need to hedge stock holdings in investment portfolios. If a risk-off market trend emerges next, we believe gold will still be in demand. The commodity market is not over Since June 2025, we were among the first to propose a "commodity bull market." At that time, it mainly relied on gold, silver, precious metals, platinum, and palladium. We stated that the strength of gold would reflect the strength of non-ferrous metals; followed by oil and energy; and finally agriculture—this indicates that the economic cycle is gradually nearing its end. In investment decisions, "cross-validation" is very important; one cannot rely solely on a single indicator. For example, when the semiconductor short cycle reaches a peak, we also need to look for data from other sectors of the economy for cross-validation, which increases the probability of successful decision-making. Liquidity conditions indicate that copper prices may still have room to rise; oil prices have begun to soar due to geopolitical factors. This aligns with the sequence we proposed last June: gold/silver/precious metals → industrial/non-ferrous metals → energy/oil → agriculture. At that time, we did not know there would be a war, but even without a war, there would be other catalysts leading to rising oil prices; this is the nature of cycles. The final sector, agriculture, is the most defensive. Looking at industrial metals, liquidity conditions lead metal prices by about 6 months. We believe the trend in metal prices is not yet complete. War requires a large amount of materials, not only crude oil but also copper, iron, tungsten, antimony, tin, and other materials for making weapons and ammunition; war itself is also beneficial for metals. Next, consider the "metal market priced in gold." Historically, such low positions have only occurred twice: once during the pandemic and the other in 2008. This indicates that the market is underweight or overly pessimistic about metals. Combined with war and liquidity conditions, the probability of metals lingering at such low levels for a long time is low. This is also an important reason why we believe the commodity trend is not yet over. Looking at the 10-year Treasury bonds and commodities, comparing the trends of 10-year Treasury bonds with commodity prices clearly shows that commodities lead 10-year U.S. Treasuries. Therefore, the current "divergence" suggests that I believe the yield on 10-year U.S. Treasuries is more likely to rise rather than fall. This resonates with the changes in inflation expectations triggered by war and the positions of institutions shorting 10-year U.S. Treasuries, consistent with the earlier mention of "the 10-year U.S. Treasury rebounding at the 850-day moving average." At the same time, we see that the rebound in commodities has not yet reached 50%, and the upward trend is likely not complete. At least now we should start defensive rotation Considering that liquidity indicators typically lead risk asset prices by about 3-6 months, the period from last November to now is exactly about 4-5 months, and we have indeed seen a rapid change in risk appetite since February. To know liquidity trends earlier, we also need "leading indicators of liquidity indicators." In early November last year, when we looked ahead to this year, we said liquidity indicators would peak and then decline; it is now clear that we are in the phase of peaking and declining. With the data from February, it is highly likely that we will see liquidity conditions decline in March or April, which also aligns with the judgment that "the dollar has rebounded from the lower trend line since 2008." China's current account (export conditions) determines the trend of U.S. forward inflation expectations. There has been no change for many years. China's current account is rising at a pace of over a trillion dollars annually, but Americans believe inflation has been tamed—I don't think so. Regardless of war, other factors, or the need for materials in AI, we believe U.S. inflation expectations have not been subdued. U.S. Treasury yields are now in the low four percent range, while U.S. inflation is around 3; the probability of the Federal Reserve's benchmark interest rate being further lowered has significantly decreased in my opinion. To summarize the U.S., last November we said that global liquidity would peak and then decline in the next 3-6 months. The peak phase is also the stage with the most dazzling returns. Looking back, whether it's gold, silver, precious metals, semiconductor storage, or Asian markets, we have seen unprecedented situations: gold and silver reaching historic highs; storage prices increasing three to four times in a year; and Asian emerging markets outperforming U.S. stocks at the fastest pace and magnitude since data collection began. These are all significant characteristics of liquidity peaking: risk appetite is at its most frenzied, and abundant liquidity leads to various narratives. However, if liquidity peaks and begins to contract, the impact on risk assets will be substantial. Therefore, we see that the U.S. semiconductor short cycle is gradually peaking; the 10-year U.S. Treasury bond has started to rebound from the 850-day trend line; U.S. inflation expectations are about to rebound; and risks from war, crude oil, metals, and other commodities will also reinforce inflation expectations. The overall environment is not friendly to investors, leaning towards a "malicious" market environment. At least now, we should start defensive rotations rather than holding onto growth stocks. The Hang Seng Index Needs to Wait for a Better Opportunity The Chinese economic cycle is basically near its cyclical peak. The Chinese economic cycle and the U.S. semiconductor cycle can mutually corroborate each other. Thus, we see that both the Shanghai Composite Index and the Hang Seng Index are currently facing some resistance. I believe A-shares will perform better because of the support from the appreciation of the renminbi and policy assistance; Hong Kong stocks are not so fortunate, which is why we see significant declines in Hong Kong stocks. The economic cycle indicators for Hong Kong show a pattern of low point—high point—returning to low point, roughly every 3-4 years. The last low point occurred on October 31, 2022. The current slowdown is rapid, reflected in the more obvious pressure on the Hang Seng Index; the trend has not yet ended. Hong Kong stocks may experience a technical rebound (after all, they have fallen quickly), but we choose not to participate and wait for a better opportunity. Looking at the central bank, of course, the central bank can choose to further expand its balance sheet, but when continuing to expand, it must consider where the new liquidity will flow. We do not want to see a situation of excess capacity again. Historical experience shows that the current scale of balance sheet expansion is at a historical high, which may also be an important driver of the global liquidity peak and decline. Each time the balance sheet expansion peaks, it has a significant impact on risk assets, which also explains the movement of the Hong Kong stock index from another perspective. Moreover, the central bank's balance sheet is not only highly correlated with the Hang Seng China Enterprises Index but also exhibits a cycle of about 3-4 years for each low point and high point. High Probability for Banks to Rise Looking at banks, relative returns have reached historical lows. I believe the probability of them rising is much greater than the probability of continuing to decline. History tells us that after relative returns reach a phase low, the probability of rising is higher, so banks are more likely to outperform Finally, looking at the overall sector rotation, for most of the time, if we know how global liquidity conditions are changing, we can roughly understand how growth and value are rotating. Currently, growth stocks are performing relatively well (including Hong Kong stocks, A-share ChiNext, etc.), so their downside potential is greater than their upside potential. Considering that liquidity conditions will peak and then decline, value rotation is likely already underway. This is consistent with the conclusion that "the relative return of banks is at a historical low, while the relative performance of growth is close to historical highs." This year is the Year of the Horse, and indeed, the fiery horse has galloped away as expected. But I often say that there is opportunity in volatility; progress happens through fluctuations; progress always occurs amidst volatility. If we do not change our previous thinking methods, do not change our previous investment habits, and do not change our understanding of the world, it will be difficult to discover opportunities. I believe that this year's significant volatility will also bring great opportunities for everyone. Risk Warning and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk