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So we think next year could be somewhat of a Goldilocks year and I think the market is beginning to understand that because it has weathered two very difficult storms this year. Tariff turmoil and the government shutdown as well as all of the hawkish rhetoric uh from the Fed after Miran entered a Trump appointee and really I think forced others to lean in the other direction.
So, lots of hope for 2026, some of which has been discounted by the market. What's going on is a fierce debate between the bears and the bulls. But if we're right, growth will be much stronger. And importantly, inflation will be much, much lower than it has been with tariffs. And we think at some point it could drop to zero or below zero.
In terms of inflation, that seems to be the biggest issue right now for the Fed. Nonetheless, it did cut rates again, and we think the unemployment situation is the reason it will continue to cut rates. Kathy Wood believes markets are on the verge of a major shift with 2026 shaping up to deliver outsized returns.
She argues that after rate cuts, inflation dynamics will change and push today's bearish outlook toward renewed optimism. She points to a largely overlooked development in the US economy, new depreciation rules that dramatically lower effective corporate tax rate. This, she says, attracts global capital, boosts investment returns, and fuels productivity without triggering inflation, flipping the narrative from recession to recovery.
Wood is especially bullish on innovation, highlighting AI, technology, and crypto as key beneficiaries of this shift. With institutions positioning and Bitcoin entering a critical phase, she believes the next leg of the crypto bull cycle is approaching and encourages investors to use market pullbacks as opportunities.
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Hit the link below and get started ASAP. The unemployment rate is a lagging indicator. Uh it sometimes takes uh a year for employment to turn around decisively. We don't think it will take that long this time. We do believe we're moving into a productivity driven boom ultimately. I think it will look like a boom toward the end of next year just in time for the midterm elections.
Inflation we think will not be a problem. That's uh because productivity is one of the most potent anti-inflationary forces out there. The lower end of the market really getting hit and that will work into the CPI over the next year. If the Fed were going to be populated by individuals who believe that growth is inflationary and there was a lot of dissension on the Fed, I think that would be an issue.
I think if Kevin Hasset or Governor Waller, either one of them, is at the helm next year, I don't think that will be a problem. Though the voters could disscent and cause a lot of uncertainty in the market. I'm already hearing the administration, including Howard Lutnik very recently on CNBC talk about growth not being inflationary and quite in fact quite the opposite in the 80s and 90s as uh real GDP growth was picking up.
inflation did come down consistently and uh I think we're going to see that again as the supply shock and tariffs to some extent as they pass through the system and we move to the other side of all of that confusion in terms of fiscal policy. I think if the Trump administration is not enjoying a strong growth environment with inflation and interest rates falling, President Trump could become more of a lame duck sooner than we expect.
Meaning he'll probably be challenged from a tax policy point of view. We love the tax policies, the corporate tax rate coming down to 10%. And individuals enjoying big refunds this year because of no tax on tips, overtime, large parts of social security, the doubling of the the salt deduction, and child care tax credits.
But if if we're in a weak economy, we're going to get a lot of angst around the midterm elections. And you know, we could see flailing around with, you know, new temporary spending measures, which is the last thing we need. We really need to grow out of the deficit. And I do believe this administration has put in place policies to do just that.
But if for some reason we're wrong on that, the deficit will become a problem for for the bond markets. uh investors being very very concerned about an AI bubble. I think the reason that's happening is the most seasoned investors in our business probably experienced the tech and telecom bubble. They've been there, done that, and they don't want to get trapped again and that they're telegraphing that.
Those who were in the bubble though also should understand how different this is. One interesting comparison I remember very well Amazon in the bubble Jeff Bezos who used to do the calls at the time would proudly say this opportunity is so big that we're going to increase our investment even more than we told you last quarter and we are going to lose so much money and that's good news and the stock would fly that would not happen today.
She compares the current moment to a turbocharged version of Reagan era economics where capital once again floods into the US, but this time driven by AI, robotics, and blockchain instead of traditional industry. While most investors are fixated on tariffs and deficits, she's already positioning for the next expansion, arguing that late 2025 could mark an inflection point the market hasn't priced in.
Her conviction is rooted in adoption and liquidity. Crypto, she says, is scaling faster than any investable asset in history with over a billion active wallets expected by the end of 2025. That surge in participation, backed by years of research, leads her to one conclusion. Liquidity is aligning and crypto is set up to deliver the strongest performance as the next wave of growth accelerates.
This is the longest base that I've seen building meaning trading range for any ETF or stock for that matter except for some of the multiomic stocks. And as I've said before, you know, when you're in a trading range for a very long period of time and it is going to be resolved at some point and so a long base means either one of the biggest breakouts ever or one of the biggest breakdowns and the supply shock, the inflation, all of the uncertainties that evolved at that time.
Cash flow became paramount. cash cushion as well. And these companies did not they did not look from a relative point of view very good at all. It was a market where it was just going to be very difficult for them to outperform. What's happened since then is first of all in the new administration deregulation massive deregulation because there was no strategic price discovery.
What does that mean? It means we had no idea how valuable larger companies would find the smaller multiomics companies and a200 to300 billion revenue hole during the next 5 years and they face revenue cliffs. They're going to need our companies for not only to fill the the revenue hole, but also for research and discovery and diagnostic tools, companion diagnostic tools, which are going to collapse the cost for research and discovery.
We think from $2.4 billion to roughly $600 million. It's going to be very important to their cost structures. And this is not when it is now. It is happening now. All three of those are happening now. And I think as more and more analysts begin to do work on some of the names that are not in broad-based benchmarks and therefore not very well covered, they're going to find some gems and we think we own them.
In ARKG, we've often said that the inefficiencies in the the valuations of companies in in the multiomic space have increase the risk of takeovers. And I say increased the risk because again after such a long base of trading ranges, we would prefer obviously to keep the stocks in our portfolio so that they can enjoy the the breakout.
So we we shall see on that score. Kathy Wood argues this isn't just a market rebound, but a structural shift driven by powerful incentive, policy changes are quietly pushing capital into innovation like AI, automation, and crypto, setting the stage for a new productivity cycle. While many investors focus on short-term fear, she believes long-term math and incentives point towards sustained growth with late 2025 potentially marking a major turning point.
She also sees crypto entering a stronger phase fueled by institutional adoption, supportive legislation, and rising global use of digital asset. In her view, Bitcoin and decentralized finance are becoming core parts of the future financial system, not speculative side bets as innovation and capital begin to scale together.
Do you think this marks the start of a real productivity super cycle? Can crypto and defy truly challenge traditional finance in the next decade? .
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