The Market Outlook for the Week Ahead, or TACO Rides Again

TACO rides again, or Trump Always Chickens Out.

Trump threatened WWIII over his proposed Greenland takeover, then declared victory over obtaining something the US already had, the right to have bases in Greenland. Russia and China are laughing.

The Dow gapped down 1,200 points, then rallied 1,200 to leave us unchanged on the week. The lesson here is to ignore everything the president says, or it will cost you dearly.

There is no doubt that the market is moving cash out of last year’s leaders, technology and financials, and into this year’s leaders, small caps, biotech, and transports. I am actually old enough to remember the last time this happened. This rotation is a sign of market health and could give us a whole new leg to the bull market.

The great uncertainty and inflation protection trades, gold (GLD) and silver (SLV), continue to lead all markets, with the barbarous relic up a head spinning 14.5% so far in 2026. We have been bullish on gold for so long, I can’t remember. The yellow metal is way overdue for a correction after these ballistic moves, but it never seems to happen. Sell short out-of-the-money puts so you can buy gold cheaper, or at least take in some free premium income.

Consumer staples, another big defensive area, continues on a tear, thanks to big moves up in tariff-sensitive stocks like Coca-Cola (KO), Costco (CSCO), and Mondelez (MDLZ). The bet here is that the Supreme Court will rule the tariffs illegal.

The US takeover of Venezuela’s oil fields has made energy the number three sector in the market last week. Or maybe people are just being themselves because they have been cheap and unloved for so long.

Boeing (BA) continues on a major reversal and could be headed to a new all-time high. The energy shortage has driven solar stocks to new highs (TAN). Agriculture stocks continue their rebirth (MOS), (IPI) after getting beaten up during all of 2026 on the loss of their China markets. It has become another rising inflation play. Almost all US agricultural commodities are now selling below their cost of production thanks to the loss of their minimum wage immigrant workers.

Financials continue to get the stuffing knocked out of them, responding to the president’s proposed 10% cap on credit card interest. Or maybe it’s just profit taking, with (GS) up 70% in six months. Profit taking continues to hit big tech on fears of AI overborrowing and overbuilding. Only the very narrow chip sector (MU) remains on fire.

As I have been saying for the past year, the new government policies will eventually lead to a major market crash, but the super stimulus will make it go up first. The big question for all of us is: How much of the good news is already in the market?

When the stimulus runs out, like when the Fed balance sheet tops $10 trillion and interest rates fall to 1%, that will be when the market tops out. When that happens is anyone’s guess.

This is what a gold (GLD), (B), (NEM), (GDX) market that is going up every day is screaming at us loud and clear. The “risk off” hedges are trading at much bigger premiums than the underlying stocks. Goldman Sachs (GS) added more fuel to the fire by boosting their 2026 year-end target to $5,500 an ounce for the barbarous relic.

The bond vigilantes are back!

So far, they have been selling off the Japanese bond market first and foremost, taking yields up to an all-time high of 4.2% for the 30-year. But the US is on their radar as well, which is why the (TLT) is unchanged year on year, despite three Fed interest rate cuts in 2025. This shouldn’t be happening. Of the hundred or so reasons I worry about the markets, bonds are high on the list.

The CrowdStrike (CRWD) trade we closed out at max profit with the Friday option expiration offers us many lessons. First of all, it pays to be cautious in 2026. Trading with a Dow at 50,000 is very different from trading when it was at a lowly 6,000 in 2009. Look at a 17-year chart for the averages, and you see markets that have basically gone straight up for a generation.

With a black swan a day, you can expect your shares to drop 10% or more at any time. Pick your strike prices accordingly. In a market that is giving us twice the volatility with half the returns, you are going to have to accept smaller profits on your trades. The upside is you get to sleep at night.

Second, buying the big dips pays off, not chasing all-time highs. With this trade, I am returning to a 100% cash position with a small profit for January. I’ll be awaiting the next black swan. For the third time this month, we got dressed up with no place to go regarding the Supreme Court decision on tariffs. We may also be only a week away from the next government shutdown.

Third, the merits of deep-in-the-money vertical bull call spreads have been demonstrated once again. Even though the shares dropped $18 since we initiated this trade, we still made the maximum profit. A profit of 6.38% is better than a poke in the eye with a sharp stick.

I closed out 2025 up +62.02%. That takes my average annualized return to +50.61%, and my performance since inception reaches a new all-time high of +814.68%. These are all non-compounded numbers. The past 24 consecutive months have all been profitable.

So far in January, we are up +0.72%.

I was stopped out of a small long in Apple (AAPL) for a small loss and ran a long in CrowdStrike (CRWD) into the Friday option expiration. I am now 100% in cash.

I am keeping risk to a minimum ahead of the Supreme Court decision on tariffs and a government shutdown on January 30. There is also a Fed interest rate decision next week.

Some 65 of my 79 round trips in 2025 were profitable. That is a success rate of 82%. We were up every month for the second year in a row in one of the most difficult trading years in market history.

Try beating that anywhere.

TACO Rides Again, with Trump bailing on a trade war with Europe and claiming he won what the US already had. A major Air Force base has been at Thule since 1954. I promised you smaller returns this year with more volatility, and we are getting it in spades. The Dow sold off 1,200 points, then made it all back for an unchanged week, but we got stopped out of our Apple position.

Core PCE Rises, from 2.7% to 2.8%, according to the Fed’s preferred gauge released Thursday. The Personal Consumption Expenditures Price Index is a Commerce Department measurement that our central bank uses as its main forecasting tool. It showed inflation at 2.8% for the month, both for headline and core, in line with the Dow Jones consensus. In addition, the department’s Bureau of Economic Analysis reported that the rate for October was 2.7% on both a headline and core basis, the latter excluding volatile food and energy prices. The monthly figures showed a 0.2% increase for both months.

The “Sell American” Trade is Back on, with Europeans discussing dumping all their US stocks and bonds, some $8 trillion worth. Markets behaved this week like this was a possibility, with US stocks, bonds, and currency all tanking. Europe would rather invest in friends than enemies. The self-immolation of America continues.

Denmark Dumps $100 Million of US Treasuries, their entire holdings, citing the deteriorating finances of the US government. Standard & Poor’s downgraded US debt last May. No doubt Greenland was a factor, too.

Weekly Jobless Claims Rise, up 1,000 to 200,000. The Labor Department’s weekly jobless claims reports have, in recent weeks, been clouded by challenges adjusting the data for seasonal fluctuations around the year-end holiday season and turn of the year. Through the volatility, however, the labor market has remained in what economists and policymakers ‌call a “low-hiring, low-firing” state.

China Halts Shipments of Nvidia H200 Chips, by blocking entry by customs officials. Parts suppliers for the H200 have halted production. The administration recently lifted national security bans after claiming a 25% export tax for itself. NVIDIA had expected one million orders for the H200.

Banks Continue to Fall on 10% Credit Card Cap. It was a great trade while it lasted. It was our number one pick, and (GS) rose by 70% in six months. Banks will come back, but only after the nonstop international crisis dials down.

DH Horton Beats. Incentives helped the company to drive a 3% increase ‌in its net sales orders to 18,300 homes in the first quarter ended December 31. Shares of the company were up 4% in premarket trading. Affordability pressures and cautious consumer sentiment were still pressuring demand for new homes. The average rate on the popular ⁠30-year fixed-rate mortgage declined to 6.06%, ‍the lowest level in more than three years, mortgage finance agency Freddie Mac said. ‌It ‌averaged 7.04% during the same period a year ago.

Consumer Spending Rose 0.50% in October, which accounts for more than two-thirds of economic activity, the Commerce Department’s Bureau of Economic Analysis said on Thursday. Economists polled by ‌Reuters had forecast consumer spending increasing 0.5% in November. The combined October and November data was delayed by the 43-day government shutdown.

Japanese Bond Markets Crash, taking yields up to 4.3%, an all-time high. A new stimulatory budget and a weak yen are expected to cause inflation. Japan’s debt/GDP ratio is now over 240% compared to 150% for the US. It rattles the world because a lot of financing was done in a formerly low-interest-rate world. It all shows how record debts is a global problem.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns over the next four years. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.

On Monday, January 26, at 8:30 AM EST, we get Durable Goods for November.

On Tuesday, January 27, at 8:30 AM, the ADP Private Employment Report is announced.

On Wednesday, January 28, at 2:00 PM, the Fed Interest Rate Decision is released.

On Thursday, January 29, Weekly Jobless Claims are published.

On Friday, January 30, the Producer Price Index is published. At 10:00 AM EST, we obtain the Baker Hughes Rig Count.

As for me, I have learned a lot about Argentina over the past two weeks.

National health care is free. The public hospitals are large and crowded. I went to one to get a shot for Dengue fever, which is not available in the US (no market). Not only can I use it during my trip to Iguazu Falls, but it will also be handy to have on my future trips to the Amazon River Basin, the South Pacific, Africa, and New Guinea.

I collect rare shots like other people collect coffee mugs, and Dengue will be added to yellow fever and anthrax, while the rest of the country is dialing back on immunizations.

But that is just me.

A doctor was escorting me to my appointment, and she asked my name. Then said she had heard of me and had read my paper on sequencing DNA, which I published 50 years ago. It appears it is required reading for biochemists at the local university. It’s nice to know that in the sum total of one’s life, you have made the world a better place.

They say that learning a foreign language is a good preventative for dementia, and I have been going full steam ahead, learning 20 words a day of Spanish, thanks to Apple Translate. Today’s accomplishments: hardware store (ferreteria), kale (col rizada), and password (contrasena). If I can’t think of a Spanish word, I substitute an Italian word and get away with it most of the time.

You see a lot of construction here. But it is all refurbishment of 100-year-old buildings from the Belle Époque era. To a large extent, modern Argentinians are living off the sweat of their forbearers a century ago.

There is very little new construction of high-rises. You also see a lot of abandoned projects, which is typical of a country with perennial financial crises. The developers simply ran out of money. Short-term loans now have 30% interest rates, but they reached as high as 150% in 2025. Loan sharks must have a field day.

I’m writing this letter to you from the Palermo district of Buenos Aires, a pleasant neighborhood near the center of the city with all its tree-lined streets. It was a grueling nine-hour flight down here from Miami. I slept through both meal services, so I landed starving. Here in the Southern hemisphere, it is the middle of summer, and the summer solstice has just passed. It doesn’t get dark until 8:00 PM. In the heat, all the women are wearing shorts that reveal some pretty disappointing tattoos. In the evenings, families push their children down sidewalks in strollers or walk their dogs.

The people are thin, friendly, and most look like they just stepped off the boat from Europe. The streets are in terrible shape, jammed with traffic, with speed bumps every hundred yards. After a while, it starts to affect your back. Steaks are to die for and dirt cheap.

The city is organized much like the US was 70 years ago, before the big box stores took over. Each block has a tiny grocery store, butcher, barber shop, hardware store, and restaurant. People go out and buy what they need every day and carry their goods home. The refrigerator and storage space are limited.

From 1880 to 1945, Buenos Aires was one of the richest cities in the world as massive food exports supported a lavish lifestyle. The city became known as “The Paris of South America,” and the abundant Belle Époque era buildings attest to this.

Then, in 1946, Juan Peron became president, and the wheels fell off as he diverted investment from agriculture into heavy industry and the military. The national debt soared, and the Argentine peso collapsed. Argentina became the poster boy for disastrous monetary policy.

Today, the inflation rate is 35%, down from 200%. Workers are paid weekly so they can spend it immediately, or they won’t be able to afford the soaring cost of food. A coffee at Starbucks is 8,000 pesos ($5.71), a Big Mac is 14,100 pesos ($10.00), and dinner for two at a modest restaurant is 100,000 pesos ($71.42).

Argentina has defaulted on its national debt no less than nine times. It was rescued from number ten a few months ago by a $20 billion loan from the US. It is ironic that while the US is lending money to Argentina to help maintain its free health care, it is cutting back on its own.

Finally, I discovered that Uber offers motorcycle rides on its app in Buenos Aires, which are a quarter of the cost of a car ride. I had to try it once. A strapping youth showed up on a 250-cc bike, and we tore off into the traffic. We weaved in and out between cars, ignored yellow lights and honking horns, and openly flirted with death. At least we got to my destination fast. I’ve done a lot of crazy things in my life, and this one has to be high on the list.

Never again!

Washington DC take note.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader