Dear Reader,
Our final podcast for 2025 is in – and it was such a fun one to film. Jeff breaks down what happened in Wednesday’s Fed meeting, what he’s looking forward to in 2026, how trading in volatile markets isn’t about being bearish, and more.
Let us know your thoughts right here at [email protected] – do you want to see more podcasts in 2026? What topics should we cover?
Thanks, as always for joining us. Enjoy the holidays!
Regards,
Rachel Bodden
Senior Managing Editor, Jeff Clark Trader
Transcript
Rachel Bodden: Hello. Welcome back to another episode of Jeff Clark’s Master Trader Podcast.
Jeff Clark: You’re calling it Master Trading. All right, I’ll go with it. Excellent. Good to see you too, Rachel.
Rachel: We have a brand-new YouTube channel we’re working on getting set up, which is very exciting. This is our sixth episode. That means we’ve been doing this for half a year.
It feels like a lot has happened this year, and I can’t even explain it, but we’re super thrilled to be doing this for you guys. We’ve had a lot of really positive subscriber feedback, so please keep letting us know your thoughts at [email protected] because we love to hear from you. Send in your questions, thoughts, and concerns, or what you’d like us to talk about, because we love to address that for you.
So I guess we’ll start with, to me, the elephant in the room: yesterday’s Fed meeting. Tell us a little bit about what happened and what that might mean for next year.
Jeff: Well, like every other Fed meeting, there wasn’t anything shocking that came out of it. The Fed dropped short-term rates by 0.25%, and everybody had already anticipated it. Everyone figured there’d be two dissenters, including the one gentleman who wants 50 basis points.
They cut rates by a quarter, but what was surprising was a comment he made three-quarters of the way through. He was very careful in stating this isn’t quantitative easing, but they’re going to be buying Treasury bills – roughly about $40 billion every month for the next several months.
Rachel: So where are they getting that money if it’s not quantitative easing?
Jeff: First, before we get to that, the purpose – as Chairman Powell stated – is to relieve some of the liquidity pressures on the banks. That’s important to understand because the Fed doesn’t work for us; the Fed works for the banks. Whatever they do ultimately benefits banks. Collateral may help us, but the direct benefit is always to the banks.
So whenever the Fed is injecting liquidity, my assumption is they see something happening, or they project something might occur, that causes stress in the system, so they need to get ahead of it. Now, where do they get the money? As Ben Bernanke said, there’s a button on his desk he could press at any time, and it generates liquidity. They print the money and then provide it to the market.
Ultimately, increasing the money supply is inflationary. That raises demand and pushes prices higher because more money is chasing fewer goods. In the short term, that’s asset-positive. The market saw this as bullish because the money takes pressure off the Treasury, which needs to issue longer-term bonds.
Rather than issuing 10-year notes at 4.15% or 30-year notes at 4.7%, they can issue Treasury bills that the Fed will buy at 3.5%. That takes pressure off the bond market, and if you’ve watched bonds the past six weeks, they’ve sold off and yields have gone up. That creates financial pressure in the system.
So the Fed did everything right yesterday: they lowered interest rates as expected, and they showed they understand there is stress in the bond market. No surprise that stocks rallied. My concern, the same one I’ve had for months, is that valuations, sentiment, and expectations are all high. There’s nothing cheap.
Having said that, there is a large swath of stocks trading at single-digit P/E multiples. They’re out of favor and unloved, so there are bargain opportunities. But if you’re looking to chase tech stocks or high-flyers, let Oracle’s earnings report be a lesson. Oracle was $350 two months ago and today it’s going to open around $190. It’s a tech giant, it’s AI, it’s everything people rave about, but it had no business being $350 – and even at $190, trading at around 32 times earnings, it still seems pricey to me.
Once you push that sector aside, there are bargain opportunities you can take advantage of right now.
Rachel: That was an excellent answer. I think those explanations are what our readers really need, and you make it so easy to follow. A lot of financial analysts talk way above people’s heads, and that’s the point – so you don’t actually know what’s going on under the hood.
Jeff: You’re not going to get many five-syllable words out of me. I’m not that smart.
Rachel: Oh, please. But we’ve talked about this in Market Minute, our free e-letter. Jeff talks about what’s going to happen in the market in very short terms, and it’s easy to understand, just like he always is.
We’ve talked a lot about the bond market and the yield curve. Is there anything you’re seeing there that might have some parallels to other scary points?
Jeff: Yeah, you know the answer to that. I’ve been harping on this all year, sometimes to my own demise because I haven’t participated fully in the market. I keep seeing this giant rain cloud in the distance, so I’m always carrying an umbrella. Meanwhile, everyone else is dancing on the beach, and I’m bunkered down.
The yield curve is the issue. It was inverted for almost two years – the longest time it’s ever been inverted. That means short-term rates were higher than long-term rates, which is abnormal. Usually, the longer you go out in time, the higher the interest rate.
We were inverted for almost two years, and only back in September did we go back into positive territory. Now it’s starting to accelerate. If you look at a yield curve chart, you can see it clearly.
When you compare this to previous times – 2020, 2007, 2001, 1990 – those were all periods right before difficult economic times. Each was followed by a recession and a poor period for stocks. Not all stocks, which is why I said earlier there are cheap names that will eventually get some love once enthusiasm fades from tech and AI.
I think the impact is coming in 2026. I thought it would happen in 2025, but from a cycle perspective – especially the presidential cycle – 2026 makes sense. We’ve had three straight years of double-digit S&P gains, and the fourth year is usually difficult.
The biggest cloud is the yield curve, but I think that presents opportunity. Folks who have been conservative and raising cash will have chances to put that money to work.
Rachel: For you, the type of market we may see in 2026 is one you love to trade. There are so many opportunities when stocks come back up. Nothing goes down in a straight line, and nothing goes up in a straight line. That’s why you had some of your best trading years in 2008, 2020, and 2022.
Jeff: Exactly. People look at my track record in those years and think, “Well, he’s bearish, so of course he does well in a bear market.” But that’s not how you do well in those markets. Almost the best trades I made in 2008 were from the long side.
Bear markets create more volatility. My trading style – mean reversion – takes advantage of oversold stocks bouncing back up and overbought stocks coming back down. That works great in volatile markets. But when you have a one-way market like we’ve had since April, there isn’t enough volatility to make that strategy attractive.
I expect next year to be very volatile, similar to 2000, 2008, or 2022. All of those were good mean-reversion trading years. I also look for stocks that are cheap, unloved, and coming off bottoms. That’s like fishing in a small pool full of giant trout – it’s easy, but you have to be patient.
This year didn’t reward patience. Momentum dominated. Shorting expensive stocks would have gotten you run over. But as things start rolling over next year, we’ll probably be more aggressive on the short side.
And here’s my goal: you tell me a stock you want to buy, and I’ll find a way in the options market to lower your risk and increase your reward. If you want to leverage two or three times, that’s fine – but when you start doing 5, 10, 20, 50 times leverage, you’re going to blow up your account.
A lot of beginners get lucky with high-leverage trades and think they’ve mastered it – until the market humbles them. You must avoid the gambler’s mentality. Options should reduce risk while increasing reward.
Rachel: For someone just starting out with options, what would be your first piece of advice?
Jeff: Start small. Some people say paper trade, but it doesn’t work because you’re not emotionally involved. When you have money on the line, you’re emotionally invested – just like betting on the Super Bowl.
When you’re paper trading, it’s easy to say, “I’m down 50%, I’ll take the loss,” or, “I’m up 100%, I’ll take the gain,” without thinking. But when you’re in the trenches with real money, emotions drive your decisions. You have to learn how your emotions affect your ability to trade.
Start with one or two contracts to get a feel for it. If you’re high-strung and a five-cent move on a $2 contract sends you over the edge, you need a strategy that accounts for your temperament. If you can master emotional control, options trading becomes more like solving a puzzle – and it becomes more fun and more profitable.
Rachel: You talked about the options market as a puzzle – the kind you’ve been working on for years and never get bored with because there’s always something new to figure out.
Jeff: The market itself is a puzzle. It evolves, so a strategy that worked three months ago might not work now. You have to adapt. Every day I get up and think, “How am I going to solve this puzzle today?”
I’ve been doing this for over four decades, and I can’t imagine not doing it. On Saturdays and Sundays when the market is closed, I still find myself doing chart reviews. It’s a game that never ends, and once you’ve played it long enough – with successes and failures – it becomes a passion. I’ll be doing this forever.
Rachel: I love how you talk about the markets. But now that you live in Miami, on Saturdays and Sundays, go to the beach – maybe get that scuba license we talked about.
Jeff: There’s always that opportunity. The great thing is you can take a laptop anywhere and trade from anywhere – on the beach or by the pool on the 50th floor.
Rachel: As much as we harp on tech stocks, technology really has given us so much freedom. Just to close out here: we’ve been talking about sectors that might do well next year. Do you want to give us a couple besides energy?
Jeff: There are lots of stocks trading cheap right now. The energy sector is cheap. Months ago I talked about healthcare being cheap, and I think there’s still opportunity there.
Food stocks surprise me – Albertsons (ACI), for example. It trades at eight times earnings, and it’s a grocery chain expanding and increasing margins, but nobody cares because it’s “just” a grocery chain. Restaurant stocks are showing up too.
Cable companies are another odd one. Charter Communications (CHTR), Comcast (CMCSA), and another one I can’t recall – all three have beautiful bottoming patterns and historically low multiples. It’s a no-growth business, but the companies are adjusting and evolving. The stock market hasn’t appreciated that yet, which is why they’re down 50–70% from their highs.
I think 2026 will be the year of cable companies – sounds horrible, but next year we’ll check back on them, and I bet many will be up 50–70%. Payment processors like PayPal, Paychex, and Fiserv have been battered too. There’s opportunity everywhere if you look for stocks trading below their normal valuation ranges and figure out whether the situation is recoverable.
Rachel: That sounds like a high note for us to wrap up on. Next time we see you, we’ll be in the new year, and I think it will be a really exciting trading environment. Jeff, thank you for doing these podcasts for the past six months – I hope we’re doing this for a long time.
Again, let us know if you enjoy our content or want to hear other topics or questions. We’d love to hear from you at [email protected].
Jeff: Thank you so much. Thank you, Rachel.