Introduction
The financial narrative entering 2025 is one of cautious optimism tempered by lingering uncertainty. As outlined in “Rising Above the Noise: The Data-Driven Market Outlook for 2025,” the macroeconomic data—improving financial conditions, expanding global liquidity, and stabilizing growth—points to an emerging expansion rather than the collapse heralded by mainstream headlines. Yet, the pace of this recovery is slower than many anticipate, raising a provocative question: could this cycle, instead of peaking in 2025, extend into 2026, delivering a longer, more sustained climb?
Raoul Pal, co-founder of Real Vision, has increasingly framed this as a growing possibility. He argues that the business cycle’s sluggishness—evidenced by prolonged periods below key thresholds like the ISM Manufacturing Index of 50—is now giving way to expansion, potentially translating the cycle’s timeline further out. This “translated cycle” hypothesis hinges on two pillars already highlighted: liquidity and financial conditions. While these forces are improving, their gradual pace could delay the cycle’s crescendo, pushing the peak into 2026 and offering investors a longer window of opportunity—if they can endure the climb.
This essay explores this extended cycle scenario, weaving together Pal’s insights with the data-driven foundation of the prior outlook. It examines how slow-but-steady liquidity growth and easing financial conditions could stretch the macro summer into a prolonged ascent, while acknowledging the risks of such a protracted timeline. For those who can tune out the noise and focus on the signal, the implications are profound: 2026 may not just be a footnote, but the climax of a cycle redefined by patience and resilience.
The Translated Cycle: A New Timeline Emerges
Economic cycles rarely follow a textbook script, and the current one is no exception. Traditional models might peg 2025 as the peak of an expansionary phase following the post-pandemic recovery and subsequent tightening. Yet, Raoul Pal’s analysis suggests a different trajectory—one where the cycle’s sluggish gestation period below key growth thresholds has deferred its full bloom. In a March 2025 discussion, he noted, “The business cycle is taking a long time below 50. It’s starting to expand now. That has probably extended the cycle into 2026.” This translation isn’t a delay for delay’s sake; it’s a structural shift driven by the slow unwinding of prior constraints and the gradual buildup of supportive conditions.
The first essay established that the percentage of countries in “macro summer”—a phase of economic expansion—is rising, underpinned by data like the Citi Economic Surprise Index (CESI) bottoming in March 2025 and rebounding business confidence. However, these indicators aren’t surging; they’re inching upward. Commercial and industrial loan demand in the U.S., positive for the first time since Q3 2022, reflects tentative corporate optimism rather than a flood of investment. Small businesses in the U.S. and Europe report easier credit access, but PMI data remains mixed, signaling a stabilization rather than a boom. This measured pace suggests the expansion is taking root, but its full force may not materialize until later—potentially 2026.
Pal ties this to historical parallels. The 2017 cycle, one of the strongest bull markets in recent memory, was fueled by a similar slow-but-steady liquidity surge and a weakening dollar. If the current cycle mirrors that cadence, the gradual improvement in financial conditions could extend the runway, avoiding the sharp peaks that often precipitate downturns. The data supports this: global M2 money supply is expanding, and 78% of central banks—including the Federal Reserve, ECB, and Bank of Japan—are easing policy. This isn’t the backdrop for a quick sprint to 2025’s end; it’s the foundation for a marathon into 2026.
Liquidity: The Slow-Burning Fuel
Liquidity remains the silent engine of market strength, and its current trajectory bolsters the case for an extended cycle. The first essay highlighted China’s impending quantitative easing (QE) as a game-changer, with collapsing bond yields signaling Beijing’s readiness to flood the economy with cash. Yet, this hasn’t fully materialized by March 2025—China’s weak yuan has delayed aggressive intervention, awaiting a stabilizing trade deal. When it arrives, likely in mid-2025, this liquidity injection could ripple globally, amplifying the cycle’s momentum into 2026.
Beyond China, global liquidity is on the rise. The M2 money supply’s growth mirrors 2017’s bullish conditions, and central banks’ coordinated easing—three rate cuts priced into U.S. markets for 2025—adds fuel to the fire. Pal has emphasized this in recent updates, noting on X (March 5, 2025), “With the dollar, rates and oil headed lower… financial conditions are now easing fast and lead risk assets by a couple of months.” This easing, while underway, is deliberate rather than torrential, suggesting a sustained burn rather than a fleeting spark. If liquidity continues to build at this pace, the cycle’s peak could shift from late 2025 to mid- or late-2026, giving markets more time to climb.
The crypto market, a bellwether for liquidity trends, reinforces this view. Bitcoin and Solana, trading at discounts relative to M2 growth, have absorbed Q4 2024’s tightening and are poised for multi-month rallies—historically a precursor to broader asset gains. A slow liquidity ramp-up could prolong these runs, pushing crypto and equities higher into 2026 before the inevitable correction. The key is patience: the fuel is there, but it’s igniting gradually.
Financial Conditions: Easing, But Not Exploding
Financial conditions are the cycle’s heartbeat, and their slow improvement is both a blessing and a challenge. The first essay debunked fears of persistent inflation, citing Truflation data showing declining expectations and weakening services inflation in the U.S. With the Federal Reserve gaining room to cut rates—market expectations align with Pal’s view of a dovish 2025—the tightening cycle of 2024 has given way to easing. Yet, this shift isn’t a floodgate opening; it’s a measured release.
The CESI’s projected bottoming in March 2025 marks a pivot, but its rebound will likely be gradual, reflecting the broader economy’s cautious recovery. Business confidence, while rising, isn’t at euphoric levels—loan demand and credit access are improving, but not surging. This tempered pace could prevent overheating, a common cycle-killer, and instead stretch the expansion into 2026. Pal’s “Banana Zone”—a phase of explosive asset growth—may have a second act starting in April-May 2025, followed by corrections and further rallies that carry into the next year.
The risk here is complacency. Slow improvement requires sustained policy support—any misstep, like premature tightening or a geopolitical shock, could stall the climb. Yet, the data suggests resilience: historical tariff cycles (e.g., Trump era) show minimal inflationary impact, and global coordination among central banks bolsters stability. If financial conditions continue easing at this deliberate pace, 2026 could emerge as the cycle’s zenith.
Sentiment: The Contrarian Catalyst
Market sentiment, as the first essay noted, is a powerful contrarian signal—and it’s screaming opportunity. The AAII Investor Sentiment Survey’s 60% bearishness in early 2025 mirrors pre-rally extremes (2008, Q4 2022), suggesting fear is overextended. A slow cycle extension could capitalize on this, as sentiment gradually aligns with improving data, driving a prolonged uptrend into 2026.
Equities reflect this bottoming behavior. The NASDAQ’s return to its 200-day moving average in the U.S. has historically preceded rallies, and seasonal trends—bottoms in February-March, surges in Q2—support a multi-year climb. If liquidity and financial conditions build steadily, sentiment could shift from fear to greed over 2025, peaking in 2026 as the cycle matures. This isn’t a guarantee—sentiment can flip quickly—but the setup favors a longer arc.
Risks and Rewards of the Long Climb
An extended cycle into 2026 offers rewards but demands resilience. The rewards are clear: higher asset valuations, prolonged rallies in tech and crypto, and a broader “macro summer” as liquidity and growth align. Pal’s vision of a translated cycle suggests markets could reach heights unseen in prior expansions, fueled by China’s QE, Fed cuts, and global M2 growth.
Yet, the risks loom large. A slow climb leaves more time for disruption—geopolitical flare-ups, policy errors, or an inflation resurgence could derail the momentum. The first essay’s optimism assumes these headwinds subside, but a 2026 peak requires them to remain muted. Investors must also contend with fatigue; a gradual ascent tests patience, tempting premature exits before the payoff.
Conclusion: Positioning for 2026
The data tells a compelling story: liquidity is expanding, financial conditions are easing, and sentiment is ripe for a turnaround. Raoul Pal’s translated cycle hypothesis—that this slow improvement could push the peak into 2026—builds on these trends, offering a vision of a prolonged climb rather than a fleeting summit in 2025. Key events to watch—CESI’s March 2025 bottom, China’s QE rollout, and the Fed’s dovish stance—support this timeline, suggesting a cycle redefined by endurance.
For investors, the message is clear: tune out the noise, embrace the data, and prepare for a marathon. Dips remain buying opportunities, not signals to flee. The long climb to 2026 won’t be easy, but for those who rise above the fray, the rewards could be historic. Turn off the headlines, zoom out, and let the signal guide the way.
Disclaimer: The content of this essay, “The Long Climb: How Liquidity and Financial Conditions Could Push the Cycle to 2026,” is provided for informational and educational purposes only. It is not intended as financial, investment, or professional advice. The views expressed are based on the author’s interpretation of data and research and do not constitute a recommendation to buy, sell, or hold any securities or assets. Financial markets are inherently unpredictable, and past performance does not guarantee future results. Readers should conduct their own research and consult a qualified financial advisor before making investment decisions. The author and any associated entities are not responsible for any financial losses or damages resulting from the use of this information.