“Cheers to a new year and another chance to get it right.” —Oprah Winfrey
Each December, those of us in the investment business lay out our expectations for the coming year. We do so with the knowledge that no one has a clear crystal ball (it’s one of the reasons I like Oprah’s quote). But from my seat, there is no substitute for experience. Each year, month, and day presents an opportunity to learn something new that will help clients navigate a constantly evolving market and economic landscape.
So, with 2026 fast approaching, can investors expect more of the same, or are there shifts on the horizon? Let’s take a closer look.
We entered 2025 with cautious optimism. Fiscal and monetary policy changes presented risks and opportunities. We held firmly to the belief that, over the long term, fundamentals always drive markets. Given an economy with reasonable momentum and double-digit earnings growth, it looked likely that strong fundamentals would support equity markets.
With 2025 almost in the rearview, some clear takeaways have emerged: headlines, policy proposals, and new technologies can cause markets to move quickly in the short term. Declining markets cause emotions to run high, but they can also create opportunities.
As we get ready to turn the page to a new year, the economy continues to show signs of resilience, and corporate earnings growth remains robust. On the other hand, the employment market has shown signs of slowing, and policy concerns around tariffs and trade policy haven’t been resolved. Despite the risks, a dramatic shift in the big picture doesn’t appear likely.
The U.S. economy is likely to remain in growth mode in 2026, as it benefits from the stimulus in the One Big Beautiful Bill Act (OBBBA) and continued easing from the Fed. Corporate executives have confidence in the long term, as evidenced by increased M&A activity and the strength of earnings growth from the S&P 500. While valuations will enter the year elevated compared to historical averages, the combination of economic growth, earnings growth, and increased corporate spending on deals and technology should provide a supportive backdrop for investors.
Of course, risks remain. Policy uncertainty isn’t likely to go away. Plus, the Fed’s focus on its dual mandate of employment and inflation creates an unclear picture of how aggressive the central bank may be when cutting rates in the upcoming year.
We believe that the artificial intelligence (AI) theme has legs to it and that an allocation to technology and large-cap growth remains key to portfolio construction. We also continue to believe that diversification will play an important role. Owning some areas composed of value companies, mid- and small-cap companies, and international holdings should help navigate volatility in the AI names.
There is also a place for fixed income in a well-diversified portfolio. Current yields on high-quality bonds may give clients the chance to lock in income in the intermediate part of the curve. As they have done historically, we believe bonds should continue to act as a buffer during periods of equity market volatility.
As you’ll notice in their 2026 Outlook,* my LPL colleagues take a similar big-picture view. They also provide great insights from their macro and asset class experts. I’ve summarized a few of the team’s key points here.
Economy. A modest economic slowdown is anticipated to start 2026, with a rebound later in the year. The slowdown in the labor market will be felt in the first half of the year and will have an impact on consumer spending. But strength in the high-end consumer and continued spending on AI buildout should keep growth in positive territory in the early part of the year.
Continued Fed easing and stimulus from the OBBBA should power growth in the second half of the year. Interestingly, increased spending around the World Cup and the country’s 250th birthday should also be economic positives.
Against this backdrop, the Fed is expected to further ease interest rates by 75 to 100 bps, which could lead to economic growth of about 2.1 percent for 2026. At the same time, inflation should begin to moderate, with core personal consumption expenditures (PCE) trending toward 2.5 percent by year-end.
Stocks. Will the stock market rally continue into 2026? These three key trends point to yes:
Continued scrutiny of AI spending would cause a headwind for the largest stocks in the index. Higher long-term rates and potential outcomes for the midterm elections could also serve as headwinds.
Bonds and Cash. Fixed income investors should face a range-bound market where income generation will be the key theme. Yields on the 10-year U.S. Treasury bond are expected to be between 3.75 percent and 4.25 percent. At the same time, it is unlikely that credit spreads will tighten further from current levels.
With the Fed poised to continue reducing rates, yields on cash will continue to decline. This makes higher-quality intermediate-term fixed income more attractive in terms of generating yields. Agency MBS and investment-grade corporates are in a favorable position to accomplish this for portfolios in this environment.
2026 is sure to be a year that brings with it a new set of surprises to consensus views. As we learned in 2025, those periods tend to be full of investment opportunities. As I frequently suggest, volatility creates opportunities, and the best course of action is to look for ways to take advantage of those periods when they happen.
As always, our job will be to help you navigate the market and economic landscape, no matter where 2026 may take us. We will continue to do so with a focus on enhancing portfolios for the long term to help meet client objectives. And while short-term headlines will create volatility, our guiding light will be the big picture that drives fundamentals to help us make portfolio decisions.
For more insights on what’s ahead for the economy and markets in 2026, take a look at the LPL Research 2026 Outlook, available here.
*The Market Outlook has been prepared by LPL Financial LLC (“LPL Financial”), a registered investment adviser and member of FINRA/SIPC. LPL Financial is an affiliate of Commonwealth Financial Network (“Commonwealth”), a registered investment adviser and member of FINRA/SIPC. Commonwealth and LPL Financial are under control of a common parent company.