Outlook 2026

As we move into 2026, investors should anticipate a continuation of many of the key themes that defined 2025. The broader environment is likely to remain characterized by an equity market showing underlying resilience but also prone to occasional bouts of volatility, a fragmented economic backdrop that keeps the bond market from trending meaningfully in either direction, and a policy landscape in Washington that continues to exert a dominant influence on both sentiment and market direction. Though the calendar is changing, these same core forces, we believe, will continue to broadly shape things.

The post-pandemic economic cycle remains distorted, with traditional indicators now offering only limited guidance. More specifically, the economy is being impacted by the lingering effects of years of wartime-level fiscal spending, a powerful capital investment boom driven by artificial intelligence (AI), and the still-unfolding impacts of a generational shift toward higher tariffs. The result is a macroeconomic environment that defies conventional patterns: growth is steady but uneven; consumer spending proves resilient but only among higher-income households; inflation remains persistently above target yet contained; and labor markets are tight though gradually softening. We expect these dynamics to mostly persist in 2026. While certain areas of the economy stand to gain from the wealth effect and the ongoing AI infrastructure buildout, others may face real challenges as capital continues to get redirected away. Monetary policy adds another layer of complexity. As the Federal Reserve (Fed) moves further toward normalization, the effects of lower interest rates may prove uneven — much as they did when rates were rising. While continued easing should bring much needed relief to debt-burdened lower-income households, the implications for higher[1]income consumers, who drive much of total spending, are less clear. There is also the potential for a change in the makeup of the Federal Open Market Committee (FOMC), which could alter the future path of interest rates.

Investors also need to remain prepared for periodic episodes of market volatility. The market’s sensitivity to headline risk is no doubt being amplified by a policy-driven environment in which government actions play an increasingly pivotal role. While supportive government measures can bolster stability and complement private-sector momentum and trends, they also introduce a duality where even minor policy shifts can quickly become headwinds. Compounding this is the growing concentration within the major equity indexes themselves. The strong performance and innovation of a small group of mega cap technology companies have played a vital role in driving returns over the last three years. However, their rapid growth and their now outsized weight in the indexes also brings with it an increased sensitivity to company-specific risks at the broad market level. While this change in underlying market structure has clearly contributed to impressive gains, it also raises the potential for higher degrees of market volatility moving forward.

Given the rapidly changing investment landscape, we advocate for a disciplined, diversified strategy — especially when diversification feels out of favor, as that’s historically when it proves most valuable. This means spreading your portfolio across a broad range of asset classes, market segments, and global regions to manage risk and find new sources of return. We also continue to believe in enhancing portfolio resilience with stabilizers like alternative investments. Moreover, investors should remain agile and attentive; transitional market phases often create the most favorable entry points into equities. Given the strong potential for continued equity performance into 2026, treat these moments as clear opportunities for long-term positioning.

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^{This material prepared by LPL Financial.}

^{The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.}