Key Takeaways:
- A new year, but not a new economy: The underlying growth and inflation trends from 2025 are
likely to carry into 2026. - PASSing the baton:
- Policy clarity is replacing policy uncertainty,
- AI investment is likely to continue to contribute to growth,
- Stimulus from fiscal policies and,
- Stimulus from monetary policies should be growth tailwinds.
- This environment rewards staying invested and diversified and not overreacting to headlines
Passing the Baton
As we move from 2025 into 2026, it's worth remembering that the economy doesn't reset just because the calendar changes. Growth trends, inflation pressures, and investment cycles tend to persist until something changes. They evolve over time, often gradually, rather than changing sharply on January 1.
From our perspective, many of the forces that supported the economy in 2025 are likely to remain in place as we enter 2026. That continuity matters for investors because it suggests a backdrop defined more by stability than disruption.
The U.S. economy has shown a surprising degree of resilience. Despite frequent worries about recession, inflation, changing government policies, and geopolitical uncertainty, growth has continued. In many ways, the economy's size and momentum create a kind of inertia that is difficult to derail quickly. Looking ahead, we expect that same underlying environment - moderate growth, easing inflation pressures, and supportive policies - to extend into 2026.
Policy Uncertainty Declines
One of the defining features of recent years has been policy uncertainty - about tariffs, interest rates, government spending, to name a few. As we move further away from the noise, we are seeing that uncertainty fade.
Markets tend to function better whe the range of possible outcomes narrows. Even if economic growth is modest, greater clarity around policy can be supportive for investment and risk-taking.
The AI Investment Cycle Continues
Artificial intelligence has been one of the most visible investment themese of recent years, but its importance goes well beyond individual technology stocks. Large investments in data centeres, software, chips, and infrastructure are supporting business spending and productivity across the economy.
These investment cycles typically play out over many years. While the pace may vary, we expect AI-related spending to remain a meaningful contributor to growth in 2026, even as teh focus shifts from excitement to execution. As this occurs, we think winners and losers will emerge, implying investors should take a diversified approach to this theme.
Dual sources of Stimulus
Looking ahead to 2026, we see support for the economy coming from both fiscal and monetary policy. On the fiscal side, higher tax refunds and investment incentives should help support consumer spending and encourage businesses to continue investing in equipment, technology, and infrastructure. These forces should provide tailwinds as the year progresses.
At the same time, the Federal Reserve is expected to continue lowering interest rates as inflation pressures ease. Lower rates can reduce borrowing costs, improve financial conditions, and help offset some fo the headwinds that have weighed on growth in recent years. Together, these two sources of support create a constructive backdrop - one that favors steady growth and reinforces the case for staying diversified and focused on long-term goals.
Summary
The takeaway for 2026 is not that risks have disappeared, but that the foundation remains solid. After several years of strong market returns, many assets offer less margin for error, making discipline and diversification more important than ever.
In an environment shaped by economic intertia, continued investment, and gradually easing financial conditions, history suggests that staying invested and focused on long-term goals remains the most reliable approach.
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