The Economic Outlook for 2026
- Holzberg Wealth Management
- Jan 22
- 7 min read
HWM Market Recap - January 2026
|
Heading into 2026, the financial landscape is dominated by the transition from artificial intelligence as a speculative 'boom' to a revolutionary cornerstone of the global economy. Despite conventional headwinds – including geopolitical tensions, trade barriers, and a cooling U.S. labor market – Wall Street remains almost universally optimistic. With Fidelity International labeling AI “the defining theme for equity markets” in 2026, the consensus suggests that the productivity gains from this era are only just beginning to materialize as firms largely lean into growth rather than retreat.
Below are the strategic outlooks from the world’s most influential financial institutions as they navigate the opportunities and challenges of the year ahead:
Bank of America: "Despite lingering concerns, our team remains bullish on the economy and AI. We are optimistic on the two most influential economies, expecting above-consensus GDP growth for the US and China. Furthermore, concerns about an imminent AI bubble are overstated, and we expect AI investment to continue to grow at a solid pace in 2026."
BlackRock: "We see AI capital spending still supporting growth in 2026, with the contribution to US growth from investment totaling three times its historical average this year. This capital-intensive boost is likely to persist into next year, allowing growth to hold up even as the labor market keeps cooling."
Charles Schwab: "Global economic growth may slow in the near term but then accelerate as 2026 progresses, owing to the lagged effect of interest rate cuts on business and consumer behavior, increased fiscal support, and moving past the peak in tariff uncertainty."
Citi: "We expect global growth to remain on a broadly similar track for the next two years, with the economy expanding 2.7% in 2026 and 2.8% in 2027. Tariff pressures will take a further bite out of growth, but the overall effects look manageable."
Fidelity: "There is a disconnect between the positive short-term environment for risk assets, and a broader structural instability. Global fragmentation, a depreciating dollar, US Federal Reserve independence, and AI capex trends are themes to watch in 2026 and beyond."
Goldman Sachs: "The cycle extends: Sturdy global growth coupled with non-recessionary Fed cuts should be positive for global equities, but tensions with 'hot valuations' may increase volatility. We expect sturdy global growth of 2.8% in 2026, versus a consensus forecast of 2.5%. The US is likely to outperform substantially (2.6% vs. 2%) because of reduced tariff drag, tax cuts, and easier financial conditions."
JPMorgan: "A rate-cutting cycle from the Fed, along with the benefits of reduced economic policy uncertainty, should help global growth rebound toward a trend-like pace. Lower short-term rates in the US can boost risk assets such as global equities and credit. A steady growth outlook, among other factors, will likely keep long-term bond yields range bound. In all, we expect another solid year of returns for multi-asset portfolios."
Morgan Stanley: "Risk assets are poised for a strong year in a friendly policy and macroeconomic environment, with US stocks outperforming peers. US government bonds are likely to weaken after a rally in the first half of the year."
Vanguard: "In 2026, the US is positioned for a more modest acceleration in growth to about 2.25%, supported by AI investment and fiscal tailwind from the One Big Beautiful Bill Act. The first half of the year may be softer given the lingering stagflationary effects of tariffs and labor supply plateauing, as well as yet-to-materialize broad-based gains in worker productivity."
Wells Fargo: "While the global economy can continue to demonstrate resilience, the pace of global growth in 2026 is unlikely to match the rate of expansion achieved in 2025. Easier central bank monetary and fiscal support from select countries can put a floor under global growth; however, protectionist trade policies may restrain global activity."
Our Take
It is true that many conversations about the economy continue to be dominated by familiar topics: inflation, interest rates, economic growth, labor markets, and the durability of recent winners – particularly companies tied to artificial intelligence. These are reasonable areas of focus, and they will almost certainly drive headlines in the year ahead. But if 2025 reinforced anything, it is that uncertainty is a constant feature of investing, not a temporary condition waiting to be resolved.
One of the more instructive lessons from last year was how strong market outcomes coexisted with uncomfortable narratives. Between late February and early April, the S&P 500 fell more than 21%, including a 6% single-day decline following the announcement of new tariffs on nearly all US trading counterparts on April 3rd. Less than one week later, once most of those new tariffs were paused, the market surged almost 10% in one day, jumpstarting a recovery that took only 54 days to regain previous losses. In total, the S&P 500 hit 46 new all-time highs last year despite sharp drawdowns, geopolitical stress, policy uncertainty, and shifting interest rate expectations.
Markets ultimately moved higher not because uncertainty disappeared, but because investors who remained disciplined were compensated for enduring it. This is a reminder that attempting to sidestep volatility often carries its own risk, namely, missing recoveries that are difficult to anticipate in real time.
We are also mindful that the last decade has been unusually generous by historical standards. Over the last ten years, the S&P 500 has averaged nearly 14% per year, well above its long-term historical norm of roughly 10%. That argues for an expectation reset, not because a downturn is inevitable or even imminent, but because returns are unlikely to compound at the same pace indefinitely. In this environment, diversification matters. For example, in 2025, foreign stocks substantially outperformed US stocks overall. Market leadership rotates, often when least expected, and globally diversified portfolios are better positioned to weather those shifts.
Rather than trying to predict exactly how 2026 will unfold, our focus remains on thoughtful portfolio positioning. Importantly, the right positioning looks different depending on where an investor sits in their financial life.
For those in or nearing retirement, thoughtful positioning is not about predicting the next bear market, but about structuring portfolios so near-term spending needs are insulated from market volatility. That often means holding adequate cash or high-quality fixed income so withdrawals are not forced at inopportune times, allowing long-term assets the time they need to recover.
For investors still in the wealth-accumulation phase of their lives, positioning takes a different form. It means accepting that periods of market stress are not only inevitable but potentially beneficial. Future contributions, rebalancing, and disciplined investing during downturns have historically been powerful drivers of long-term outcomes. Every past decline looked frightening in the moment and attractive in hindsight; there’s little reason to believe the next one will be different.
Ultimately, we are less focused on forecasting how 2026 will unfold and more focused on ensuring portfolios are designed to withstand and thrive in a wide range of outcomes. Investing is a long-term journey, not a single-year verdict. Staying grounded in that perspective, through both strong and challenging markets, remains, in our view, the most reliable way forward.
|
Monthly Changes in Indices
| Changes in Indices for 2025
|
Monthly Performance By Sector
| Sector Performance for 2025
|
|
Interest Rates: The Federal Open Market Committee (FOMC) announced that it cut interest rates by 0.25% in its December meeting, marking its third and final interest rate decrease of 2025.
Inflation: The Consumer Price Index (CPI) increased 0.3% month-over-month in December. Over the last twelve months, CPI increased 2.7%. Core CPI (which excludes food and energy) increased 0.2% in December compared to November and rose 2.6% compared to a year ago.
Housing: According to the National Association of Realtors, existing home sales increased 5.1% month-over-month in December and increased 1.4% from one year ago. The median existing-home sales price rose 0.4% from December 2024 to $405,400. Sales of new single-family houses decreased 0.1% in October from September and increased 18.7% from October 2024. The median sales price of new houses sold in October was $392,300 – an 8% decrease from a year ago.
Mortgage Rates: As of January 15th, 2026, the weekly average for a 30-year fixed-rate mortgage is 6.06%, below the 52-week average of 6.56% and down 0.98% from a year ago.
Employment: According to the Bureau of Labor Statistics' Employment Situation Summary, unemployment was little changed in December at 4.4%.
Consumer Sentiment: The University of Michigan's Surveys of Consumers increased 2.1% in January. Compared to its reading from one year prior, consumer sentiment is down 24.7%. Year-ahead inflation expectations held steady at 4.2% in January. Long-run inflation expectations ticked up slightly from 3.2% in December to 3.4% in January.
If you liked this post, please share it with someone who might benefit from it, and let us know if you have any comments or questions!
About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.
