LPL Research Presents Outlook 2026

Impactful Decisions, Compelled Motion

The year 2025 exemplifies the prevailing regime — markets driven less by fundamentals and traditional business-cycle dynamics and more by fiscal and monetary policy influence. Today, policy decisions have emerged as one of the most impactful forces driving market direction.

What does that mean for 2026? We believe investors should remain patient and avoid overreacting to short-term sentiment swings — as policy and momentum-driven markets cause severe fluctuations in price, which can challenge behavioral biases. We saw this when stock prices swung wildly in 2025 and expect higher volatility to persist.

The good news is that we expect policy to be a tailwind for markets and for the Federal Reserve (Fed) to continue easing policy, as economic conditions downshift and inflation remains contained. Corporate earnings may help, though there will be little room for error. Core bonds will quietly offer some value, which should be aided by a more dovish Fed.

Outlook Highlights

Economy

The U.S. economy is expected to experience a modest slowdown in early 2026 before rebounding later in the year. Underlying resilience from AI-driven investment and fiscal spending should help offset weaker household activity and steer the economy clear of a recession. A cooling labor market and softer consumer demand will help ease inflation, though price pressures are expected to linger. We anticipate the Fed will proceed with rate cuts gradually in 2026, balancing inflation concerns with a softening labor market.

Stocks

The bull market appears poised to extend its run in 2026, fueled by ongoing enthusiasm around artificial intelligence and further easing of monetary policy from the Fed. However, with valuations running high and midterm election years often bringing more volatility, gains may be more tempered in 2026. Maintain current allocations and stay patient for pullbacks to selectively increase equity exposures. Our fair value target range for 2026 is 7,300 to 7,400.

Bonds

Bonds continue to offer compelling income opportunities, with starting yields still elevated relative to historical norms. With 10-year Treasury yields anticipated to remain between 3.75–4.25% in 2026, investors should focus on income generation rather than price appreciation. As the Federal Reserve lowers short-term interest rates, returns on cash may continue to decline, making high-quality bonds with intermediate-term maturities more attractive for long-term investors.

Commodities

We maintain a constructive view on commodities, while recognizing heightened uncertainty around global trade dynamics, monetary policy shifts, economic growth trajectories, and the durability of AI-driven infrastructure investment. We continue to favor precious metals, supported by our view that many of the same catalysts that drove outperformance in 2025 will continue. The administration’s shift to securing supply chains among a growing list of critical minerals should also be supportive of the broader metals market, especially for domestic producers.

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