Recent economic reports show progress on inflation, yet markets remain sensitive as Federal Reserve policy and earnings assumptions set a higher bar for results.
US Economy
The Atlanta Fed’s GDPNow model is now tracking Q4 GDP at 5.4%, a sharp increase from 2.7% on January 5. Wow!! Read that again.
Let’s look at both analyst forecasts as well as expectations priced into markets for 2026.
Economists forecast that US growth will remain solid in the new year.
Source: Goldman Sachs
– Recession probability has steadily declined on betting markets, currently sitting at just under 25%.
The tech sector’s share of total US employment has steadily declined since the release of ChatGPT.
The Atlanta Fed’s GDPNow model is now tracking Q4 GDP at 2.7%, down from 3.0% on December 23. The deceleration has been driven by investments in structures and equipment, while intellectual property investments have remained very strong.
Consensus long-term earnings growth forecast is very high for US tech, especially semiconductor stocks.
Since WWII, the president’s party has, on average, lost 26 House seats and four Senate seats after midterm elections. As a result, presidents historically held less sway after midterms.
The ISM Services PMI rose further into expansionary territory, beating the consensus. The New York Fed’s consumer survey points to growing anxiety about the labor market. Perceived job security worsened, and confidence in finding new employment slumped to the lowest level since the survey began.
President Trump said US housing agencies will buy $200 billion of mortgage bonds via Fannie Mae and Freddie Mac to push down mortgage rates and improve housing affordability.
US Stock Market
Consensus estimates for 12-month-ahead earnings growth have reached the highest level since 2021 at 15%.
Historically, equities tend to be weak in midterm years, and 2026 is a midterm year. That being said, stocks tend to fare better during midterm years under second-term presidents.
Source: Ryan Detrick
NVIDIA’s weighting in ACWI—the ETF that tracks the MSCI All Country World Index—has now surpassed that of Japan again. In other words, if NVIDIA were considered a country, it would rank as the second-largest in ACWI, behind only the United States.
Here is a very long-term chart illustrating how concentrated the US stock market has become.
Valuations remain stretched. The US now has the third-highest forward P/E in our core coverage universe, surpassed only by New Zealand and India
The Fed
Fed Governor Stephen Miran said he favors roughly 150 bp of Fed rate cuts in 2026, arguing that policy is overly restrictive.
Nomura expects core PCE inflation to decelerate gradually to 2.6% year over year by the end of 2026, while Goldman forecasts much more progress, with a year-end core PCE forecast of 2.1%.
Rates markets are pricing in about 50 bps of easing from the Fed in 2026.
Our Fed speech sentiment indicator has remained in dovish territory.
Want To Hear About GREAT News That Happened Last Year?
So much of the news is so negative. Here is some positive, wonderful news…
#1: Slowly but surely, we’re winning the war on cancer.
The American Association for Cancer Research reported a two-thirds decline in the pediatric cancer death rate since the 1970s:
Source: American Association for Cancer Research
#2: 2025 saw the largest one-year drop in the murder rate ever.
Roughly 12,000 fewer people were murdered in the US over the past two years compared to the pandemic years.
#3: Traffic deaths fell 8% in the first half of 2025.
We now have the lowest fatality rate since 2019:
#4: A Gallup study found the US obesity rate fell for the second year running.
That small tick down represents roughly 7.6 million fewer overweight adults:
#5: Drug overdoses, the #1 cause of death for Americans under 50, dropped 26% over the past year to lowest level since 2020:
Don’t let the negative news nellies steal your optimism. It’s your most valuable asset.
Great Quotes
“Tell me and I will forget. Show me and I will remember. Involve me and I will understand.” – Ben Franklin
Picture of the Week
Mt Orohena, Tahiti
All content is the opinion of Brian Decker
