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2026 Investment outlook webinar
Capital markets, taxes, and your financial plan
February 25, 2026
Market News
Market analysis
January 5, 2026
Resilient growth and steady employment trends keep the macroeconomic backdrop supportive as 2026 begins, while artificial intelligence (AI)-led investment and easing-rate expectations underpin equities. Still, higher valuations and commodity volatility reinforce the value of disciplined diversification.
Number of the week:
16%
The S&P 500’s 2025 return, excluding dividends.
Term of the week:
Initial jobless claims
A statistic reported by the U.S. Department of Labor that counts individuals filing to receive unemployment insurance benefits.
Quote of the week:
Initial jobless claims stayed low, at 199,000 for the week through Dec. 26, aligning with prior periods of steady employment. This pattern suggests employers are still limiting layoffs even as payroll growth slowed in recent months. This week’s economic releases — job openings, layoffs, quits, payrolls and unemployment — should offer a fuller read on labor market balance entering 2026. \
― Bill Merz, CFA, Senior Vice President, Head of Capital Markets Research and Portfolio Construction, U.S. Bank
U.S. Bank Asset Management Group
William Northey
Head of Asset Management Group
Kaush Amin
Head of Private Market Investing
Chad Burlingame
Head of Impact Investments
Thomas Hainlin
National Investment Strategist
Robert Haworth
Senior Investment Strategy Director
William Merz
Head of Capital Markets Research
Terry Sandven
Chief Equity Strategist
Global economy
Quick take: The U.S. economy closed 2025 with solid momentum, with consumer spending and business investment sustaining activity and layoffs staying limited. Manufacturing signals improved in the U.S., while global readings remained uneven. Forecasters expect U.S. economic activity to outpace most developed peers in 2026, with emerging markets continuing to drive global expansion.
- U.S. consumption and investment kept growth on track. The U.S. economy grew at a 4.3% annualized rate in the third quarter, outpacing Bloomberg consensus economist forecasts. Consumers generated roughly half of that expansion, showing their spending remained a key stabilizer into year-end. Businesses also added momentum as investment in AI capabilities continued to support activity.
- Initial jobless claims stayed low, at 199,000 for the week through Dec. 26, aligning with prior periods of steady employment. This pattern suggests employers are still limiting layoffs even as payroll growth slowed in recent months. This week’s economic releases — job openings, layoffs, quits, payrolls and unemployment — should offer a fuller read on labor market balance entering 2026.
- Manufacturing improved in the U.S., while overseas signals stayed mixed. S&P Global’s final December reading held the U.S. manufacturing purchasing managers index at 51.8, which indicates expansion. The eurozone slipped to 48.8 and the United Kingdom (U.K.) eased to 50.6, highlighting regional divergence. Services powered much of 2025’s global growth, and the latest surveys reinforce that manufacturing has not moved in sync worldwide.
- 2026 economic forecasts favor the U.S., though emerging markets lead overall growth. Economists expect the U.S. to expand 2.0% in 2026, ahead of the eurozone (1.2%), U.K. (1.1%) and Japan (0.7%). They also project emerging economies to grow 4.2%, including China at 4.5% and India at 7.2%. With housing, sentiment and business conditions data arriving this week, investors will receive timely checkpoints on whether growth remains steady as the year begins.
Equity markets
Quick take: Equities start 2026 with fundamental support from rising earnings projections, stable inflation and lower interest rate expectations. The market’s next leg may hinge on how companies convert AI investment into results.
- A supportive foundation can still come with sharper swings. Stable inflation, lower interest rate pressure and rising earnings strengthen the case for a risk-on bias early in 2026. At the same time, elevated valuations, geopolitical tensions and mid-term election speculation can amplify volatility and cause swings from one sector to another within equities.
- AI-related areas led in 2025 and still look positioned for 2026 gains as the buildout continues, but investors want proof. All 11 S&P 500 sectors rose last year, with Information Technology, Communication Services and Industrials each advancing more than 20%, which points to broad underlying strength. As AI spending scales, investors are likely to press harder for practical applications and profitability — especially when companies borrow to fund capital spending.
- The top 20 S&P 500 companies gained 27% in 2025 versus 16% for the index, excluding dividends. That differs from the late-1990s dot-com era, when smaller firms delivered performance leadership. Even among the seven largest companies, only Nvidia, Alphabet and Broadcom beat the index, underscoring how selective results can be at the top.
- Earnings expectations look strong, and valuations already reflect optimism. Analysts project 14.2% S&P 500 earnings growth in 2026 over 2025 estimates. The index trades near 25.2 times 2025 estimates, above the 35-year average of 20.1, though below the roughly 29x levels in the late-1990s. This setup raises the importance of delivery during earnings season; markets may reward evidence and penalize ambiguity.
- Fourth quarter earnings reporting could reinforce strength — or accelerate rotation. Analyst consensus calls for 7.9% year-over-year growth in both revenue and earnings, and recent quarters have often exceeded expectations. The reporting season begins next week with major banks, which can shape sentiment on credit conditions and economic momentum.
- Opportunities extend well beyond a single sector. Information Technology, Communication Services and select Industrials may benefit as AI adoption expands into real business outcomes. Utilities can gain as data centers reshape electricity demand and reinforce the supply-demand imbalance. Banks may benefit from deregulation priorities, while AI-enabled Healthcare continues to improve diagnosis, treatment planning, drug development, imaging analysis and patient monitoring.
Bond markets
Quick take: Higher Treasury yields pressured bond returns last week, but several income-oriented areas still rose. Federal Reserve (Fed) communications keep additional interest rate cuts on the table for later in 2026, even as near-term expectations lean toward a pause. With municipal bonds and select credit offering attractive income for the right investor, security selection remains central.
- Higher yields weighed on broad bond performance last week. Even so, high yield corporates, high-quality municipals and structured credit posted slightly positive returns, reflecting steady demand for higher yielding sectors. After solid gains across fixed income in 2025, bonds still offer investors a meaningful source of income and portfolio stability.
- Fed minutes pointed to cuts later in 2026 — if inflation cooperates. The Fed cut rates by 0.25% in December, setting the target range at 3.50%-3.75%, with most voting members supporting the move. Minutes indicated “most participants” saw further downward adjustments as likely appropriate if inflation declines as expected, although some preferred holding steady for a period. The Fed’s first 2026 meeting concludes Jan. 28, and bond yields currently reflect a hold on rates near term with two cuts later in the year as the base case.
- Municipal bonds look compelling for tax-sensitive investors. High-quality municipal bonds offer tax-equivalent yields around 6% for investors in the top federal bracket. Many issuers continue to show sound fundamentals, with states maintaining healthy cash reserves to support spending.
- Last year’s returns showed how quickly fixed income can reassert itself. Treasuries returned 4.3% to 8.0% in 2025 depending on maturity as yields declined. Investment-grade and high yield corporates returned 7.9% and 8.6%, supported by slowing defaults. Government-backed mortgages gained 8.8% and collateralized loan obligations (CLOs) 5.2%, with mortgage returns reflecting prepayment uncertainty and higher-quality CLOs benefiting from structural protections and attractive yields.
Real assets
Quick take: Real assets moved in different directions as rising yields challenged listed real estate while infrastructure posted modest gains. Metals sold off after higher futures market margin requirements raised trading costs, pulling broad commodities lower even as oil rose. With rate cuts still possible later this year, select real asset areas could regain relative appeal.
- Higher yields pressured real estate investment trusts (REITs), keeping rate sensitivity front and center. REITs fell 0.2% last week, with weakness coinciding with higher Treasury yields. Higher yields can lift borrowing costs and pull investor demand toward bonds, which can reduce the appeal of real estate cash flows. Even with healthy net operating income relative to property values, REIT valuations can react quickly to interest rate moves — though additional cuts later this year could improve the relative setup.
- Global infrastructure gained 0.2% last week, supported by North American energy infrastructure and U.S. utilities. The asset class rose 21.3% in 2025, helped by strong utility and industrial performance and a weaker dollar. Looking ahead, infrastructure can help investors diversify, incorporate inflation-protection features, generate income and participate in global growth — all useful attributes in a shifting economic backdrop.
- Margin changes triggered a metals selloff and dragged commodities lower last week. Higher futures market margin requirements made metals positions more expensive to hold and trade, prompting sharp near-term selling pressure. Gold fell 4.7%, silver dropped 7.5% and copper declined 2.3%, contributing to a 3.1% drop in broad commodity exposure. Oil rose amid competing forces — excess supply concerns on one side and geopolitical risks on the other — showing how commodity drivers can diverge within the same week.
This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.
Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.
Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The S&P Global Purchasing Managers' Index data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities is subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).
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