The investment industry is full of hindsight exercises. Ones that involve reducing historical periods into summary statistics void of any uncertainties or twists and turns that occurred along the way. Importantly, there is always a right answer in a hindsight exercise. Like, investing in stocks over the last three years was the “right” decision. Thus, the only easy money you ever make in markets has already been made.
So, what’s the right answer in a foresight exercise? I’ll tell you when it becomes a hindsight one. Until then, we are guided by our “Three E’s” framework for 2026. As always, our first two E’s are Economics and Earnings, the fundamental drivers of market behavior. Our third E, which changes annually and attempts to anticipate a key sentiment driver for the year, is Easing, this time the government kind.
Economics:
Entering 2026, the consensus economic narrative is positive. Declining interest rates and provisions within the One Big Beautiful Bill Act (OBBBA) have led to broad-based optimism about consumer health and economic momentum. In fact, economic bears are becoming difficult to find.
Hiring activity has slowed materially, but jobs remain solid overall and broad unemployment has not risen in a meaningful way. That combination matters. It implies some cooling under the surface without a marked decline in activity. Jobs drive consumer spending, the foundation of U.S. economic activity.
It is important to remember that 2026 is a midterm election year. History suggests fiscal policy often remains supportive during those periods. We therefore view fiscal stimulus as likely to remain elevated.
Earnings:
For equity markets, earnings are the long-term engine of growth. Current expectations call for S&P 500 earnings growth to accelerate from ~13% in 2025 to ~15% in 2026. That’s helpful for stocks, but composition matters. The “Magnificent 7” (Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia, Tesla) are still expected to drive roughly 38% of earnings growth. This concentration is not inherently negative, but it creates dependencies.
We believe 2026 earnings will be influenced by several key drivers: the sustainability of A.I.-related capital spending, ongoing consumer resilience, tax benefits from OBBBA, and business confidence. Importantly, expectations are also improving for the rest of the market, implying broader equity participation.
Easing:
In the U.S., the Federal Reserve has already moved toward accommodation[NH2.1], both through the policy rate and balance sheet operations. At the same time, fiscal support remains near levels above historical averages. Abroad, governments are also leaning more heavily into spending—partly as they address defense and NATO-related commitments.
Together, these forces create a supportive liquidity environment. Easing can extend cycles, soften downturn risks, and support asset prices.
Some risks: The most significant risk for 2026 may be optimism itself. When expectations are uniformly positive, the bar for “good news” rises. Great expectations that are merely met can become a liability. Great expectations that are missed can become a problem.
Layer on top the ongoing A.I. debate and persistent political uncertainty, the case for portfolio discipline becomes clear. Finally, while inflation has cooled, the mix of monetary and fiscal easing could reignite it if the stimulus becomes excessive.
Easy money is possible for those that print it, but not for those who invest it. The early read on 2026 is favorable from a policy and earnings expectations perspective, but elevated sentiment has raised the bar. Nimbleness and diversification are consequently investor requirements.
This material is for informational purposes only and should not be construed as personalized or individualized investment advice. Investing in securities involves the risk of loss. Past performance is not indicative of future results.
The securities identified and described do not represent all the securities purchased, sold, or recommended for clients’ accounts. The reader should not assume that an investment in the securities identified was or will be profitable.
This content is developed from sources believed to be providing accurate information. While reasonable care has been taken to ensure that the information herein is factually correct, Becker makes no representations or guarantee as to its accuracy or completeness.