Markets look ahead to 2026 as inflation cools and growth finds momentum

Judging by the delayed government reports, inflation showed signs of easing this past fall. Indeed, the November Consumer Price Index (CPI) report showed that the CPI and the core CPI, which excludes the food and energy components, rose 2.7% and 2.6%, respectively, on a 12-month basis, with both metrics coming in notably below expectations. The more benign price data, along with an uninspiring November jobs report and the forthcoming appointment of a likely more dovish Federal Reserve Chairperson by President Trump, keeps the possibility of lower interest rates during 2026 in place according to Value Line.

There are also signs that the economy is reaccelerating. The delayed third-quarter gross domestic product (GDP) report from the Commerce Department showed that output expanded by an estimated annualized rate of 4.3% in the three-month period, driven by personal consumption. There also is a sense that growth will continue in 2026, as the tax cuts from the One Big Beautiful Bill Act and regulation rollback may provide additional support for both consumers and businesses.

However, not all parts of the economy are performing well. Manufacturing as well as housing activity remains sluggish, with the latter hurt by still relatively high mortgage rates. High interest rates and still sticky inflation, along with simmering geopolitical turmoil in the Caribbean, The Middle East, and Ukraine, a weaker dollar, and rising national debt, have pushed investors into gold, platinum, and silver. All three precious metals recently hit all-time highs in price.

While being overall optimistic, Professor Siegel also notes:

“There are two genuine policy cliffs investors should not dismiss. First is tariff uncertainty, specifically the legal and procedural path via the Supreme Court decision that could either validate or constrain the tariff regime, and the market impact will hinge less on the headline than on timing, implementation latitude, and whether Congress is pulled into the process. Second is the recurring fiscal funding risk into late January, which is exactly the kind of avoidable “Washington shock” that can dent confidence even if it ultimately gets patched. I don’t expect policymakers to choose chaos, but markets don’t price intentions — they price deadlines.

Looking into 2026, I remain constructive. With inflation cooling, the Fed has room to move the policy rate down further; I continue to look for additional easing that takes short rates closer to the low-3% range over time. Importantly, I do not expect that to automatically pull the 10-Year down by the same magnitude. The long end is likely to remain anchored in the low-4% area as term premium, issuance, and structural forces keep longer yields from collapsing. That means the equity market backdrop can still be favorable — falling inflation and easier policy are supportive…”