February 10, 2026
Economic Commentary
My colleague Chris Burns and I kicked off the year on the road, delivering our 2025 Year-in-Review and 2026 Outlook seminars throughout the state of Michigan before heading south to conclude the tour in Naples, Florida. It was a privilege to connect with so many of you during these sessions. If you were in attendance, thank you for joining us. For those who could not make it, a video recording of our Kalamazoo presentation is now available under the “News” tab on our website.
Investment Landscape
We enter 2026 following a historic stretch for equities. The S&P 500 recently achieved a rare feat; three consecutive years of gains exceeding 17% (2023–2025), a streak seen only five times in the last century. While performance in January was less robust, economic tailwinds and a strong earnings growth forecast are reasons to be optimistic about the year ahead for equities. In the bond market, expectations for 2026 suggest a more stable environment. The 10-year Treasury yield began the year at 4.16%, reflecting this more patient outlook. Equity markets outside the U.S. have continued to perform well, with global growth seeming to settle back into historical norms following five years of COVID related irregularities.
A Resilient Economic Foundation
The U.S. economy remains on stable ground with forecasts calling for real annualized GDP growth of 2.1% exiting the year. Moreover, the probability of a recession within the next year appears low. Consumer activity remained strong throughout the holiday season with higher income earners accounting for much more than their share of spending – the top 10% of households are responsible for roughly 50% of consumer spending. U.S. employers added fewer jobs than expected in December suggesting the labor market continued to “slowly slow” through the end of the year. December payroll gains totaled 50K, in line with the full year average, but below forecasts for +70K. While employers are not hiring aggressively, there is also little evidence of widespread layoffs. The unemployment rate moved slightly lower in December to 4.4%, higher than the 4.1% rate at the beginning of 2025, but historically low nonetheless. The earnings outlook for 2026 appears favorable with consensus expectations for 15% earnings growth from S&P 500 constituents this year.
Market participants will keep an eye on inflation as it continues to hover in the high two percent range. The annual rate of inflation remained at 2.7% in December, matching November and meeting market expectations. In the context of its dual mandate, Fed policymakers are generally expected to prioritize the labor market. The Fed left policy rates unchanged at their January 28 meeting and so long as there is not a notable increase in CPI in the coming year, we believe rate cuts will continue apace as the year progresses. The market is currently anticipating two rate cuts for 2026 which appears to be a reasonable base case. With the notable exception of Japan, most developed countries’ central banks are expected to continue cutting interest rates over the coming 12-month period.
Watching the “Washington Clock”
Three significant policy considerations are currently front-and-center for investors as they look forward into 2026. Most immediate is the January 30 funding deadline. Following a record-long 43-day shutdown in 2025, investors are assessing whether lawmakers have the appetite for another prolonged battle over government spending. While certain sectors like agriculture and defense are funded for the full year, the rest of the government remains in limbo. We expect heightened market noise as the deadline approaches, though historical data suggests these events rarely derail long-term market fundamentals.
The Supreme Court is still assessing the legality of Trump’s sweeping reciprocal tariffs as they declined to make a ruling on the matter in January. Betting markets only see a 30-35% chance that the high court will uphold the tariffs. While the outcome is uncertain, the administration has signaled that it has other options available that can effectively mimic the current tariff policy should the court rule against them.
Further out is the deadline to review the US-Mexico-Canada Agreement, known as the USMCA. July marks the critical six-year “joint review” of the deal, which President Trump struck during his first term in office. The three nations must decide whether to extend the trade deal for another 16 years or face potential renegotiation, revision or even termination by 2036. Early talks are already underway as all three nations assess its performance and potential improvements, especially concerning labor, competitiveness and digital trade. With the formal report to Congress delivered in January, the conversation is shifting from simple implementation to potential renegotiation.
Looking Ahead
As we navigate the first quarter of 2026, we encourage investors to maintain discipline. Whether dealing with headlines from Washington or the nuances of trade negotiations, a long-term time horizon remains your most effective asset. On behalf of our entire team, thank you for the opportunity to serve on your behalf. We look forward to a healthy and prosperous 2026.