Asset Management
12/15/2025 Market Strategy
December 15, 2025
What Lies Ahead in 2026?
Some Thoughts on the Outlook for Markets and the Economy
Key Takeaways
- For the year ahead, we expect markets to continue the bull market rally that began in Oct. 2022 as economic fundamentals remain supportive of continued revenue and earnings growth.
- Q3 earnings season wound up last week. The companies of the S&P 500 reported earnings growth of 13.1% on the back of revenue growth of 8. 3%. Prior to the start of the season, FactSet put expected Q3 earnings growth at 8% from a year earlier.
- This week brings insights into the economy’s recent performance as economic data reports resume. On Tuesday, the BLS will issue the non-farm payrolls report for November, and the Census Bureau will issue its preliminary estimate of October retail sales.
- The BLS will release consumer price index inflation data for November on Thursday.
For a third year in a row, we expect stocks stateside to experience a broadening of the powerful rally that began early in the fourth quarter of 2022 and has persisted since notwithstanding some interruptions as counterpoints to its upside trajectory .
We maintain our call to overweight exposure to US equities into 2026 as we continue to expect the US economy and markets to lead the world economy into some kind of a new normal.
Looking back over the last few years, we recall that the upside trajectory that emerged in late 2022 came about after the market had become significantly oversold on expectations of economic and earnings recessions that were ultimately never realized.
Since that earlier recovery, the market has undergone numerous periods that have included what seems like relentless day to day upside for stock prices and expanding valuations across sectors. These were followed with some regularity by periods of selling fed by some catalyst worthy of consideration that appeared in the markets providing bears, skeptics, and nervous investors to take some profits in stocks intermittently without FOMO (fear of missing out) midst what in hindsight now appears to have been a longer-term bull market.
A Detour Need Not a Journey End
Ironically the downside produced by some catalyst s that prompted nervous selling created opportunities for more bullish investors to “catch the babies that got thrown out with the bathwater” (good stocks caught in market downdrafts).
Repeatedly over the last few years once the catalyst to sell has been discounted, some positive data or news flow has come along to reassert an upside move in the market. We expect this process of selective buying on dips will continue and we see periods of near-term weakness in some sectors that illustrate it.
The effect overall has been a positive development for the markets in keeping both bulls and bears on their toes.
While past performance is certainly no guarantee of future results, we have found that the modern market steeped in the Bernanke legacy of Fed transparency and frequent communication serves to discount both good news and bad news more quickly than we can recall over the course of a little more than 42 years in the markets.
While we do not expect the current pattern will go on endlessly nor do we think that trees grow to the sky, for now the persistence of the good fundamentals that have carried the bull case from October 2022 remain intact and are likely to remain supportive in the year ahead.
These positive fundamentals that overcame the periods of turbulence experienced over the last few years we find persistent on the current landscape and in our view are included in a mix of monetary policy, fiscal stimulus, resilient economic earnings, and consumer growth along with what appears to be watershed innovation that is not likely to plateau soon.
The Gains from Tech Should Benefit All Sectors
Ultimately the markets move higher on revenue and earnings growth, both of which appear to be in good stead based on past seasons’ results, which have improved over the course of the last few years.
Earnings season surprises across the sectors beyond technology and communications services over more than just a few quarters suggest to us that the broadening in investor interest across the sectors is not solely for diversification but is a prudent avoidance of concentration in just a few sector s, or market capitalization or style buckets but also a move to gain exposure to companies that can benefit from the innovation that percolates out of technological innovation and improvements.
Corporations that engage tech to generate greater efficiencies will likely attract investors and customers in the year ahead and for some time in the future as AI and its usage expands.
An increase in technology investments across non -tech related sectors should boost efficiencies and productivity, enhancing their attractiveness.
The relatively attractive valuations of sectors outside the sectors that harbor the so called “Magnificent Seven” should contribute to a further broadening of the rally as well economic growth that appears sustainable stateside.
Don’t Forget the Fed
Monetary policy by the Federal Reserve is likely to be supportive of higher bond prices as the central bank moves closer to an end of the current rate hike cycle should inflation remain steady or slide further towards the Fed’s 2% inflation target. Inflation’s stickiness factor remains to be put in check.
For now, it is our view that the Fed is not likely to accelerate the pace of rate cuts it has thus far undertaken since last year. While a change of leadership is expected at the Fed when Jerome Powell’s successor takes the helm, there is little if any indication that the Fed will lessen its dependency on economic data in its deliberations. This year’s 75 bps in total cuts versus last year’s 100 bps in reductions supports our view that the pace of easing is slowing.
We maintain our call to overweight exposure to US equities into 2026 as we continue to expect the US economy and markets to lead the world economy into some kind of a new normal.
Economic growth should also remain resilient in our view as the effect of the Big Beautiful Bill factors into the economic mix sometime next year. For now, we right size our expectations for US GDP looking for economic group's similar to what we experienced this year with periods of weakness offset by periods of surprising strength.
Where We Stand Now
We remain positive on stocks and regard it as our favorite asset class.
We continue to favor cyclical sectors over defensive sectors. Our favorite sectors include: information technology, communications services, industrials, financials, and consumer discretionary.
Regarding the consumer discretionary sector, we note that while surveys of consumer sentiment (soft data) reflect concern by the consumer near term related to inflation and the health of the economy, the hard data or sales data persists in showing that the consumer continues to shop if somewhat selectively and at a slower pace reflective of some sensitivity to prices.
Beyond our aforementioned favorite sectors, the utilities sector should garner increased favor as interest rates move lower. The sector is considered by many investors as a bond proxy that can benefit when interest rates move lower. The sector also has appeal as a thematic sector with prospects for the revitalization of the US electric grid a necessity as AI and other technologies increase the demand for electricity.
In our view, portfolio diversification among asset classes held in portfolios remains an important consideration to meet the needs, goals , objectives , and tolerance to risk of private investors and the needs of mandate - driven institutions in an environment which remains in transition on a number of levels including: technological innovation, fiscal policy, monetary policy, geo , and domestic politics around the world. Fixed income remains, in our view, complementary to stocks as a source of income and for diversification among primary asset classes.
Name:
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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