As the end of 2025 quickly approaches, investors are shifting their focus to the outlook for 2026. Based on initial strategist forecasts, 2026 is expected to be another positive year for the S&P 500 and other broad equity markets (see chart of the week below). But before we turn the calendar page on 2025, market attention is squarely focused on Wednesday’s Federal Reserve meeting, where a 25-basis-point rate cut is largely expected. With the most recent inflation readings showing little sign of unexpected acceleration, the fulcrum of the Fed’s ultimate decision rests on the state of the labor market. While the rate of hiring remains lackluster, recent initial jobless claims have shown a decline. With the President’s announcement of a new Fed chair coming in the new year, Jerome Powell’s remaining months as Fed chair provide an interesting backdrop for market expectations of additional easing to come in 2026. This week brings additional data points on the labor market, with job openings being reported on Tuesday, along with the broader Job Openings and Labor Turnover Survey (aka “JOLTS). Critical in that report will be trends in voluntary separations and layoffs. With inflation sitting just below 3%, should the labor market exhibit signs of stabilization (or even acceleration), investors waiting for additional cuts from the Fed before the May transition of chair responsibilities may be disappointed. |
Optimistic Forecasts for 2026
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What HappenedU.S. Employment – ADP employment came in at -32k vs. estimates of +10k. U.S. Economic Activity – The ISM Manufacturing PMI came in at 48.2 vs. estimates of 49.0, while the ISM Services PMI came in at 52.6 vs. estimates of 52.0. U.S. Inflation – PCE for the month of September came in at 2.8% on a YoY basis (in line with estimates of 2.8%), while Core PCE MoM came in at 0.3% (in line with estimates of 0.3%). |
