As we move into the new year, economic readings continue to show well above average U.S. growth, supported by solid consumer activity, particularly on the part of more affluent consumers. The economy is also benefiting from improved productivity and ongoing investment across major industries. While some government-reported figures appear temporarily inflated due to one-time technical adjustments, the broader trend still points to a healthy, expanding economy. Businesses, especially larger ones, are showing resilience, and borrowing conditions are expected to gradually ease as banks maintain ample liquidity. These conditions contribute to a stable backdrop for both households and companies.
Inflation continues to be a mixed picture. Although headline inflation has improved significantly from the peaks of recent years, it remains almost 1%1 above the Federal Reserve's 2%2 target. Encouragingly, several early indicators suggest that inflation pressures are gradually becoming less widespread, which historically has been a precursor to moderating price trends. At the same time, consumer sentiment remains unusually low, driven largely by the lingering effects of rising living costs over the past several years. Even with wages rising, many households still feel financially stretched, contributing to a sense of disconnect between economic data and everyday experience.
Employment remains steady overall, despite a remarkably tight labor market. Much of the cooling reflected in recent reports can be traced to temporary factors in government-related employment rather than private-sector weakness. While many smaller companies have curtailed hiring, larger companies continue to hire at a modest pace, and jobless claims remain near historically low levels. A particularly unique challenge today is simply the shortage of available workers—something that limits both job growth and layoffs. Looking ahead, advances in technology and automation continue to reshape parts of the labor market, creating both opportunities and transition pressures for different industries.
In the markets, investor confidence has strengthened, with gains spreading beyond the handful of mega-cap companies that dominated performance last year. A wider variety of sectors and company sizes are now participating in market gains, creating a healthier, more balanced landscape. Globally, international markets—particularly in Europe and parts of Asia—show signs of renewed momentum as economic conditions improve and valuations remain attractive compared to the U.S. While geopolitical developments and policy decisions may introduce periods of uncertainty, the broader global backdrop suggests continued opportunity for diversified investors in the year ahead.
Additional Disclosures:
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice to meet the particular investment needs of any investor. Past performance does not guarantee future results.
Investing involves risks, including the loss of principal. Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Sources:
1. “Inflation Watch – Wages vs. Inflation”, Gregory Blaha, Posted 1/13/2026 https://www.biancoresearch.com/
2. “Economy at a Glance - Inflation (PCE)”, Boards of Governors of the Federal Reserve System, As of 1/27/2026, https://www.federalreserve.gov/economy-at-a-glanceinflation-pce.htm