Unpacking the 2026 Market Outlook

Giving credence to the role that industry-leading investment research plays in the lives of financial advisors and the clients they serve, 2026 Outlook: The Policy Engine thoroughly recaps the economy and markets in 2025, plus provides LPL Research’s detailed analyses, insights, and actionable ideas for 2026.

In thinking about 2025, the year typifies the prevailing regime — one where markets are driven less by fundamentals and traditional business cycle dynamics and more by fiscal and monetary policy influence. As fundamentals have taken the back seat, policy decisions have clearly emerged as one of the most impactful forces driving market direction. Here’s what LPL Research believes that may mean for 2026.

Economy: From Headwinds to Tailwinds

The U.S. economy is expected to experience a modest slowdown in early 2026, with the labor market being key. Recent data indicates businesses have less demand for workers amid an uptick in layoff announcements, a notable change from the blistering pace of job growth in preceding years. This easing in the labor market will effectively curb aggregate demand, leading to a more sustainable pace of expansion. The first half of 2026 will likely be the weakest, but as businesses and households regain their footing from uncertainties during 2025, GDP is expected to grow higher than in 2025 but not as fast as 2024. 

While the softer labor market and a slower economy are detractors, the economy will benefit from several drivers. Corporate investment in AI as well as fiscal spending from the One Big Beautiful Bill Act (OBBBA) should help offset a softer job market and steer the economy clear of recession. The insatiable demand for cutting-edge technologies like data centers, advanced semiconductors, and AI-driven software is fueling significant capital expenditure by tech giants and businesses across various sectors. The demand for intellectual property (IP) is becoming a pillar for growth and is expected to capture an increasing slice of the economy. This investment wave not only creates jobs in construction, manufacturing, and technology services but also boosts productivity and efficiency, offering a counter cyclical force to the general slowdown.

Stock Market: Running with the Bull

Indeed 2025 was strong for stocks, though volatile. A strong 2025 does not mean the stock market won’t deliver more gains for investors in 2026 — which should keep the fourth year of this bull market delivering solid gains.

There are several things in play which could help push stocks higher in 2026, most notably the AI investment cycle that powered technology stocks in 2025. A maturing advance during a Fed rate-cutting cycle with stocks near all-time highs also bodes well for a rewarding 2026, especially given the economy will get a fiscal policy boost as stimulus from the OBBBA kicks in and boosts corporate profits and cash flows. 

On the flip side, stock valuations are rich, plus the propensity for higher volatility in midterm election years should be factored in. For this reason, our best advice is to stay invested in equities at target weights and wait for corrections before considering raising equities exposure to overweight.

Bonds: Navigating Neutral

The forecast for the 10-year Treasury incorporates the expected path of policy rates as well as the broader macroeconomic environment, inflation expectations, and more. Key elements of the outlook include:

• Rangebound yield environment. Ten-year Treasury yields should stay in the 3.75% to 4.25% range.
• Given the rangebound interest-rate environment, a focus on income generation is advised. A higher-quality approach is favored, with an emphasis on securitized markets like mortgage-backed securities.
• Cash yields are expected to decrease as the Fed cuts interest rates. Long-term investors should benefit from slightly extending cash maturities and locking in some yield with high quality fixed income.

Don’t Miss the Full Report

This is just snapshot of the market analyses and forecasts in 2026 Outlook: The Policy Engine. The comprehensive report features so much more, including insights and guidance on commodities, currencies, alternative investments — as well as LPL Research’s stock market sector recommendations.

There’s a lot to take in, but then with over 400 years of combined investment experience, LPL Research has a lot to offer. As one of the largest independent research teams, it’s all designed to deliver first-rate investment research that helps advisors best meet the needs of their clients with efficiency and ease.