Outlook 2026: The Policy Engine

Recently, the LPL Research team published 2026 Outlook: The Policy Engine. A check-in on where the markets have been and where they might be headed, the report is a great guide to help steer personal portfolios. If you haven’t read it yet in its entirety, take a minute to tap into some of the key takeaways.

Economy

The U.S. economy is expected to experience a modest slowdown in early 2026 before rebounding later in the year. Underlying resilience from AI-driven investment and fiscal spending should help offset weaker household activity and steer the economy clear of a recession. A cooling labor market and softer consumer demand will help ease inflation, though price pressures are expected to linger. We anticipate the Federal Reserve (Fed) will proceed with rate cuts gradually in 2026, balancing inflation concerns with a softening labor market.

Stocks

The bull market appears poised to extend its run in 2026, fueled by ongoing enthusiasm around AI and further easing of monetary policy from the Fed. However, with valuations running high and midterm election years often bringing more volatility, gains may be more tempered in 2026. Maintain current allocations and stay patient for pullbacks to selectively increase equity exposures. Our S&P 500 fair value target range for year-end 2026 is 7,300 to 7,400.

Bonds

Bonds continue to offer compelling income opportunities, with starting yields still elevated relative to historical norms. With 10-year Treasury yields anticipated to remain between 3.75–4.25% in 2026, investors should focus on income generation rather than price appreciation. As the Fed lowers short-term interest rates, returns on cash may continue to decline, making high-quality bonds with intermediate-term maturities more attractive for long-term investors.

Alternative Investments

Given the evolving market dynamics, we continue to favor strategies that offer enhanced diversification, downside risk mitigation, and the potential for excess returns less reliant on broad market direction — specifically equity market-neutral and nimble discretionary macro approaches. We are also more positive on merger arbitrage and private equity, which could benefit from the recent pickup in corporate dealmaking. Within private markets, we remain constructive on infrastructure and secondaries, both of which have demonstrated resilience and steady growth throughout the year.

Commodities

We maintain a constructive view on commodities, while recognizing heightened uncertainty around global trade dynamics, monetary policy shifts, economic growth trajectories, and the durability of AI-driven infrastructure investment. We continue to favor precious metals, supported by our view that many of the same catalysts that drove outperformance in 2025 will continue. The Trump administration’s shift to securing supply chains among a growing list of critical minerals should also be supportive of the broader metals market, especially for domestic producers.

Currencies

We remain respectful of the dollar’s long-term uptrend. The rebound in big tech leadership, pro-growth stimulus coming from the One Big Beautiful Bill Act (OBBBA), growing carry trade appeal in the dollar, and potential upside to economic and earnings expectations could keep the trend intact. However, the likelihood of additional monetary policy easing amid a slowing labor market, lingering trade policy uncertainty, and ongoing concerns over the sustainability of the deficit could limit upside to the upper end of the dollar’s consolidation range (107.50–110 area).

These are just some of the high-level takeaways from 2026 Outlook: The Policy Engine. For in-depth commentary and analysis, read the full report today. Or for insights and action steps investors and their financial professional may want to discuss, read the investor recap.