Highlights from LPL Outlook 2026: Stocks, Bonds, Currencies and Commodities

Jeffrey Buchbinder (00:00):

Hello everyone, and welcome to a special LPL Market Signals. It's special for a couple of reasons. One is you've got three of us to talk markets with you this week. Adam Turnquist, Laurence Gillum with me, it is Friday, December 5th, 2025. As we're recording this, it's also special because it is Outlook time. So we are presenting our 2026 LPL market Outlook to you today. Hot off the press it, by the time you see this recording, you will have the Outlook publication on LPL.com. Really excited to bring that to you and just walk through, oh, maybe about 10, 15 minutes each on our respective sections. So I'll do equities, Adam, we'll do midterm elections, commodities, currencies, geopolitics. Lawrence, of course, will do bonds. So here title of the Outlook is Policy Engine. So, certainly so I know you guys agree, policy is really intermingled throughout all of the asset classes, we would argue, or all of the markets for the most part generally. So that is our theme this time. So before we get into it, we're going to start with stocks. Before we get into it, guys, I just want you to maybe give a quick, you know, minute or two on kind of what you're seeing in the markets today, and then we'll, we'll move into the into the Outlook. So, Adam, why don't you go first?

Adam Turnquist (01:40):

Sure. I'll jump in on the equity market. Just over the last couple weeks, we've had this pretty big recovery, the S&P 500, getting very close to record, high territory that's been powered by an improvement in market breadth. I wouldn't call it great for a market near record highs, but I'll call it a step in the right direction. And something we've been watching for, technically, we have small caps this week, breaking out to new highs, the transports breaking out to new highs. That's been the missing link as part of the DOW theory between the industrials and the transports confirming each other. Volatility coming in as well. We had a big spike in the VIX back in November. We've seen implied volatility rates come in back through the October lows, the VIX futures curve, moving back to its normal state of, of contango suggesting peak fear was probably reached. Now, there's still a couple missing pieces of that puzzle. Retail has not shown up to buy the dip and leadership trends are a little bit questionable. There's been this defensive rotation in November. We're starting to see a move back to more cyclical areas of the market. I think that's going to be key for a big year end rally. We're going to want to see areas like financials and industrials, consumer discretionary start, start to outperform and lead. We're just not quite there yet, technically.

Jeffrey Buchbinder (02:56):

And thanks, Adam and you, Lawrence.

Lawrence Gillum (03:00):

Yeah, the big news out of the bond market this week is the potential nomination of a new chairman of, of the Federal Reserve. There's been some hints by the Trump administration that they're, they've narrowed it down to one person. That one person, according to the betting markets, is Kevin Hassett, the current chair of the Council of Economic Advisors. Market reaction has been relatively muted. We do have higher yields today. We have had higher bond yields across the curve this week. A lot of that I would argue is, is kind of some back and forth in terms of what's, what's going to happen in terms of rate cuts. Next week. Markets haven't fully priced in a rate cut. We're at 95%. So there's some still some ambiguity there. Not a lot. But that's causing some, you know, near term volatility within the rates market.

Lawrence Gillum (03:49):

The other thing is next week is a big week for auctions. So I think that's also putting upward pressure on, on yields. So that's really independent of what is the narrative. The ongoing narrative right now within the bond market is the potential for a overly political federal reserve. Again, markets have kind of not supported that narrative. We have seen the yield curve steepened a little bit, but we're still back into these ranges that we've been in as it relates to the two year, 10 year curve spread. We've been in this range since April. We haven't broken out of that. I'll defer to Adam on in terms of the technical information there. But you know, we, it's not enough in my mind to suggest that markets are overly concerned about a politicized federal reserve just yet.

Lawrence Gillum (04:35):

The other thing is we haven't really seen inflation expectations move significantly higher. Again, we've been in this range as, as it relates to these market implied inflation expectations through tips, securities you know, markets are still convinced that we're going to get back to a 2% inflation target over the next couple years. So despite the ongoing narrative about the potential of a politicized fed market bond market activity really hasn't confirmed that narrative. We'll keep an eye on that, of course as we go through this, this process. But right now, markets seem generally comfortable with that potential pick.

Jeffrey Buchbinder (05:13):

Some dovish ness was clearly priced in in recent months. So the fact that we're going to get a dovish, fetcher maybe isn't a surprise to the market, even though it's moving closer. And we narrowed it down from perhaps two or three doves that the market thought might be contenders to just potentially one. So thanks for that, Lawrence. We'll get to the Fed more here when you get to your bond market outlook. But let's, let's go back to the Outlook 2026. And I'll start with stocks. By the way, we are recording this early because I'll be at the NASDAQ bell ringing event for LPL. So hopefully all of you saw that Pretty cool 15 year anniversary of LPLs IPO in 2010. So for stocks, we call this policy tailwinds in AI to power equities in 2026. And so when we talk about the policy engine theme it's really the fiscal stimulus that we're referring to primarily, but also the fed.

Jeffrey Buchbinder (06:15):

It's not just bonds, right? The fed influences stocks as well, but mostly it's the one big beautiful bill act that is a big stimulus for 2026, both consumer and business support that will we think be relevant for, for markets. So starting with the charts in the equity section. So first, this is just the history of bull markets by year 1, 2, 3, 4, and of course, year one's the strongest. Year four actually tends to be a little bit stronger than year three. And it, when you get to year four, which we have this bull market just turned three, couple months ago, when you get to year four, those years tend to be positive. So you can see that on this chart, year four being the light blue bars. You see I mean, obviously this covers a lot of history, but up 28, up six, up 30, up one, up 13, up 13.

Jeffrey Buchbinder (07:18):

And then this bull market's so far up about five this, this year for this bull market up about five, the average about 13. So our forecast, which we'll get to in a minute, is not for the S&P 500 to go up 13 <laugh> in 2026. Is that possible? Absolutely. But we are a little bit more reserved than that. I'll give you the target here in a minute. But anyway, we had six out of seven positives. You have to go back to right after World War II to get a negative. So we think we're going to get another positive year. And this is one reason why, because for year, the year four of a bull market, if you get there tends to be positive. Next one. So Adam, this is your chart, but I'm going to tell the story.

Jeffrey Buchbinder (08:06):

Feel free to chime in if you want. But the Fed in a rate cutting cycle is supportive for equities with a caveat as long as you don't have recession. So this chart shows you the path, average path of stocks, the S&P 500 after if you get rate cuts around the market at all time highs. And of course, that's what we got with the last cut. Granted, it was after a long pause, but still, so you got this cut in September, then you get the boost to markets subsequent to that. So the, you see here, the averages on this chart, the, if you have no recession, you get fed cuts at near all time highs up 18% on average, really, really strong. If you take all of these cases, there's 28 of them. And just calculate the average return for the S&P in the subsequent 12 months.

Jeffrey Buchbinder (09:05):

It's 13. Again, great return, maybe a little optimistic for us to predict that, but really strong. And then it's the cuts when you have a recession within that 12 month period that you get the declines down 3% on average. So we don't think we're going to get a recession in 2026. We'll have Dr. Roach on to talk about his economic outlook for 2026 next week or potentially the week after that when we can get him on here. But see, hear his outlook. But it certainly is not for recession. And that stimulus is one of the big reasons why in fact, that stimulus is probably going to be at least half a percent contributed to GDP and maybe even a little bit more.

Jeffrey Buchbinder (09:54):

All right, turning to the hyperscalers and ai, a big theme, this isn't really policy related, but another big theme of the Outlook for 2026 from LP research is about CapEx and ai, right? So you, you see here, these are the five major hyperscalers, Amazon, Microsoft Alphabet/Google Meta and Oracle 40% compounded annual growth rate expected based on current consensus forecast for, for capital investment from these five companies. And the dollar amount in 2026 is going to clear 500 billion, might even approach 600 billion. We'll see this year we, you know, these companies way blew way by expectations for CapEx. So we'll see where these numbers come in. Next year's consensus is for about a 30% increase. That is, this dollar amount is about one per 0.6% of GDP. So you can see from the math I just mentioned, you know, maybe you get a half a point from the, from the fiscal stimulus from the OBBA, and then you get the CapEx for ai, which is another 1.6%.

Jeffrey Buchbinder (11:09):

That's already two over two actually. So getting 2% GDP growth, which can help support revenue growth we think that's a pretty, pretty low bar. AI is also important because it can help drive productivity in addition to driving the actual economic spend. So we think this is very bullish for corporate profits in 2026. And then my last chart here, this is earnings. You've seen this before. In fact, we had it in the last Outlook, but the mag seven earnings are just so massive that we don't think you have any choice but to break them out. So here you see the blue bar here is the year over year earnings growth for the Mag seven. It was about 30% actually in the quarter that just finished. And then yeah, it tapers off a little bit in 2026, but we're still talking about 20% growth.

Jeffrey Buchbinder (12:01):

We're still talking about faster earnings growth than the rest of the market. Although if you see here this, the orange bar with the rest of the S&P is actually going to gain some ground. So we don't think next year's going to be a runaway year for growth stocks or the AI theme. We think that we can see some broadening out as more of the earnings growth from the market comes outside of the Mag seven. Still good earnings growth from mag seven, still better, but improving earnings growth out of the rest of the market, we think that is potentially going to set the stage for a rotation of value. But we're not predicting that right now. Still slightly lean toward growth stocks as well as towards large caps, which is where we've been pretty much all 2025. So there you go.

Jeffrey Buchbinder (12:51):

There's stocks. The big finish here before I hand it over to Adam, our target 7,300 to 7,400 on the S&P 500 is our yearend fair value target for 2026. That is a 23 PE on $320 in earnings per share in 2027. We set our 2026 price target off of forward earnings 2027. To get there, you really only need about 7% earnings growth next year, and then maybe about 10 the following year as the AI productivity kicks in. So we think a three 20 number for S&P 500 earnings per share in 2027 is actually fairly reasonable, especially given our expectation for no recession. Put the odds of that at about 60%. Our bullish case scenario, 7,800, our bearish case scenario, 6,200. So, but we think low odds of the, of the bear case probably somewhere in the 10 to 15% range.

Jeffrey Buchbinder (13:59):

So there's your forecast, not any real multiple expansion, just earnings growth carrying this market higher. We think because stocks are a little bit expensive. Certainly the big risks, AI not panning out or spending cuts coming through for whatever reason, that's something we'll have to watch closely. Yields will be a key risk to watch. We want them to stay contained, certainly. And then of course, as always, geopolitics and trade policy will be important to follow as well. So more on that from Adam in a minute. So I'll hand it over to you Adam for midterms next, and then we will, we'll get over to Lawrence.

Adam Turnquist (14:42):

All right, thanks, Jeff. Looking at midterm years, it seems like in today's world, it's always some form of an election year, election day, election month with politics front and center. And when we look at just history of, of midterm elections going all the way back to the 1950s, what we know about them, they tend to be pretty choppy in terms of overall price action. If you look at just the progression of the S&P during a typical midterm year, it's basically flat with the lows generally reached on the year either in June or in October. The gains really are in the last quarter after the midterm, call it the last couple months. That's where you see progression of the S&P really take off. But even then, average returns for a midterm year for the S&P 500 over this period, again, going back to the 1950s, you're looking at 4.6%.

Adam Turnquist (15:35):

So that's below the longer term average of the S&P 500. The positivity rate. So the win rate, how many of those years actually produce positive returns? Somewhere around 58%. That's also the lowest return or positivity rate across the presidential election cycle. We'll see how this one plays out in, in terms of the momentum that we have going into the year. It certainly suggests maybe that it could continue in the 2026, but the history lesson here is expect some price choppy and maybe underwhelming price action for most of the year. The volatility, when you go back and actually look at realized volatility for each year of an election cycle, midterm has the highest volatility rate you can see in that green diamond. That's the realized volatility per year. And then in terms of what to expect this fall, you typically see leadership changes throughout the, throughout the midterm or after the midterm.

Adam Turnquist (16:33):

The house right now has a very narrow margin in terms of its leadership in general. I think 20 of the last 23 midterm years that the president's party has lost seats. So that's, that's expected. So there could be a shakeup in the composition of Congress. We know the market doesn't like uncertainty, so maybe that history maybe not, might not repeat, but it could rhyme. I think this year, when we think about where the Republican majority is right now, that's at risk just given the narrow margins. Not a political statement, of course, but history says we expect we should expect to see some, some seats changing in Washington this year or next year.

Jeffrey Buchbinder (17:14):

Yeah, it seems like that uncertainty always creates a little volatility. You know, maybe we don't get quite the drawdown that we got this year, because we've got 19. It was almost a bear market but certainly something in the teens would be a reasonable expectation for a drawdown at some point in, in 2026. So thanks for that, Adam. Well, we'll hear from you again in a little bit. Lawrence, over to you for bonds navigating neutral. I mean, I tell you my, I thought my title for my section was boring. I, I think you might have out boring to me here. Well,

Lawrence Gillum (17:48):

Point of clarification. Well, actually, before we, I address that, I think I, I, I need to clarify something I said at the beginning of, of the call or the call here. I think I said that Kevin Hassett was the current chair of the Council of Economic Advisors. That's not true. He was, he's a, he was the chair during the first Trump administration. Steven Myron is the current chair of the Council of Economic Advisors, but he's on leave and part of the Federal Reserve as well. So, just real quick clarification there. Because I think I misspoke at, at the beginning. Now back to this this harsh accusation about my boring title. So I was actually, I actually had two titles. I had Navigating Neutral and then Stargazing, which was about, you know, the neutral rate for the Federal Reserve.

Lawrence Gillum (18:33):

That's smart and R Star, and that got nix. So I, I was left with this pretty boring title, but what's not boring? I like this a bomb. So we'll segue into the fixed income section as it relates to the policy engine. Yeah, I mean, the Federal Reserve is going to be a big driver of expected returns throughout 2026 as it is every year. Last year we talked about the, you know, how, how low could the Federal Reserve take the Fed Funds rate? It's the same story for 2026. Again you know, whether the Fed cuts in December this week or, or in January, it looks like they're going to cut, you know, this week. But that doesn't really have a big impact on the, the direction of the tenure treasury yield. The 10 year treasury yield is highly correlated to what the expected Fed funds trough rate is, or the neutral rate, or in, in economic parlance, what the R star is, the neutral rate or R star is effectively the interest rate.

Lawrence Gillum (19:38):

That is neither accommodative nor restrictive. And that's what the Fed is ultimately trying to head to right now. They say that the fed funds rate is slightly restrictive, meaning the interest rate is above what that neutral rate would be. So that's why they're cutting rates to get back down to a more neutral rate. The neutral rate it's not observable, so it's a highly theoretical construct. But markets have tended to gravitate towards a 3% Fed funds rate. So what we're showing here on this, this chart is just a scatter plot of the tenure treasury yield, which is the left axis, and the December, 2026 implied Fed funds rate. That's the proxy for what the markets are priced in for the, for the neutral rate. And you can see that there's a very high correlation between the 10 year treasury yield and what that expected fed funds trough rate is.

Lawrence Gillum (20:31):

So our view is that if markets are right, and we do think markets are right, we do think not to take from Roach's section, but we do think that the Fed's going to cut a couple more times into 2026 and take the Fed funds rate down to around 3%. And that's what's priced into markets. So if that is truly the case, then we think that the 10 year treasury yield is likely going to stay around current levels as well. So our view for the 10 year treasury yield this year isn't much d or I'm sorry, for 2026, isn't much different from what we had for 2025. In 2025, we thought the 10 year treasury yield was going to trade around four to 4.5% which it has 81% of the, the trading days this year. So it's been in a very tight range, very directionalist market.

Lawrence Gillum (21:16):

I think that's going to happen again in, in 2026, at least at, at the beginning of the year. So our view is, you know, a 10 year treasury yield around 3.75 to 4.25% is probably going to be the right number. If markets are right in, in taking the, the Fed funds rate down to around 3% in order to get much higher than 4.25%, we're going to need to see something that is you know, in, in terms of kinda reacceleration of inflationary pressures and un an anchoring of inflation expectations, which they're not yet or, you know, there's no reason to, to to think that that's going to happen at least initially. So we, we do think we're past the secular highs in, in rates right now. So, you know, 4 25 I think is probably a realistic kind of top end number as it relates to a trading range to get much lower than 3.75%.

Lawrence Gillum (22:12):

As you, as you can see here on the screen, you're going to need to see a fed funds rate around 2.5%, but you're also going to need to see inflationary pressures fall more than what's priced into markets as well. So if the Fed does cut rates aggressively and, and takes it down to 2.75, we could get a disconnect between this relationship and, and we could see an kering of, of inflation expectations. So that's a risk to our, our forecast. But base case is 3.75 to 4.25% for the, for the 10 year treasury yield.

Jeffrey Buchbinder (22:42):

Yeah, so while our main theme is policy engine, perhaps a sub theme is actually the title of Dr. Roche's section. The more things change, the more they stay the same. A lot of our views, I think in early 2026 are similar to what they were in the back half of 2025. So no dramatic changes I would say overall really across stocks, bonds, and the economy.

Lawrence Gillum (23:07):

Yeah, just because the calendar's turning doesn't mean, you know, the narrative is, is going to shift much as was within the fixed income markets anyway. The other section that we, that we put together in this Outlook is just a look at the corporate credit markets. A lot of concerns out there, a lot of narrative about corporate credit defaults and, and bankruptcies. and there's, you know, a lot of concerns that we could be on the precipice of some sort of systemic credit risk environment. We're, we don't share that view. We think that the credit markets are generally in decent shape. And when you think about the credit, the credit markets you have your investment grade credit, corporate credit market. You have your high yield corporate credit market, you have your bank loan, corporate credit market, and then you have the private credit market.

Lawrence Gillum (23:54):

I'll leave the private credit information up and, and her team. But if, if you look at the public corporate credit markets, the investment grade market is, is doing fine. We're still seeing a lot of, you know, a lot of of, of good companies with pretty solid balance sheets. So really not a big risk that, that the investment grade corporate bond market is going to collapse. The high yield bar bond market is, is similar as well. the quality of the high yield bond market has actually improved over the course of the, of the past year. So not a lot of concerns out of the high-yield bond market as well as it relates to defaults. The bank loan market is an area that we are a little worried about particularly for these companies that have issued a lot of debt.

Lawrence Gillum (24:43):

Remember, these are floating rate securities. So over the last couple years, we've had pretty high interest rates. And that's really weighing on some of these, you know, lower quality companies within the bank loan market. Now, even as interest rates come down through these fed rate cuts a lot of these interest expenses are still pretty elevated for some of the lower quality companies within that market. We are seeing defaults and, and downgrades pick up in the bank loan market, but for, for the most part, the corporate credit markets are pretty healthy. Our issue is pricing is, is value valuations. So this is just the spreads or that additional compensation to own riskier credit versus treasury securities. And spreads are still pretty tight, across the quality spectrum. The one area that's providing some sort of, of value is that triple C rated bucket.

Lawrence Gillum (25:31):

Triple CC rated securities, though, are the most prone to default. So those, that's the area that we're seeing a lot of these little called you know, I think Jamie Diamond called them cockroaches, and, you know, these zombie companies and or what, you know, whatever term you want to use, that, that's really in that triple C rated bucket. So even in that area, despite the fact that you see a little bit wider spreads, we would argue you're not getting compensated for those idiosyncratic risks that keep popping up. So our view with the corporate credit markets, we think they're healthy, they're just unattractive from a valuation perspective. So our view is that we're, we're underweight investment grade corporates we're neutral high yield bonds, and, you know, bank loans we haven't really done much with either, just because of, of the valuation concerns that we have. Mm-Hmm <affirmative>.

Jeffrey Buchbinder (26:19):

So there's another similarity with our views in recent months, which is stay high quality in your fixed income.

Lawrence Gillum (26:26):

That's right.

Adam Turnquist (26:27):

Certainly nothing boring about zombie companies and cockroaches there, so can push back against that title a little

Lawrence Gillum (26:33):

Bit. See, that's exactly right. I, had a boring introduction. You tie

Jeffrey Buchbinder (26:37):

Into the title and it's not your, it's not your fault. The stargazing would've been really cool. <Laugh>, I like that. That's your fault. I like star <laugh>, I think get, get through.

Lawrence Gillum (26:45):

All right, so putting it all together,

Jeffrey Buchbinder (26:47):

What are we looking at here, Lawrence? Yep. Yep.

Lawrence Gillum (26:48):

So we put it all together. So a rate environment where we think it's going to be directionless spreads are, are relatively tight. So what we're showing here is just your hypothetical returns under various interest rates scenarios. So if, so, every year you should reasonably expect to earn your coupon, plus or minus any sort of price appreciation through changing interest rates. Then our base case again, is that we're likely range bound. So in a range bound environment where spreads don't change much you can reason reasonably expect to earn kind of four to five ish percent re returns out of, out of high quality fixed income. If you do see interest rates fall to towards the low of our range, maybe you're looking at a six ish per percent type return from, from high quality fixed income. But what's, what's particularly attractive about the fixed income markets still is that you still have that asymmetric return profile, meaning that interest rates can move higher and, and still you can still generate a pretty, you know, okay, return out of these fixed income markets.

Lawrence Gillum (27:49):

In fact, the tenure treasury yield would need to increase by about 72 basis points to generate a loss for, for the year. For, for the aggregate bond index. Again, given our view on rates, we, we don't think that's going to happen. So we do think that we'll have another positive year in 2026. And I think a realistic expect expectation for a lot of these markets is kind of like a four to six-ish percent type return for, for high quality fixed income. We've had a good year in 2025. The ag is up around seven ish percent. Mortgages are up around 8%, unfortunately, I think that pulled forward some of the returns from 2026 into this year. So maybe next, next year, I think we're probably looking at a coupon clipping type of year with a, you know, a four to five ish percent type return.

Jeffrey Buchbinder (28:38):

Yeah, it's, it's always the same in stocks. I think we've pulled forward a little bit of our 2026 return. We're not going to get another 18, 17, 18% kind of a year. We don't think something more like high single digits, call it eight 9% with the dividends in there for a total return. So you end up with still a pretty good year when you, even when you put your stocks and your bonds together the bonds give you some cushion when we do have stock market volatility, which obviously will come at some point, but you also get some decent income. And as you've always said, Lawrence, a little bit of a hedge if the economy weakens a little bit more than people expect. There are plenty of people out there who think that the fed's going to cut more than just two or three times next year and that the economy will, will weaken and then you'll, you know, get a little more bond return and a little more stock, a little less stock return, but still should end up in a, in a decent place.

Jeffrey Buchbinder (29:37):

So thanks for walking through those bond that wasn't boring, walking through your bond market Outlook for next year. As a stock investor I'm also encouraged that you don't think yields are going to move much higher, because remember, stock valuations are dependent on rates. They are inversely correlated. So lower rates typically means higher yields or higher, higher PEs. And you know, we're, we're sitting at around 22, 22 and a half on a forward PE basis. That's a little bit of rich relative to history. We need some help from yields and from earnings to to allow us to, to maintain that kind of valuation. So bonds are key to the stock market outlook. All right, let's switch gears. Go back to Adam for currencies. So Adam, you, we, we worked you pretty hard here on this thing. You did, you did the midterm sections, you did currencies, and you did commodities. So we'll start with currencies and the dollar and you, you win the coolest title, dominance to disruption. I like it. That's really,

Adam Turnquist (30:45):

That's really been theme for the dollar. It's had a rough year to say the least in the greenback. It's worst first half since the dollar index inception in the early seventies, down over 10%, really driven by a multitude of factors. We came into the year rallying on the dollar, coming out of the election day, call it maybe a reflation trade, all this kind of pro-growth policy. And then we had tariffs announced in the early part of 2026. Those were doubled down to, to say the least in April. On liberation day, we had deep seek news. If you flashback to China's R one deep seek ai software that created some angst over American exceptionalism. And we just had this continuous waterfall in the dollar. Of course, we had fed rate cut expectations ramp up the feds starting their rate cutting cycle again in September.

Adam Turnquist (31:41):

So that obviously weighs on the dollar. It's all relative. When you think about currencies, you could look at the Euro right now. They're now in a pause period in terms of their rate cutting. You had Germany announce this big huge fiscal package that was unprecedented, that helped prop up some of the economic growth expectations there. The dollars really struggled to rebound much on a short-term basis. Coming off those summer lows. It's kind of been struggling with this, what we'll call a bottoming process. As for now, we still are respectful of the dollars longer term uptrend. As you can see, it's been in one since the '09 lows nearly broke that uptrend. We're really watching for a close as we go into 2026 or in 2026 for a break below $96 on the dollar index, that would break that, that secular uptrend and I think introduce perhaps more of a prolonged outperformance period for international markets, especially em right now.

Adam Turnquist (32:38):

That's been an outperformer all year. That would certainly be a tailwind and also for the commodity space. But one of the big questions that we've had throughout this year, and we addressed this in our Outlook in 2025, is the question over the dollars reserve currency status. And I think categorically, at least now, we can say that's not going away anytime soon. There's been some depletion in reserve assets in the dollar, as you can see in dark blue. That's actually the percentage of dollars held in global foreign reserves dropping about 56%. It's been lower if you go back to kind of the mid, early nineties. And I think that's a reflection of just the relative GDP of the U.S. economy. And of course, just a broadening out in terms of reserve assets, gold has been probably the biggest threat to the dollar as a reserve asset.

Adam Turnquist (33:28):

It actually surpassed the Euro in terms of total holdings. I think 20% of reserves are now held in gold. That compares to about 16% for, for the Euro. But when you think about its use case, there's really no alternative. About 90% of global transactions are conducted in the dollar. As I mentioned, reserves are widely held in the dollar. And when you look at other currencies, whether it's the Chinese Yuan, the Euro, as I mentioned, or anything else, there's, there's really no nothing comparable that, that really checks the box across the board. We think about U.S. markets being very liquid, the treasury market being very liquid, and there's nothing close to the, to the treasury market, even though, for example, the Euro's been around for 25 plus years now. And, and to replace that anytime soon, I think is farfetched. So the dollar continues to serve as the reserve currency maybe in 10, 20, 30, 40 years that, that could change. But for now, it's certainly our outlook is that the dollar range king here.

Jeffrey Buchbinder (34:31):

Yeah. Nothing to worry about right now. Totally agree. This is the dollar's really important for international investing, right? Because the strong dollar clips your international returns. So we're staying neutral international equities and we're not, I know Lawrence, I'm talking to you, you're not particularly excited about buying international bonds either. But at some point, if we see a move lower on the dollar might get more interested in, in playing international. We're still neutral. U.S. versus international versus em. So let's turn to commodities now, Adam. So geopolitics, AI, path to supercycle here. Another cool title. You've lapped the field with your, with your cool titles. Certainly a lot of commodities needed to build out AI data centers. I know that's one piece of this,

Adam Turnquist (35:23):

Right? And it's alot of the price action we've witnessed in commodity markets, and I'd argue even the dollars we talked about has been policy driven. So that, tying it back to the policy engine, you look at the commodity markets, it looks a little boring here, not quite as maybe as boring as the 10 year treasury. You'll, no offense, Lawrence, but we're kind of just consolidating in a similar way. We're just sideways price action. But that mass, a lot of volatility within the Bloomberg commodity index that we're showing. You look at some of the metals this year up 50, 60, 70, almost a hundred percent for some of the precious metals. Of course energy has been a big lagger that's been been really dinged by just this oversupply theme that's, that's been ongoing. I think the bear case is pretty well known there, but we're coming into this key inflection point for a commodities, as you can see here.

Adam Turnquist (36:13):

We highlight key resistance around, call it one oh nine, one ten kind of area. If we get a sustained breakout through that level, you have to start wondering, are we entering a super cycle? And that's a secular period, so a multi-year period where the majority of commodities enjoy price appreciation and, and bull markets. The missing piece here has been oil markets. And I've been surprised to see the commodities, the broader commodities complex moving higher without any support from crude oil. Brent and WTI crude make up about 15% of this index. So if oil starts moving higher, I think that's probably the key to this cycle starting. And of course you think about the dollars impact on commodities, I think it would also require a breakdown below that secular uptrend in the dollar to really fire this up. The metals have been a bright spot. Of course, gold captures most of the headlines.

Adam Turnquist (37:05):

It's been outperforming the S&P 500 actually since the bear market lows. It's not just a year to date, outperformer outperformed last year. It's just been this impressive rally. And when you look at the longer term trend of gold right now, we think that will continue. There's probably pullback opportunities in 2026 that we think would represent buying opportunities in precious metals. The macro catalysts remain in place. You have central banks buying gold. That's been a factor really since Russia invaded Ukraine in 2022. That's really when central banks started to diversify away from the dollar and start buying gold. I think it was a warning shot that Russian assets, once Russian assets were seized, that could also happen to them, especially for the, call it non-Western aligned countries. And then you also have uncertainty over the fiscal deficit in the U.S. uncertainty, really, we'll call it over geo geopolitics.

Adam Turnquist (38:02):

There's still ongoing wars right now. Inflation angst is still present when you think about gold as an inflation hedge. And the prospect again for a potential pullback in the dollar all driving gold higher in addition to the resumption of the fed rate cutting cycle. So we like theme for gold and silver is another one that broke out to new highs. I think the industrial metal space is another one to watch, especially copper that's starting to get toward record high territory. Now that's partially driven by policy. When you think about the tariffs that were introduced or threatened throughout the summer, the White House threw a big curve ball to the market in the copper market because it actually excluded refined copper for the first round of tariffs. But 2026, you have to watch out in the summer because the White House is going to review the refined copper market and potentially start phasing in a universal copper tariff that's going to put upward pressure on copper prices, especially the U.S. and create potential global supply shortage. While that's going on, you also have this AI theme that we talk so much about all those CapEx numbers. Copper is a huge contributor to, to those data centers in terms of the, in terms of just overall power and then just the electrification theme that we're really seeing accelerate throughout the last couple years. So no shortage, I think of copper demand that's starting to weigh in terms of the overall supply outlook. So a pretty good supply demand set up, I think for, for copper as we go into 2026.

Jeffrey Buchbinder (39:31):

And certainly the Trump administration is doing what they can to facilitate more mining activity in the U.S. including copper and potentially other minerals in addition to securing supplies overseas that come from friends, we'll say <laugh> and not not necessarily from from China. So this is more on gold. So did you want highlight maybe where the you know, the demand's going with this chart.

Adam Turnquist (40:05):

Right? So when you think about gold just over the last few years here and looking back just the performance in gold over the S&P 500, I think most people think of gold as the classic safe haven. When stocks go down and there's volatility, you move into gold and that's when it outperforms. But that dynamic has really changed over the last few years. It's almost a momentum area of the market and that's how it's been behaving, especially this year. We've had this fear of missing out flow go into gold in the ETF space. You can see that on the bottom panel, those orange, orange bars, those have really picked up as more and more investors start piling into gold. And it's interestingly enough, it's not just the investor class or retail investors. You have central banks going in and buying ETFs in gold and also silver.

Adam Turnquist (40:53):

So they're using the market, the ETF market to add exposure there as well. That has continued throughout the fall. So this kind of fear of missing out momentum has, has been a big driver there. But you can see some of the geopolitical events that have transpired over the last few years and how gold has performed relative to the S&P 500. And really that's when the central bank demand highlighted in, we'll call it turquoise, I guess is my best. I was, I was going to go see foam green, but I think that's too descriptive. <Laugh>, that's what popped into my head that's really ramped up as well. You have central banks basically doubling, well more than doubling their purchases of gold when you compare it to pre 2022. So that trend has continued. You look at central bank surveys, the World Gold Council does one every year and they ask all of these different central banks, what are your expectations for gold buying over the next, call it one to five years? I think over 90% of them said they're going to increase their gold holdings in the reserves and then also decrease their dollar reserves. So again, not making the call here that it's the end of the dollars reserve currency status, but I think it, those reserve balances are going to broaden out beyond the dollar, I think in 2026.

Jeffrey Buchbinder (42:06):

So keeping our positive view of precious metals as we start 2026.

Adam Turnquist (42:12):

Absolutely. Yep. It's a, call it a high conviction call. And we've been positive precious metals almost, I think two years now. I can't remember the exact date, but I would say that same conviction level is, is when we started with that call, looking at the trends, not only just the technicals, but these kind of the macro backdrop.

Jeffrey Buchbinder (42:33):

Excellent. So yeah, if you wanna talk commodities and currencies, Adam's the guy. He can also maybe give you some ideas for paint colors, <laugh>, like redoing a bathroom or something.

Adam Turnquist (42:43):

I have been looking at paint colors, that's why that one popped into my head.

Adam Turnquist (42:49):

Paint colors in the sea, the sea foam variety as well though.

Jeffrey Buchbinder (42:52):

Sea foam green

Adam Turnquist (42:54):

You got to mix it up. You got to get colorful. Nice.

Jeffrey Buchbinder (42:56):

I, I actually have a room in my house that's a similar color, so maybe maybe I'll move the, the laptop and, and we'll, we'll have to do a market signals from that room at some point in, in the future. So you can see that <laugh>. No, we won't do that. So that, that is only part of the Outlook. So thanks Adam. Thanks Lawrence for walking through those sections. We covered a fair amount of ground, but Jeff Roach is economic section we did not cover, by the way, our forecast for GDP next year is too even, so I'll steal that from Jeff in addition to the Fed view that Lawrence shared. Also note that there is an alts section that Gina Yun did. I working with Mike McLean. We also have a crypto section that Mike worked on. I think this is the first time we've ever had a crypto section in the outlook.

Jeffrey Buchbinder (43:46):

So certainly check that out. I think, you know, other than the kind of opening intro and summary sections that Marc Zabicki and Kristian Kerr worked on, I don't, I think I covered all the sections. You guys can just shout out anything that I missed, but I think those are all the sections. We hope that you like it, it's really fun to do, to bring the whole team together and think a little bit longer term. Everybody's so focused on what the market's doing today or tomorrow. And to step back and look at a year out or even a couple of years out, I think can be really helpful. Not just to encourage folks to be long-term investors, but also to be more accurate with forecasts because it's so difficult to predict anything frankly, short term. But the longer you go out with some of these patterns and markets I think the more, more confident we can be that you know, maybe we won't always be right, but that we can be be close to, right? So so there you have it. With that we'll go ahead and wrap. So thanks everybody for joining. Thanks for listening to another Market Signals. We will be back with you next week and we'll feature more Outlook 2026 content. We'll see you then everybody. Take care. Have a great week.