2026 Market Outlook: Broadening Earnings & Selective Easing

Newsletter — January 2026

Dear Clients and Friends,

We look ahead to 2026 with measured optimism. The U.S. economy continues to exhibit remarkable resilience amid an evolving policy landscapes, technological advancements, and global dynamics. While challenges persist, several structural tailwinds position U.S. investment markets—particularly the S&P 500—for potential continued appreciation in the coming year.

Positive Drivers: Robust Earnings Momentum and Broadening Growth for Equities

Consensus analyst estimates call for strong earnings growth for the S&P 500 in 2026, with forecasts centered around 14-15% year-over-year expansion. This would represent a third consecutive year of double-digit earnings growth, following solid gains in 2024 and 2025.

Key catalysts include (1) sustained capital expenditures in artificial intelligence infrastructure and related technologies, driving productivity enhancements across sectors; (2) broadening participation beyond the "Magnificent Seven" mega-cap tech stocks, with all 11 S&P 500 sectors expected to post positive earnings growth for the year; and (3) potential support from fiscal policies (i.e. the One Big Beautiful Bill), including tax incentives and deregulation, alongside corporate efficiency gains.

This earnings trajectory underpins bullish Wall Street price targets for the S&P 500 at year-end 2026, ranging from 7,100 on the cautious side to 8,100 at the high end, with many clustered around 7,500-8,000. From current levels, this implies potential upside of 4-18%, rewarding patient investors in quality investments.

Supporting this view is a steady U.S. economic backdrop. Consensus 2026 forecasts for real GDP growth hover around the 1.9-2.2% range, reflecting modest but resilient expansion driven by consumer spending, business investment, and anticipated Federal Reserve policy easing. While it doesn’t represent a “boom”, this above-trend pace—bolstered by healthy household and corporate balance sheets—does provide a solid foundation for corporate profits and equity valuations.

A Supportive Yet Cautious Backdrop for Fixed Income

After a strong performance in 2025 driven by Federal Reserve rate cuts and falling yields, the fixed income environment in 2026 is expected to shift toward more range-bound yields and a greater emphasis on coupon income rather than significant price appreciation.

The Federal Reserve has eased policy substantially in recent years, with the federal funds rate currently in the 3.50%-3.75% range following cumulative cuts of 175 basis points since late 2024. Consensus projections, including the Fed's own "dot plot," point to limited further

easing in 2026—potentially one to three 25-basis-point cuts—bringing the policy rate toward a neutral level around 3.0%-3.5%. This modest pace reflects resilient economic growth, a softening but stable labor market, and inflation that remains somewhat elevated above the 2% target.

U.S. Treasury yields are expected to remain in a relatively narrow range, with the 10-year Treasury likely trading between 3.75% and 4.5% by year-end, depending on the balance between growth, inflation pressures (including potential tariff effects), and fiscal dynamics.

A Growing Role for Alternatives in a Portfolio

Private equity, private credit, infrastructure, real estate, and other semi-liquid and illiquid strategies—continue to play a vital role in diversified portfolios. These assets offer potential for enhanced returns, income generation, and inflation hedging in an environment where traditional public equities and fixed income face elevated valuations and potential volatility in 2026. Alternatives provide exposure to structural trends like AI adoption, infrastructure modernization, and private market convergence (I.e. data centers, power generation).

Private equity enters 2026 with renewed optimism following a rebound in transaction activity, improved financing conditions, and recovering merger and acquisition activity. Meanwhile, private credit is now a mainstream “non-bank” financing source with assets exceeding $2.5 trillion globally, and it is poised for continued growth in 2026 due to strong borrower demand, business expansion and growth, as well as high yields.

Potential Risks and Headwinds: Consensus Fears and Hidden Vulnerabilities

No forward-looking assessment would be complete without acknowledging risks. The primary threat to market stability in 2026, is likely a sharp decline in technology valuations, triggered by fading enthusiasm around AI.

Other key concerns include (1) a new Federal Reserve chair pursuing overly aggressive rate cuts for political reasons, (2) stress emerging in private credit markets, (3) an unexpected rise in bond yields, and/or (4) central banks becoming forced to hike rates again due to stubbornly sticky inflation.

The consensus is also concerned with the AI concentration risk, given the market's heavy reliance on AI-related narratives and tech leadership. In the current environment, this "crowded consensus" on AI/technology could prove stabilizing short-term but simultaneously reduce the margin for error elsewhere.

However, history cautions against over-reliance on consensus views. When investors broadly agree on a specific risk and adjust positioning accordingly (e.g., through hedging or sector rotation), markets often deliver surprises from secondary vulnerabilities or overlooked areas, such as liquidity squeezes, rising balance sheet leverage, and policy reactions to trade tariffs, fiscal shifts, etc.

Additional headwinds which wea re monitoring heading into the new year include potential reacceleration in inflation from trade policies, a gradual softening in the labor market (with unemployment possibly ticking higher), and elevated valuations that offer limited buffer against disappointments. While our base case does not envision a recession, periods of heightened volatility remain possible if multiple risks converge.

Our Positioning: Disciplined, Diversified, and Vigilant

In this nuanced landscape, we continue to advocate for a straightforward, disciplined portfolio approach. This includes measured and diversified exposure to all major asset classes according to your investment policy, as well as active oversight to be alert to inflection points while participating in prevailing trends. We continue to stress diversification, risk management, and alignment with your individual time horizons and objectives.

We appreciate your trust and we are always here to answer your questions and discuss our outlook and its impact on your specific plan. Please do not hesitate to reach out if we can be of assistance!

Wishing you and your families a very healthy and prosperous 2026.

Sincerely,

Eric Boyce, CFA

President & CEO

Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.

Risks: All investments, including stocks, bonds, commodities, alternative investments and real assets, should be considered speculative in nature and could involve risk of loss. All investors are advised to fully understand all risks associated with any kind of investment they choose to make. Hypothetical or simulated performance is not indicative of future results.

Investment advisory services offered through Boyce & Associates Wealth Consulting, Inc., a registered investment adviser. Boyce & Associates Wealth Consulting, Inc. has Representatives Licensed to sell Life Insurance in TX and other states.