Bloomberg Surveillance: 2026 Economic Outlook, Consumer Spending, and M&A Trends

2026 Economic Outlook and Fixed Income Opportunities

• 📈 Valuations are high, spreads are tight, and geopolitical risks are elevated, leading to uncertainty about 2026 market performance.
• 💡 Opportunities in fixed income are being found outside the US, particularly in Nordic high yield and debtor-in-possession financing, due to Japanese institutions becoming more active in bankruptcy financing.
• ⚠️ US bankruptcy processes are seen as complex and costly, with various creditor groups having conflicting agendas, making overseas opportunities more attractive.
• 🏦 The US economy has shown resilience, with consumers and corporations performing better than expected, though Q4 2025 GDP is projected to be under 1% due to a government shutdown headwind.

Labor Market Softening and Fed Policy

• 📉 While GDP growth has been strong, the labor market shows signs of softening, with a notable increase in the unemployment rate for Black or African-American workers.
• 🎯 The Federal Reserve's mandate for maximum employment, coupled with a ticking unemployment rate and softening labor demand, suggests a need for more economic support in the new year.
• volatility is anticipated around the transition of Fed leadership in May 2026, especially concerning potential politicization of monetary policy.
• 🏠 Falling oil prices, a softening housing market, and slower rent inflation are expected to keep inflation on a lower trajectory, supporting the case for lower interest rates.

Consumer Spending and Retail Trends

• 🛍️ The US consumer has held up the economy, particularly during the holiday season, supported by asset price increases and retiree households benefiting from stock market gains.
• 🎁 While holiday spending was stronger than expected, it was characterized by practical purchases like sweaters and socks, with gift cards being a significant trend due to fewer days between Black Friday and Christmas.
• 🤖 AI is increasingly being used by retailers for productivity and personalization, and by consumers for tactical tasks like managing returns and printing labels.
• 💰 Dry January participation is driven by health reasons and a desire to spend less, indicating continued consumer frugality.

M&A Activity and Investment Monetization

• 🤝 M&A activity is expected to pick up in 2026, with a return to a more normal antitrust regime opening opportunities for strategic consolidations.
• ⏳ The private equity industry has seen extended holding periods due to high valuations in 2021-2022, but companies are now growing into those valuations, facilitating exits.
• 🚀 Exciting areas for growth include pharma services, driven by the confluence of AI and drug development, and automation across various functions.
• 💡 Adding operational value to companies is crucial in private equity today, requiring specific theses for improvement.