Bloomberg Surveillance: US Economy, Markets, and Fed Policy in 2026

US Corporate Earnings and Equity Outlook

• 📈 US corporate earnings are projected to achieve double-digit growth this year, supporting an overweight stance on equities relative to fixed income.
• 💡 A potential policy allowing tapping 401(k)s for home purchases is seen as a catalyst for broader household investment conversations across asset classes.
• 🏠 Addressing the housing affordability crisis is a key administration priority, with gradual approaches like tax relief favored over blunt instruments.

Market Diversification and Fed Policy

• 📊 This year emphasizes diversification beyond AI and technology, incorporating cyclical, value, international, and emerging market exposure, alongside fixed income.
• 🎯 The Federal Reserve is expected to implement one to two rate cuts in 2026, aiming for a neutral rate around 3.5%.
• 🏛️ Fed independence is crucial; any perceived challenge can lead to market volatility and rising long-term rates, counteracting administration goals.

Economic Growth and Policy Drivers

• ⚡ The economy is expected to improve in 2026, driven by businesses re-engaging after policy uncertainty, including tariffs.
• 🚀 Business investment is anticipated to broaden beyond AI, supported by tax cuts and deregulation, assuming tariff-related loose ends are tied up.
• 🧑‍💼 Payroll growth is expected to improve as businesses, despite AI-related hiring hesitations, expand workforces to match economic growth.

Inflation and Economic Inequality

• ⚠️ Inflation is projected to remain stubbornly high, potentially accelerating early in the year due to tariffs before settling around 2.5% by year-end, still above the target.
• 📉 The unemployment rate is expected to stabilize, with a slight decrease possible by year-end.
• ⚖️ A K-shaped economy persists, with lower-income individuals struggling more than higher earners, a normalization after pandemic-era benefits skewed towards lower-income groups.

Political Landscape and Economic Policy

• 🗳️ Affordability is the paramount issue for voters in 2026, influencing administration strategies, including energy costs and data center development.
• 🤝 State capitalism is emerging as a model, with tech companies like Microsoft collaborating with the administration on energy infrastructure for data centers.
• 🌐 Both major parties are becoming more interventionist, competing on cultural and immigration issues, while economic policies show increasing similarity, with tax policy being a key differentiator.
• 🗣️ The President is expected to use forums like Davos to address grievances and highlight affordability initiatives, including housing, healthcare, and energy costs.