Ed Clissold on Market Risks in 2026: Fed Independence, Earnings Slowdown, and Inflation

Concerns for 2026 Market Performance

• ⚠️ 2026 presents several potential headwinds for the market, though these concerns may not materialize.
• 💡 A key concern is the Federal Reserve's independence, especially with uncertainty surrounding the next Fed chair, which could lead to wider credit spreads and higher inflation expectations.
• 📉 The temporary boost from tax refunds in Q1 is expected to wear off by Q2, coinciding with potentially weaker earnings growth compared to the strong performance in the current year.

Earnings Growth Projections

• 📊 Consensus estimates predict around 16% earnings growth for next year, but analysts are often overly optimistic, suggesting actual growth could be closer to 8%.
• 📈 This projected 8% growth represents a slowdown from the approximately 13% growth seen so far this year.

Federal Reserve Policy Interpretation

• 🧐 The primary concern regarding the Fed is not necessarily a hawkish stance, but rather the market potentially interpreting the Fed as too dovish.
• 📈 While inflation expectations have remained contained despite high inflation in recent years, a perception of a Fed that is too lenient could be interpreted negatively by the market, reminiscent of the Arthur Burns era.
• 📍 Currently, Ned Davis Research remains overweight stocks, but these concerns about 2026 are being monitored.