Liz's 2026 Market Outlook: The Show Must Go On

2025 Market Review and 2026 Outlook

• 💡 The 2025 outlook, titled "Defying Gravity," was bullish despite two prior strong years, with a 70% hit rate on sector, regional, and gold calls.
• 🚀 The 2026 outlook, "The Show Must Go On," acknowledges investor concerns about valuations, capex spending, and market concentration but suggests the market can become more exuberant.

Sector Performance and Trends

• 📈 Cyclical sectors like financials, industrials, and energy performed well in 2025, as did healthcare in the latter half of the year.
• 🌟 For 2026, the outlook highlights healthcare, materials, and consumer staples as key sectors, particularly for the first half of the year.
• 📉 Tech and communication services, while strong in 2025, are not top calls for 2026, indicating a rotational theme.

Small Caps and Market Cycles

• 📈 The small-cap index (IWM) has quietly made a new all-time high, but its performance is seen more as a catch-up trade than outperformance.
• 📊 Historically, small caps outperform after recessions with low rates, but in a late-cycle environment with stable growth and potential inflation reheat, large caps are expected to outperform.

Yield Curve and Economic Indicators

• ⚠️ The inverted yield curve, which came out of inversion in mid-to-late 2024, is now in the 12-18 month window where it typically creates issues.
• 📉 While the market may dislike a steepening yield curve and potential earnings revisions, the presence of stimulus in early 2026 could prolong the current cycle.

Global Economic Factors: Japan and Gold

• 🇯🇵 Despite the Bank of Japan raising rates, the Japanese yen continues to weaken, suggesting a lack of confidence in Japan's economic footing and fiscal discipline.
• 💰 Gold is a strong call for 2026 due to institutional and central bank demand, economic nationalism, and its role as a perceived store of value amidst crypto volatility.
• ⚠️ While gold's technicals appear extended, strong underlying demand suggests a floor for the asset, though silver's recent breakout could signal overheating.