2026 Economic & Market Outlook
January 16, 2026
As we embark upon a new year, the PMAM team extends its sincere wishes for a healthy and prosperous 2026. The defining theme for the year will be strong support from key macroeconomic policy drivers. Fiscal, monetary and regulatory policies are all expected to provide meaningful tailwinds for the economy. The Federal Reserve (Fed) is expected to have a new, more dovish Chair appointed in May 2026. The One Big Beautiful Bill Act (OBBBA) is expected to aid both consumers and corporations by lowering taxes and offering incentives designed to encourage continued investment. The U.S. regulatory environment is likely to become more business-friendly, and ongoing investment and innovation in artificial intelligence (AI) will remain a significant driver throughout the year.
Greater clarity on tariffs and global trade is expected in 2026. Progress toward resolving conflicts in Ukraine and the Middle East could reduce geopolitical uncertainty, which in turn would support stability in global oil prices and could keep them near current lows or even lower.1 A continued decline in inflation would simplify the Fed’s pursuit of its dual mandate, while lower energy prices would offer welcome disinflationary relief. Other potential tailwinds include the U.S. celebrating its 250th anniversary and co-hosting the World Cup with Canada and Mexico.
The primary challenge for risk markets remains elevated interest rates. If inflation were to reaccelerate, most fixed-income risk assets would likely underperform. While corporate credit spreads remain near historically tight levels, all-in yields continue to offer compelling value relative to the past 15 years.2 Moreover, the shape of the yield curve creates attractive opportunities to add value through active fixed-income management.
Although periods of volatility are expected, history shows this is typical for late-cycle environments, similar to those observed in the mid-1960s and late 1990s. Notably, late cycle periods can persist for five to seven years when economic conditions remain healthy. With unemployment softening but not collapsing and interest rates poised to benefit from a new dovish Fed Chair, we maintain a constructive outlook for 2026.
Adhering to the classic adage “don’t fight the Fed” and its modern counterpart “don’t fight the Treasury” will be critical for success in the year ahead.
Exhibit 1. 2024 and 2025 Actual; 2026 and 2027 Forecasts
To read our 2025 market and economic year-in-review, click here.
For timely perspectives on the economy, markets and investing, be sure to subscribe to our market insights blog below.
Sources:
1Trading Economics – Crude Oil; as of January 2026
2Bloomberg
Index Definitions:
S&P 500 Index — An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe.
Russell 2000 Index — An index measuring the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks.
All trademarks are the property of their respective owners.
Disclosures:
The views expressed in this material are the views of PMAM through the year ending December 31, 2025, and are subject to change based on market and other conditions. This material contains certain views that may be deemed forward-looking statements. The inclusion of projections or forecasts should not be regarded as an indication that PMAM considers the forecasts to be reliable predictors of future events. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate. Actual results may differ significantly.
Past performance is not indicative of future results. The views expressed do not constitute investment advice and should not be construed as a recommendation to purchase or sell securities. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed. There is no representation or warranty as to the accuracy of the information and PMAM shall have no liability for decisions based upon such information.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.