Noah Carter
NextEpochMarket’s view is that stocks enter 2026 with a familiar tug-of-war: decelerating (but still positive) growth, a policy-rate path that is “less restrictive” but not yet “easy,” and an earnings narrative that is doing a lot of the heavy lifting for valuations.
Two widely cited macro baselines illustrate the setup. The IMF projects global growth at 3.1% in 2026 (with advanced economies around ~1.5%). Meanwhile, the United Nations outlook points to 2.7% global growth in 2026, emphasizing trade frictions and persistent uncertainty.
The gap between forecasts matters less than the shared message: the world is not in a synchronized boom, but it is also not priced like a deep recession.
1) The macro “ceiling”: growth slows, inflation cools unevenly
For stock returns, the macro question isn’t just “Will growth be positive?”—it’s how much upside is left once policy, inflation, and geopolitics put a ceiling on risk-taking.
- Growth is expected to remain modest. The IMF explicitly flags slower global growth versus 2024–2025 and highlights downside risks tied to uncertainty and protectionism.
- Trade and geopolitics remain live variables. The UN’s 2026 outlook calls out tariff-related pressures and geopolitical tensions as factors shaping the growth path.
What this means for stocks: broad index upside typically becomes more selective in this regime—less “everything rallies,” more dispersion by pricing power, balance sheet quality, and earnings durability.
2) The discount-rate “engine”: the market still lives and dies by policy expectations
Stocks don’t need cuts to rise, but they do need confidence about the path.
In the Fed’s December 2025 Summary of Economic Projections materials, the distribution of participants’ end-2026 policy-rate views clusters heavily in the low-to-mid 3% range. A St. Louis Fed summary of those projections highlights a median end-2026 policy rate around 3.4%.
At the same time, the Fed’s projection set still implies inflation easing rather than instantly snapping back to target—e.g., Core PCE median 2.5% for 2026 in the projections table.
NextEpochMarket takeaway: the 2026 stock market’s “multiple” (valuation) story is likely to be driven by whether rates stabilize at a level that markets can confidently underwrite, rather than by hopes for rapid easing.
3) The earnings “proof point”: forecasts are optimistic—watch revisions, not just headlines
If the macro backdrop is mixed, earnings expectations become the swing factor.
FactSet’s 2026 preview notes that analysts expect the S&P 500 to deliver ~15% earnings growth in calendar 2026, above the trailing 10-year average cited in the same analysis. FactSet also points to revenue growth estimates and indicates that Information Technology and Communication Services are among the leaders in projected revenue growth.
Why this matters: when index-level earnings growth is expected to be strong, the market becomes hypersensitive to:
- earnings revision breadth (how many companies are being revised up vs down),
- margin commentary (labor, input costs, pricing),
- and whether growth is concentrated in a narrow leadership cohort or broadens out.
Practical marker: a “healthy” equity tape often shows upward revisions spreading beyond a small cluster of mega-caps—that’s when rallies feel less fragile.
4) Three scenarios for the 2026 stock market
Rather than one forecast, NextEpochMarket frames 2026 as a probability-weighted set of regimes.
Scenario A: “Soft landing + steady earnings” (base case)
- Growth stays positive (not hot), inflation gradually cools, policy rates drift lower or stabilize.
- Earnings meet expectations and the market rewards consistency over hype.
Implication: mid-to-high single-digit index returns are plausible, with leadership rotating as valuation gaps matter.
Scenario B: “Re-acceleration scare” (valuation headwind)
- Inflation progress stalls, rate expectations re-price upward, or term premiums rise. (The Fed itself emphasizes projection uncertainty and wide error bands.)
Implication: multiples compress; returns depend heavily on true earnings delivery.
Scenario C: “Growth shock” (earnings reset)
- Trade shocks, policy error, or geopolitics knock growth below trend, pulling earnings estimates down.
Implication: defensives outperform, quality balance sheets matter, and “hopeful” cyclicals get punished.
5) What to watch in real time
NextEpochMarket suggests focusing on signals that typically lead price, not lag it:
- Earnings revisions and guidance cadence (especially outside the biggest names)
- Inflation trajectory vs. policy expectations (rate-path confidence matters more than any single meeting)
- Breadth and concentration (is participation widening?)
- Macro risk catalysts tied to trade and geopolitics (watch for narrative shifts that compress risk appetite)
Closing note
NextEpochMarket’s 2026 stocks outlook is not built on a single dramatic call. It’s built on the idea that stocks are still tradable and investable in a slower-growth world, but the market is likely to reward durable cash flows, credible guidance, and reasonable valuations more than broad “risk-on” narratives.
This text is informational and not investment advice.
