J.P. Morgan estimates that there is a 35% chance of a US and global recession in 2026. Global GDP growth is expected to receive a boost in the first half of the year thanks to front-loaded fiscal stimulus, promoting a rebound in sentiment. Nevertheless, business caution is the primary drag on hiring, reflecting trade war concerns and sluggish non-tech demand.

Moreover, weak labor demand is starting to erode purchasing power, particularly in the U.S., where softening private sector labor income growth is combining with firming inflation and a concentrated near-term public sector drag (J.P. Morgan Global Economics).

Earnings expectations remain constructive heading into year-end. For the fourth quarter, the S&P 500 is projected to deliver 8.3% year-over-year earnings growth, up from 7.4% at the start of the quarter. Revenue growth is expected to remain healthy at roughly 5.9% year-over-year, supported by steady consumer demand and resilient corporate pricing power.

Earnings revisions have been notably positive. Since late September, analysts have revised Q4 estimates higher, bucking the typical seasonal pattern where estimates decline by roughly 3% during the quarter. The ratio of companies issuing positive guidance is running above historical averages, signaling confidence in demand conditions heading into 2026.

• Technology: Technology is expected to once again lead earnings growth, with profits projected to rise 18–20% year-over-year. Semiconductors remain the primary driver, supported by sustained AI infrastructure spending. The sector has also been one of the strongest performers in price terms during the quarter, reflecting investor willingness to pay a premium for growth visibility.
• Financials: Financials earnings are projected to grow approximately 9–10% year-over-year in Q4, a modest improvement from earlier estimates. Banks benefit from stable net interest income and resilient credit conditions, while capital markets activity improves modestly from earlier in the year. Consumer finance and asset managers drive much of the upside, while insurers see more mixed results due to claims normalization.
• Communication Services: Communication services earnings are expected to rise roughly 4–5% year-over-year, continuing the recovery seen earlier in 2025. Interactive media and wireless services drive revenue growth, helping offset continued pressure in legacy media segments.
• Utilities and Materials: Utilities earnings are projected to grow in the mid-teens, supported by rate base expansion and improving power demand. Materials earnings are expected to grow at a high-single-digit rate with earnings above prior year levels, with strength in metals & mining and construction materials offset by continued weakness in chemicals.

• Healthcare: Health care earnings growth is expected to remain subdued at approximately 2–3% year-over-year. Managed care remains under pressure from higher utilization and margin compression, while pharmaceuticals and medical devices provide modest offsets.

• Energy & Consumer Staples: Energy earnings are expected to decline roughly 4–5% year-over-year, reflecting lower average oil prices compared to last year. Refiners and midstream companies provide relative stability. Consumer staples earnings are also projected to decline modestly, pressured by margin constraints and slowing volume growth.

• Looking Ahead: Earnings momentum is expected to accelerate into 2026. Current forecasts call for 11.7% earnings growth in Q1 2026 and 12.7% in Q2 2026, following Q4’s 8.3% gain. For full-year 2025, S&P 500 earnings are expected to rise approximately 10–11%. Valuations remain elevated, with the forward 12-month P/E near 22.5, above long-term averages, leaving markets increasingly dependent on sustained earnings growth to justify current price levels.

FactSet, 11/7/2025, 12/15/2025, 12/19/2025

Consumer spending cyclically goes up during the holiday months of November and December, and we saw a similar trend in 2025 with an increase of 3.9% in December from last year (The New York Times, 12/23/2025). Consumer sentiment increased slightly from November to just over 52% in the final month of the year, but it fell by 28.5% from a year earlier (The University of Michigan, 12/5/2025). One statistic we’ll continue to keep an eye on in 2026 is the rise of Buy Now, Pay Later spending, with a 2025 Experian survey predicting that almost 43% of consumers used financing for their holiday shopping, up from 20% in a similar survey taken in 2023 (Experian, 12/16/2025). While the top 10% of earners in the US make up over 50% of spending, the consequences of delinquent loans, delayed payments and interest accumulation is yet to be determined in measuring the true strength of the American consumer – and the overall economy (Marketplace, 9/17/2025).

Labor Markets

The December 2025 unemployment rate changed little to 4.4% from November’s 4.5% (revised). Total nonfarm payroll employment increased by 50,000, with jobs in food services and drinking, health care, and social assistance trending up. Retail trade lost 25,000 jobs in December. Average hourly earnings for all employees rose by 0.3% and increased by 3.8% year over year, outperforming inflation to November of this year (Bureau of Labor Statistics).

Bureau of Labor Statistics, 12/16/2025

One new piece of data we’ve looked at over the past year is CEO outlook’s correlation with employment. The graph below is pulled from CEOs participating in the Business Roundtable and showcases how little changes in hiring affect the broader labor market. While the employment sub-index is slightly lower than Q3 of 2024, other leading indicators may be more reliable in evaluating the forward momentum of the economy. Similarly, we see exaggerated CEO outlook compared to GDP growth in the second graph.

Business Roundtable

Business Roundtable

Compared to large public company indices, the small business index is less volatile and more closely reflects regional labor market and GDP conditions. Over the past three years, sentiment has typically been strongest in Q2 and Q3, as shown below.

U.S. Chamber of Commerce

On October 1, 2025, the U.S. government entered the longest shutdown in its history, lasting 43 days, driven by disagreements over extending healthcare subsidies. The resulting pause in data collection and furloughing of federal workers influenced CEO commentary on earnings calls this quarter. References to tariffs declined sharply from earlier in the year, while mentions of inflation and AI continued to increase (PBS, 11/13/2025).

Some Highlights from The One Big Beautiful Bill Act

(OBBBA) Permanent Extension of Individual Tax Rates and Standard Deduction: The current individual tax brackets and the increased standard deduction are made permanent

Restoration of 100% Bonus Depreciation and R&D Expensing: The Act permanently restores 100% bonus depreciation for qualified property acquired after January 19, 2025, and allows for the immediate expensing of domestic R&D costs.

Permanent Qualified Business Income (QBI) Deduction: The 20% deduction for qualified business income for owners of pass-through entities (e.g., S corps, partnerships, and LLCs) is made permanent.

Increased Estate and Gift Tax Exemption: Effective January 1, 2026, the exclusion amount increases to 15 million dollars (30 million dollars for married couples), adjusted annually for inflation beginning in 2027.

Trump Accounts Creation: The Trump Account was established as a tax-advantaged investment account for children who are US citizens and born Jan 1, 2025-Dec 31, 2028. These accounts will include a 1000 dollar seed provided by the government to kick-start the investing journey (White House).

While these changes offer significant tax benefits and potential investment opportunities, the OBBBA is projected to add trillions to the national debt, which could put upward pressure on bond yields and interest rates over the long term. Investors should consider these macroeconomic impacts, remain diversified, and consult with their financial advisor (IRS).

I’ve heard about circular deal making in AI. What does that mean?

The tech bubble economists, news outlets and analysts have been describing is elevated, in part, by the circular deal making we’ve seen among the largest AI infrastructure, computing and product companies (PBS, 12/29/2025). Increased valuations based on borrowed money from players on the same team have stoked fear that one of the highest performing sectors of the last few years is overvalued and that its expected revenue won’t measure up to expectations. Further, we see heightened consolidation in the S&P 500, with the Mag-7 consisting of tech giants controlling over a third of the index’s market cap. This could increase the chances of any meaningful dip in the market for tech affecting the index more broadly. Other sectors, like utilities and consumer services, can be entangled with AI by the nature of their business and the far-reaching capabilities of this technology. We believe the long-term growth potential and transformative properties of AI will outperform market volatility and corrections we may see in the future. Staying invested and diversifying geographically, sector-based, and asset-based are our solutions to tech developments from the TMT bubble to social media to AI.

What’s going on with tariffs today?

Following the fourth-largest US-market correction in the 21st century, consumer confidence rebounded into Q3 and the remainder of the year.

Labor market uncertainty has remained elevated throughout the year, with recent numbers revealing a drop in hiring into the end of 2025. Part of this uncertainty has surrounded price increase concerns, with companies potentially having to pass higher-priced items onto consumers in exchange for employee retention, or absorb and maintain profit margins with layoffs. November 2025 inflation cooled, with the trade deficit declining from the start of the year. As the deficit returns to earlier levels, we’ll be able to better parse whether the dual mandate is being directly affected by tariffs.

In the meantime, trade concessions have been established throughout the year. In Q4 alone, the US White House released 18 briefings on trade concessions with countries including Cambodia, Vietnam, and other nations hit with the highest tariff rates in April (The White House).

Chinese tariffs have fallen to 34%, to be implemented in November 2026, from the aforementioned 100-200% tariffs.

Interest Rates

Expert consensus and market pricing overall anticipate two Federal Reserve rate cuts in 2026. However, some Fed officials project a more cautious path with only one cut, while a minority of economists anticipate three cuts. Expected timing is commonly centered around April and September, depending on incoming economic data.

• January: Maintained
• March: Maintained
• May: Maintained
• June: Maintained
• July: Maintained
• September: ¼-point rate cut between 4 and 4.25
• October: ¼-point rate cut between 3.75 and 4
• December: ¼-point rate cut between 3.5 and 3.75. Unemployment rate has edged up since September, and job gains have slowed. Inflation has moved up since earlier in the year and remains elevated (Federal Reserve, 12/10/2025).

Inflation

CPI increased 0.2% from September to November. Over the last 12 months, it increased 2.7%.

Energy rose 1.1%, the highest, and food increased 0.1%. Home, recreation and apparel prices decreased over the 2-month period (Bureau of Labor Statistics, 12/18/2025).

In Q4 2025, financial strain on U.S. households remained elevated as credit card balances stayed near record highs around 1.2 trillion dollars, with delinquency rates continuing to rise. What initially affected lower-income borrowers had become more widespread, as middle- and higher-income households increasingly struggled with monthly payments amid persistent high interest rates. By late 2025, about 12.5% of credit card accounts were 90+ days past due, up from mid-year and well above year-ago levels (10.93%), indicating stress across most age and income groups. Surveys reinforced the trend, showing elevated reports of paying less than the minimum balance and continued reliance on balance transfers and debt consolidation to manage cash flow. The exact year-end Q4 numbers may differ due to seasonal spending (i.e., holiday charges/payments). We will know more when the Quarterly Report on Household Debt and Credit is revealed on February 10th, 2026.Meanwhile, the Federal Reserve’s Senior Loan Officer Opinion Survey showed further tightening in credit standards for credit cards and unsecured loans, driven by rising delinquencies and weaker borrower profiles. While consumer spending held up, underlying financial strain suggests households are increasingly vulnerable heading into 2026 (New York, KPMG, Reuters, Federal Reserve).