BY STRATEGIC ADVISERS INVESTMENT TEAM — FEBRUARY, 2026
Market Conditions
Fourth-quarter corporate earnings season is off to a strong start, with materials and technology among the top sectors delivering positive results. The U.S. Federal Reserve (Fed) held interest rates steady at its most recent meeting, citing solid growth and low unemployment levels.1 This economic growth was likely driven by consumer spending and an improving manufacturing outlook.
- Earnings season is underway: Of those who have reported, more than 75% ofcompanies have beaten estimates by over 9%.2
- Manufacturing sector returns to expansion: For the first time in 12 months,economic activity in the manufacturing sector grew in January.3
- A look into jobs data:Layoffs remain historically low, with initial jobless claimslower than last year.4 Additionally, the most recent jobs report came in strong:the economy added 130,000 jobs in January, the highest monthly job numberover the last year.5
What it may mean for your portfolio
U.S. stocks have had a soft start to the year, with muted returns and bouts of volatility. Concerns around geopolitical events, as well as questions regarding the growth outlook for some technology stocks, likely weighed on investors. However, the U.S. economy has shown signs of firming, with manufacturing surveys suggesting an improving backdrop. Additionally, the outlook for corporate profit growth is strong for both U.S. and international stocks.
While U.S. stocks have had a choppy start to the year, several key elements are expected to influence economic and earnings growth this year.
Historically, stocks have generally risen when earnings growth has been positive.
In terms of the U.S. economy, while unemployment did tick up slightly last year, the unemployment level is still relatively low compared to historical levels. Workers have also experienced rising wages, which has led to solid growth in consumer spending, despite their frustrations with some higher expenses. Consumer spending has historically been a strong driver of U.S. economic growth, which may bode well for corporate profit growth in the U.S.
The potential impact of tax reform implemented in 2025 on economic growth is a subject of ongoing analysis. Tax refunds for some consumers may lead to more spending. At the same time, corporations may benefit from more appealing tax treatment for investments in land, plants and equipment. This may help spur job growth as businesses seek to expand.
Outside of the U.S., international stocks are also expected to experience further earnings growth in 2026. International stocks have the potential for gains this year.Even though international stocks outperformed U.S. stocks last year by a notable margin, they remain more attractively priced than U.S. stocks on measures such as price-to-earnings ratios.
Even as the growth outlook is positive for 2026, we are following many key economic indicators to help manage risk. One area we are closely following is the U.S. job market. If the job market stabilizes or gains strength this year, that may provide further support for the U.S. economy. However, additional weakness in the job market may suggest a softer growth outlook.
Inflation is another area that we are closely watching. If last year’s tax reform leads to stronger consumer and business spending, this may lead to higher prices for some goods and services. To help manage that risk within well-diversified client accounts, the investment team has exposure to investments in commodities, real estate stocks, TIPS, high-yield bonds, and alternatives. These types of investments have historically offered some protection from inflation for investors.
Outlook
With the economy still growing and positive earnings growth expectations for stocks around the world, there is potential for further gains in the financial market. Areas likethe job market and consumer spending may improve as economic growth continues and new tax legislation is in place for 2026. At the same time, we will also be closely watching for signs of further weakness. Bouts of volatility may arise from any number of news headlines. Therefore, a focus on diversification may potentially help investors manage risk and navigate market fluctuations.
We continue to monitor and research developments in the economy, corporate earnings, policy changes, and geopolitical events. We believe the risk of imminent recession remains low. However, we are prepared to act as the situation evolves.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has shown resilience even when news headlines may feel discouraging. We aim to guide clients through varying market conditions, including those that have seen strong performance over the past two years. As a result, we have maintained healthy exposure to stocks, even during bouts of market volatility. We believe that staying invested and managing risk through evolving market conditions can ultimately help you reach your financial goals in the long run.
