The holiday season, which kicked off with Thanksgiving yesterday, is typically a positive period for US markets. However, the investment landscape remains highly uncertain this year – with trade turbulence, aftereffects of the shutdown, and ongoing global conflict clouding the backdrop.
As 2026 approaches, five investment professionals share their views on expectations for the US economy and markets amid the lingering challenges.
Mixed picture after the shutdown
By Paul Middleton, senior portfolio manager at Mirabaud Asset Management
Thanksgiving this year comes at a time of relatively high uncertainty in the US market, with valuations for US equities sitting at relatively elevated levels, which means there is more dependence on growth surprising to the upside for markets to go higher. Earnings have, in aggregate, provided this positive earnings surprise. However, we have just had a blackout in macro data due to the US government shutdown, giving bond markets limited direction. Financial conditions have eased significantly over the course of the year. It is a mixed picture.
Therefore, we want to lean into names that are not expensive and where we expect to see continued earnings growth momentum, because the growth opportunity is underestimated. These have their own growth drivers, independent of any improvement in the macroeconomic environment.
Netflix is a good example in this environment, continuing to deliver strong underlying earnings growth. KPOP Demon Hunters has been incredibly successful. Advertising is also seeing strong traction, with revenue expectations now raised to ‘more than’ double in 2025. For Thanksgiving post-lunch viewing, we highly recommend Stranger Things 5.
Reversal of small-cap fortunes
By Matt Mahon, portfolio manager of the T. Rowe Price US Smaller Companies Equity strategy
While US small-cap stocks have been lagging their larger counterparts for the better part of the last decade, there are encouraging signs that their fortunes may be changing. With Q3 earnings reports, US small companies have shown an acceleration in sales and earnings growth. Reported earnings have been outpacing expectations, even more so than for large-cap stocks.
As we look into 2026, earnings growth should continue to favour small caps. Lower interest rates will generally help small-cap companies, as relatively more of their borrowing will be at variable rates or shorter in duration. Small caps can benefit in other ways; for example, they are relatively more exposed to homebuilding and housing turnover than large-cap stocks. The recent stagnation in home sales has been a headwind, but with Fed rate cuts, this may shift to a neutral or even a tailwind.
Finally, M&A activity has been picking up, highlighting the value to be found in many of these smaller companies. Strategic buyers have taken notice, even if the broader market has not, leading to one of the most active M&A environments in the past 30 years.
US macro setup still supportive
By Maya Bhandari, chief investment officer for multi-asset EMEA at Neuberger
In the US, we expect above-trend economic growth, firm corporate earnings, and a broadly easing bias from policy – both monetary and fiscal.
A key reason we expect US policy easing is the unusual setup going into 2026. Namely, productivity-led – and inflation-lite – growth on the one hand, and subdued job creation on the other. Insofar as the Federal Reserve has a dual mandate of maintaining maximum employment and price stability, we anticipate policy rate cuts to a neutral rate of around 3.5%. Fiscal policy is also easing.
Rates pivoting lower without recession tends to be positive for US stocks, and nominal GDP growth above 4% tends to limit bear market risks. It is also especially positive for EM – both equities and bonds. Although we remain at target on US equities overall, chiefly on valuations. We maintain exposure to both tech stocks, as well as to broader US small and mid-cap equities.
Narrow stock leadership looks unsustainable
By Matt Burdett, head of equities at Thornburg Investment Management
With the ‘Magnificent 7’ now larger than the combined markets of several major economies, the narrow leadership of US equities looks increasingly unsustainable, and many investor portfolios are under-diversified.
While we do not believe US valuations are poised to collapse or investors in US equities are being senseless, from a relative value perspective, there are high-quality global companies with good outlooks that are more compellingly priced than US peers.
Here, Europe is particularly appealing. While it may have a track record of disappointing investors, the fundamentals are shifting. Even with this year’s positive performance, European stocks continue to display good value. Encouragingly, many of the structural advantages observed during research trips this year to Europe – such as the region’s growing self-sufficiency – remain firmly in place and are translating into revenue and earnings growth for companies.
Dissecting the K-shaped economy
By Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable AM
Investors and the financial media like a good narrative – and corresponding letters to frame them. After the pandemic, a V-shaped recovery dominated the headlines; after the global financial crisis, it was a U. The latest addition is the K-shaped economy, which is meant to capture the diverging fortunes in the US.
Wealthy households, boosted by gains on their investment portfolios, are driving demand, while poorer households are being squeezed by high prices, slow wage growth, and tight credit. There is truth to this narrative, but there is more to it.
Inequality is not a recent phenomenon; at the top, wealth and income shares have been stable for years. And stock market gains explain only a fraction of consumption growth. The real shift is that wage gains have flipped: lower earners, who outpaced richer ones after the pandemic, are now falling behind. This leaves growth more reliant on high-income consumers. Even so, prospective policy support, including possible ‘tariff dividend’ rebates, and a likely tighter labour market next year, suggest that the risk of the economy buckling under the weight of its inequalities remains low.
