2025 surprised a lot of people. Growth stayed resilient. Inflation cooled. Markets climbed higher
despite policy shocks and global uncertainty.
But 2026 feels different.
We are entering the year from a stronger and more expensive starting point. Valuations are
higher. Credit spreads are tighter. There is simply less room for error. Markets can still perform
well, but the easy gains may already be behind us.
This is where discipline starts to matter more than momentum.
Inflation Is Easing, but the Labor Market Is Softening
The good news? Inflation appears increasingly contained, especially in the areas that matter most
for policy decisions. Much of the remaining pressure is tied to goods and structural categories
that interest rates do not directly influence.
The quieter shift is happening in the labor market.
While headline growth looks solid, job creation has slowed beneath the surface. Outside of
healthcare, hiring has softened. Productivity is rising, but companies are achieving growth
without adding as many workers.
That is not necessarily bad for profits. In fact, it may support them. But it changes how growth
spreads across sectors and households.
Productivity Is the Wild Card
One of the most striking features of this cycle is how strong GDP growth has been without
traditional hiring strength.
Artificial intelligence and efficiency gains are beginning to show up in cost structures.
Businesses are doing more with less. When labor accounts for more than half of output costs,
even modest productivity improvements can meaningfully expand margins.
That is powerful for earnings.
But it also increases dispersion. Not every company will benefit equally. The gap between those
who can translate innovation into real cash flow and those who cannot may widen in 2026.
What This Means for Investors
This is not a risk off environment. It is a more selective one.
Equities:
Strong earnings and durable cash flow matter more when risk-free yields offer meaningful
income. Investors may reward companies with real margin expansion and penalize those relying
solely on narrative.
Credit:
Spreads are historically tight. That changes the playbook. Broad exposure matters less than
careful security selection. When compensation for risk is thin, precision becomes critical.
Fixed Income:
Income is back. With yields around 6% in parts of the market and inflation closer to 2 to 3%,
bonds once again offer a real cushion. In this environment, steady carry and income may be just
as important as price appreciation.
The 2026 Mindset
If 2025 was about resilience, 2026 may be about intention.
Portfolios built around:
• Sustainable income
• Diversified sources of return
• Selective exposure to innovation
• Strong balance sheets
are likely to navigate volatility more effectively than those chasing broad beta.
The backdrop is still constructive. Inflation is behaving. Growth is holding up. Productivity is
improving.
But with tighter valuations and shifting labor dynamics, success this year may come less from
what the market gives and more from what you deliberately choose to own.
In 2026, income, resilience, and selectivity may matter more than ever.
Source: Rick Rieder, “2026 Views: Income, Selectivity and Dispersion,” January 28, 2026.
2026 Views: Income, Selectivity and Dispersion | BlackRock
This research material has been prepared by LPL Financial
The opinions voiced in this material are for general information only
and are not intended to provide specific advice or recommendations
for any individual. To determine which investment(s) maybe
appropriate for you, consult your financial advisor prior to investing.
All performance referenced is historical and is no guarantee of
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There is no guarantee that a diversified portfolio will enhance overall
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Bonds are subject to market and interest rate risk if sold prior to
maturity. Bond values will decline as interest rates rise and bonds
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The S&P 500 is a stock market index tracking the stock performance
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