The global economy and equity markets are positioned for steady moderation entering 2026. Supported by cooling inflation and resilient growth, the outlook is positive, though risks regarding policy shifts and trade tensions persist. Here is what investors may expect in the year ahead.

Global Economy: Cooling but Constructive

The economic backdrop has shifted from "flashy" recovery to steady expansion. November data provided reassurance to markets as inflation slowed and the labor market cooled without showing signs of stress.

• Labor Market: The U.S. economy added a soft but positive 100,000 jobs over the last six months. While unemployment rose to 4.6%, this was driven partly by workers re-entering the workforce rather than layoffs. Wage growth held at 3.5%, supporting consumer spending without reigniting inflation.

• Inflation: The Consumer Price Index (CPI) eased to 2.7% year-over-year, with price increases slowing across broad categories.

• Expansion: Purchasing Manager Indices (PMIs) remained above 50 in December, signaling continued expansion led by the services sector.

 

Institutional Forecasts:

• Goldman Sachs: Projects 2.8% global GDP growth, with the U.S. leading via consumer strength.

• J.P. Morgan: Forecasts 2.5% growth, citing AI productivity boosts but flagging a 35% risk of recession due to trade fragmentation.

• Consensus: Expects U.S. GDP between 2.5–3.0%.

Equity Markets: Valuation vs. Delivery

Global equities finished 2025 strongly, driven by inflation relief and earnings upgrades. However, valuations—particularly in the tech sector—are elevated.

• The Outlook: Goldman Sachs expects modest 5–10% index returns, driven by a broadening of the market beyond big tech. J.P. Morgan, Schwab and Fidelity all forecast double digit gains for the S&P 500, fueled by continued AI spending.

• The Strategy: With valuations high, the focus shifts to profit delivery and diversification. Sectors like healthcare and industrials are favored for durability, with diversified portfolios expected to yield solid returns.

Strategic Portfolio Stabilization: Fixed Indexed Annuities (FIAs)

Given the forecast for moderating growth and potential volatility in 2026, many investors are looking to stabilize their portfolios without sacrificing growth potential. Fixed Indexed Annuities (FIAs) offer a compelling alternative or complement to traditional bond funds in this environment.

Why consider FIAs for 2026?

• Principal Protection: Unlike bond funds, which can lose value during rate hikes or credit events, FIAs offer zero downside risk. Your principal is protected from market losses, creating a "floor" of 0% return in down years.

• Upside Potential: Interest is credited based on indices like the S&P 500 (up to a cap or participation rate, e.g., 7–10%). This allows you to participate in market gains while eliminating the risk of market crashes.

• Solving the "Bond Problem": In recent years, bonds have been sensitive to interest rate fluctuations. FIAs avoid direct market exposure, enhancing diversification in your conservative "buckets."

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Who is this for? FIAs are particularly suitable for risk-averse investors nearing or in retirement who prioritize capital preservation amid AI-driven volatility and trade uncertainties. They provide bond-like stability, tax-deferred growth, and optional lifetime income riders for predictability.

 

Tale of the Tape

A comparison of Bond Funds vs FIAs over the last decade.

 

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FIAs tied or outperformed bonds 8 out of 10 years.