Weekly Market Update: January 13, 2026
The U.S. economy is exceeding expectations. The last two reports from the Commerce Department showed that the gross domestic product (GDP) expanded by an estimated annualized rate of 3.8% and 4.3% in the second and third quarters, respectively. Sentiment also is building that GDP growth during the final three months of 2025 may have again surpassed forecasts, with a resilient consumer sector, reflected by record holiday shopping sales, driving the upside. Add in the potential benefits from tax cuts and regulation rollback, and further economic expansion is plausible in 2026.
Meanwhile, Federal Reserve officials are becoming less concerned about inflation. The recently released minutes from the December Federal Open Market Committee (FOMC) meeting showed that many participants were seeing fewer risks that tariffs would drive inflation consistently higher. Then a few days after that meeting concluded, the November Consumer Price Index (CPI) report revealed a bigger-than-expected moderation in the pace of price growth at the consumer level. If this trend were to continue, which is possible given the downtrend in global oil prices, it would leave the door open for a few more interest-rate cuts this year.
The outlook for Corporate America remains bright. This includes the expectation that profit growth for S&P 500 companies will expand by double digits over the next 12 months. Here too, tax cuts and reduced regulation should help. Additional oil production from Venezuela, following the capture and arrest of that nation’s dictator Nicolas Maduro by the United States, may bring more oil to the market and put further downward pressure on prices. This could be a boon for corporate profit margins and earnings growth. That could help justify the Index’s elevated price-to-earnings multiple heading into 2026 and potentially be a catalyst for further equity market advances.
Conclusion: There’s again cause for market optimism in 2026, with likely additional interest-rate cuts, less government regulation, moderating inflation, and estimates for double-digit corporate earnings growth serving as tailwinds for equities. However, with valuations looking a bit rich entering this year, maintaining good portfolio diversification, with a significant core weighting of dependable large-cap equities in companies with favorable cash flows, may prove astute.
Source: ValueLine.com
