2026 US Economic Outlook: Volatility, Recession Risk, Gold Safe Haven

Bloomberg Surveillance · January 03, 2026 · Listen to Original Episode →

Original Title:

TL;DR

US equities may eke out a 10% gain in 2026, but this path will be volatile, marked by an earlier sell-off and a potential modest recession before recovery.
Consumer spending and AI capital expenditures, key 2025 growth drivers, face significant declines in 2026 due to potential unemployment increases and financing challenges for data centers.
Gold is positioned as a crucial safe-haven asset in 2026, driven by growing global deficits, concerns over fiat currencies, and historical performance during bear markets.
Bond vigilantes are expected to exert greater pressure in 2026, potentially driving the 10-year Treasury yield to or near 5% due to concerns about fiscal sustainability.
2026 is projected to be a transition year for housing, with improving affordability due to lower rates and slower price growth, but economic uncertainty may temper buyer activity.
Small-cap stocks could see a resurgence in 2026, benefiting from anticipated interest rate cuts and potential deregulation, provided earnings growth estimates are maintained.

Deep Dive

The US equity market is poised for a challenging 2026, likely marked by increased volatility and a potential modest recession early in the year, followed by a recovery. While the market may still eke out single-digit gains, achieving the fourth consecutive year of double-digit returns is improbable due to mounting economic vulnerabilities, particularly concerning consumer spending and AI capital expenditure, alongside persistent fiscal risks that could embolden bond vigilantes.

The primary drivers of economic growth in 2025, consumer spending and AI capital expenditure, face significant headwinds in 2026. Consumer spending, especially among higher-income households benefiting from wealth effects, could decline if capital markets experience a sell-off. A more significant threat, however, is the potential for increased layoffs driven by AI adoption, which would dampen consumer spending and exacerbate affordability issues for lower and middle-income households already strained by inflation. Concurrently, the expansion of AI infrastructure faces challenges related to rare earth resource access, data center financing, and growing legislative opposition.

Amidst this economic uncertainty, precious metals, particularly gold, are expected to remain a crucial hedge. Gold's historical performance as a safe-haven asset during bear markets and corrections, coupled with concerns over growing global deficits and questions surrounding fiat currencies, positions it favorably. While silver may also perform well, its volatility is anticipated to continue. Earnings growth for 2026 is projected to be tepid, significantly lower than current expectations, as companies report increasing difficulties related to consumer spending and potential layoffs. This weaker earnings outlook will likely temper support for risk assets.

Fiscal risks are a growing concern, with several countries, including the U.S., not appearing to be on a fiscally sustainable path. Bondholders are becoming more vigilant, which could lead to higher yields, potentially pushing the 10-year Treasury yield toward 5%. This environment suggests a shift in market dynamics. While technology stocks have performed strongly, a broadening of market gains is expected, favoring value stocks, large-cap value, small-cap, and international equities. Financials and healthcare are identified as attractive domestic sectors, with financials benefiting from anticipated M&A activity as interest rates decline, and healthcare poised for growth driven by innovation, particularly in weight-loss drugs. Japan and emerging markets are also highlighted for their attractive valuations and growth potential.

Residential real estate in 2026 is expected to be a transition year rather than a turnaround. While improving affordability due to slightly lower mortgage rates and slower price growth will offer some relief, significant economic uncertainty will act as a headwind, creating a tug-of-war. First-time homebuyers will find slightly easier conditions, particularly in markets with increased inventory in the South and Southwest, though affordability remains a major challenge nationwide. The average 30-year fixed mortgage rate is expected to remain above 6%, and increasing housing supply through new construction and incentives for existing homeowners to sell will be crucial, though challenging, to meaningfully address the affordability gap.

Action Items

Audit economic forecasts: For 3-5 key economic indicators (inflation, GDP growth, unemployment), compare predictions from Man Group, Huntington Bank, and Bright MLS for discrepancies and potential systemic biases.
Track AI impact on employment: For 3-5 companies mentioned or implied to be affected by AI layoffs, monitor public statements and earnings calls regarding workforce adjustments and productivity gains.
Measure housing affordability trends: For 3-5 diverse geographic markets (e.g., Midwest, Northeast, South, Southwest), track median home prices, median income, and mortgage rates to identify regional affordability shifts.
Analyze bond market sentiment: For 3-5 countries with noted fiscal sustainability concerns (US, Japan, UK, France), monitor bond yields and credit default swap spreads for signs of increasing investor risk aversion.
Evaluate sector performance drivers: For 3-5 identified growth sectors (e.g., financials, healthcare, small caps, international), track earnings growth, valuation multiples, and interest rate sensitivity against expert predictions.

Key Quotes

"Well that's a great question Alexis and I think we certainly could see that but I think we have to anticipate more volatility and in fact I would expect some kind of significant sell off earlier in the year foreshadowing an economic downturn arguably a modest recession and then a recovery so I certainly think stocks US stocks could eke out gains next year maybe even as much as a 10 gain next year but it will not be an easy path to the end of the year and I think that makes sense just given the kind of gains we've seen thus far and also the kind of vulnerabilities we're seeing with the US economy."

Kristina Hooper, Chief Market Strategist at Man Group, anticipates that while US stocks might achieve gains in the upcoming year, the path will be challenging. Hooper predicts increased volatility, a potential sell-off early in the year, and a modest recession followed by a recovery, suggesting that the market's recent strong performance may not continue without significant headwinds.

"So if we think about 2025 there were two key drivers of economic growth consumer spending and AI cap spending and both of them could see significant declines in 2026 let's take consumer spending largely driven by higher income consumers uh certainly they benefited from the wealth effect in 25 we saw uh how well capital markets did uh certainly if that could change in that could easily change in 26 especially if we do see a sell off earlier in the year but I actually think the bigger threat is an increase in unemployment what we've heard from a number of companies is that they plan on layoffs related uh largely to AI not entirely um that could easily accelerate and again tamp down consumer spending fear uh also can breed some some reduction in consumer spending and for lower and middle income Americans of course the issue has been affordability that doesn't go away uh in my opinion I think it gets worse in 2026."

Kristina Hooper explains that the economic growth drivers of consumer spending and AI capital expenditure seen in 2025 could significantly decrease in 2026. Hooper highlights that a potential increase in unemployment, partly due to AI-related layoffs, poses a larger threat than previously anticipated, which could dampen consumer spending. Hooper also notes that affordability issues for lower and middle-income Americans are expected to worsen.

"So absolutely I think those are uh important uh although relatively small components of uh investors' portfolios perhaps should be larger I do think there is a lot there are a lot of good reasons why especially when it comes to gold I think what we're going to see is more concerns around growing deficits not just a US problem this is a problem in a number of countries uh questions about fiat currencies and uh you know growing uh growing interest and and perceptions of gold as the go to safe haven asset class and what we know from history is that uh in almost every bear market six out of seven bear markets uh gold's held up better than the S&P 500 in most of those environments produced a positive return when stocks sold off six out of six corrections uh so gold has been historically a safe haven asset class and I think it will be even more so going forward."

Kristina Hooper argues that gold should be a more significant component of investor portfolios due to growing concerns about deficits and fiat currencies. Hooper points to historical data showing gold's resilience during bear markets and corrections as a safe-haven asset, suggesting its importance will increase in the future.

"Yeah we've really looked at it we always like to look at it through a few key themes I think one of the key themes we see is is there's still largely a healthy consumer but you have kind of that k shaped split so we do see households and when we talk to companies we're seeing it in the data now we were anticipating three and a half four percent raises coming to most consumers you have social security coming in at almost 3 in terms of the cola adjustment you have a lot of people with as you know our previous guest mentioned decent equity gains and potentially decent equity gains going forward so you have that wealth effect for upper income households however for lower income households we still see the stress we see that delayed effect of inflation if you think about inflation really it tends to hit with a lag for a lot of people even if it's being measured in more of a linear basis like you know we only buy a car every three four years so that you know that that rise in used car prices took a while to spread across households as well as the rising interest rates there and we haven't seen that much of a decline in that area so we kind of we see it we see a healthy consumer we think that drives spending next year we think that drives growth we're targeting one and a half to 2 growth and we think also though a little bit of a tight labor market keeps inflation somewhat elevated two seven two eight next year."

Ian Wyatt, Chief Economist at Huntington Bank, describes a "K-shaped" consumer economy where upper-income households benefit from wealth effects and wage increases, while lower-income households experience persistent inflation stress and the lagged impact of rising interest rates. Wyatt anticipates this dynamic will drive spending and economic growth of 1.5% to 2%, with a tight labor market contributing to elevated inflation of 2.7% to 2.8%.

"Yeah I mean so within uh maybe I'll start off with domestically if some sectors I like if that's okay uh financials had a tremendous year and I expect you know there's a little bump in the road when Jamie Diamond made that cockroach comment and uh about the credit at Tricolor and First Brand yeah exactly but I I don't think there's any evidence of widespread concerns there even within the high yield market that we see investment grade levels within high yield but I I think financials just with with interest rates coming down I think we're going to see some more M&A activity pick up in 2026 in fact during the government shutdown more than 900 registration statements including IPOs were filed with the SEC so I was already expecting a big year in M&A activity within financials but now even more so as they work through that backlog and then another sector that really got its legs in the fourth quarter is healthcare and healthcare has just been stuck in the rut for a long time and it typically does with a new White House administration just because there's so much policy uncertainty but I think we're starting to get past that and I think it's great with with healthcare is that you have it's it's traditionally a defensive play but I think there's so much innovation in there besides the AI I I think the weight loss drugs are the second biggest innovation in the markets right now and there was a bottleneck in in drug supplies there earlier in the year that's been cleared a lot of these biotech companies made a deal with the White House where in exchange for lowering prices they're going to get more weight loss coverage with Medicare and potentially Medicaid and that opens up those weight loss drugs the 40 million more people and that industry is expected to be 150 billion by 2030 so I think that's another sector that I really like going into

Resources

External Resources

Books

"The Big Short" by Michael Lewis - Mentioned as an example of an author whose conversations move markets.
"Moneyball" by Michael Lewis - Mentioned as an example of an author whose conversations move markets.

Articles & Papers

"The Big Short" (Book) - Mentioned as an example of an author whose conversations move markets.
"Moneyball" (Book) - Mentioned as an example of an author whose conversations move markets.

People

Michael Lewis - Author mentioned for his books that move markets.
Peter Lynch - Fund manager mentioned for his conversations that move markets.
Bill Miller - Fund manager mentioned for his conversations that move markets.
Ray Dalio - Fund manager mentioned for his conversations that move markets.
Dick Fahlner - Behavioral economist mentioned for his conversations that move markets.
Bob Shiller - Behavioral economist mentioned for his conversations that move markets.
Christina Hooper - Chief Market Strategist at Man Group, discussed for her outlook on equities and potential recession.
Jamie Dimon - Mentioned for his "cockroach comment" regarding credit.
Bernie Sanders - Mentioned for arguing for a cessation on data center build-out.
Ian Wyatt - Chief Economist at Huntington Bank, discussed for his economic outlook for 2026.
Eric Sterner - Chief Investment Officer at Apollon Wealth Management, discussed for his views on portfolio rebalancing and sector performance.
Lisa Start - Chief Economist for Bright MLS, discussed for her outlook on the residential real estate market in 2026.

Organizations & Institutions

Barkley's Investment Bank - Mentioned for their podcast "Barkley's Brief."
Man Group - Mentioned as the employer of Christina Hooper, Chief Market Strategist.
Huntington Bank - Mentioned as the employer of Ian Wyatt, Chief Economist.
Apollon Wealth Management - Mentioned as the employer of Eric Sterner, Chief Investment Officer.
Bright MLS - Mentioned as the employer of Lisa Start, Chief Economist.
SEC (Securities and Exchange Commission) - Mentioned in relation to registration statements filed during a government shutdown.
White House - Mentioned in relation to a deal with healthcare companies regarding weight loss drugs and coverage.
Medicare - Mentioned in relation to potential coverage for weight loss drugs.
Medicaid - Mentioned in relation to potential coverage for weight loss drugs.
Federal Reserve (Fed) - Discussed for its rate cut outlook and monetary policy.
Apple - Mentioned as an example of a publicly traded company covered by Bloomberg Intelligence.
OpenAI - Mentioned as an example of a privately owned company covered by Bloomberg Intelligence.

Podcasts & Audio

Barkley's Brief - Podcast from Barkley's Investment Bank analyzing market themes.
Masters in Business - Podcast hosted by Barry Ritholtz featuring conversations with market shapers.
Bloomberg Surveillance Podcast - Podcast covering market and economic discussions.
Bloomberg Businessweek Daily Podcast - Podcast featuring reporting and analysis from Bloomberg Businessweek.
Bloomberg Tech Podcast - Podcast focusing on technology, innovation, and the future of business.
Bloomberg Intelligence Podcast - Podcast featuring deep dives into companies moving markets, leveraging Bloomberg Intelligence.

Other Resources

AI (Artificial Intelligence) - Discussed as a driver of economic growth and potential cause for layoffs.
Capital Markets - Mentioned in relation to wealth effect for consumers.
Fiat Currencies - Mentioned in relation to concerns about growing deficits and gold as a safe haven.
Rare Earth Resources - Mentioned as a potential vulnerability for data center build-out.
Data Centers - Mentioned in relation to build-out challenges and potential legislative opposition.
Precious Metals - Discussed as an important portfolio component, particularly gold and silver.
Spot Gold - Mentioned with a specific year-to-date return.
Silver - Mentioned with a specific year-to-date return and potential for continued volatility.
Copper - Mentioned with a specific year-to-date return.
S&P 500 - Mentioned as a benchmark for stock market performance.
Bear Market - Discussed in relation to gold's historical performance.
Corrections - Discussed in relation to gold's historical performance.
Bond Market - Discussed in relation to investor returns and potential for bond vigilantes.
10-Year Treasury Yield - Discussed in relation to potential increases and impact on stock prices.
Bond Vigilantes - Mentioned as a force expected to increase in the bond market.
Fiscal Deficits - Mentioned as a concern for bondholders.
Technology Sector - Mentioned as a sector to potentially rebalance away from.
Large Cap Value Stocks - Mentioned as a sector expected to broaden out.
Small Cap International Stocks - Mentioned as a sector expected to broaden out.
Financials Sector - Discussed as a sector with potential for M&A activity.
High Yield Market - Mentioned in relation to investment grade levels.
Investment Grade Levels - Mentioned in relation to the high yield market.
Healthcare Sector - Discussed as a defensive play with innovation, including weight loss drugs.
Weight Loss Drugs - Mentioned as a significant innovation in the healthcare market.
Biotech Companies - Mentioned in relation to deals with the White House concerning drug prices and coverage.
Emerging Markets (EMe) - Discussed for potential rally with Fed easing and US dollar depreciation.
US Dollar Depreciation - Mentioned as a factor benefiting emerging markets.
Nearshoring Opportunities - Mentioned as a benefit for countries like Mexico.
Small Caps - Discussed as a sector potentially making a comeback in 2026, sensitive to interest rates.
Russell 2000 - Mentioned as a small cap index with year-to-date gains.
S&P 600 - Mentioned as a small cap index focusing on profitable companies, contrasted with the Russell 2000.
Quality Factor - Advised for advisors to lean into, focusing on companies with solid earnings, balance sheets, and cash flows.
Alternative Investments - Discussed in relation to private investments, private credit, and private equity.
Private Credit - Mentioned as an alternative to fixed income with higher yields.
Private Equity - Mentioned as a complement to small cap exposure.
Residential Real Estate - Discussed as a transition year in 2026, not a turnaround.
Mortgage Rates - Discussed in relation to affordability and forecasts for 2026.
Housing Affordability - Identified as a major constraint on the housing market.
First-Time Home Buyers - Discussed in relation to challenges and improving affordability.
Median Household Income - Mentioned in relation to qualifying for a mortgage.
Housing Supply Gap - Mentioned as a high-level number related to the need for more homes.
Tax Incentives - Suggested as a way to encourage home selling.
Equity Gains - Mentioned in relation to potential tax bills for home sellers.
Fixed 30-Year Mortgage Rate - Forecasted to stay above 6% in 2026.
15-Year Mortgage Rate - Mentioned as popular for refinancing.
Neutral Rate - Discussed in relation to the Federal Reserve's monetary policy stance.
CPI (Consumer Price Index) - Mentioned in relation to services contributing to price increases.
K-Shaped Split - Used to describe the divergence in consumer spending based on income levels.
Wealth Effect - Mentioned as a benefit for upper-income households from capital markets.
Cola Adjustment (Cost-of-Living Adjustment) - Mentioned in relation to Social Security increases.
Immigration Story - Discussed as a significant theme impacting labor supply and consumption spending.
Automation - Mentioned as a trend driven by labor shortages, particularly in manual jobs.
One Big Beautiful Build - Discussed in relation to its potential impact on GDP growth and tax rates.
Chips Act - Mentioned as a driver of construction activity in a previous administration.
EV Mandates (Electric Vehicle Mandates) - Mentioned as a driver of construction activity in a previous administration.
Manufacturing Construction Activity - Mentioned as having been at record levels.
Data Centers - Mentioned as a specific area of construction activity.
Energy and Power - Mentioned in relation to data center infrastructure.
Infrastructure Spending - Mentioned as ongoing.
Equipment Investment - Discussed in relation to immediate depreciation expense advantage.
Rate Cuts - Discussed in relation to the Federal Reserve's monetary policy.
Public Market Asset Classes - Mentioned in relation to Apollon's model portfolios.
Private Investments - Discussed for specific client situations, requiring affordability of illiquidity.
Fixed Income Allocation - Mentioned as an asset class that can be complemented by private credit.
Bloomberg Barclays Aggregate - Mentioned as a benchmark for fixed income yield.
Private Equity - Mentioned as a complement to small cap exposure.
Technology Innovation - Mentioned as a driver in the healthcare sector.
AI Revolution - Mentioned as a worldwide phenomenon benefiting tech-centric nations.
Supply Chains - Mentioned in relation to redesigning away from China.
Eme (Emerging Markets Equities) - Discussed for potential rally.
US Dollar - Mentioned in relation to its depreciation benefiting emerging markets.
Russell 2000 - Mentioned as a small cap index.
S&P 600 - Mentioned as a small cap index.
Earnings Growth - Discussed in relation to small cap companies.
Lagged Effects of Rate Cuts - Mentioned as a benefit to domestic companies.
Deregulation - Mentioned as a potential benefit to domestic companies.
Regulatory Perspective - Mentioned as having higher costs for smaller companies.
Quality Factor - Advised for advisors to lean into.
Solid Earnings - A characteristic of quality factor companies.
Solid Balance Sheets - A characteristic of quality factor companies.
Solid Cash Flows - A characteristic of quality factor companies.
Publicly Traded Companies - Mentioned in relation to Bloomberg Intelligence coverage.
Privately Owned Companies - Mentioned in relation to Bloomberg Intelligence coverage.
Magnificent Seven - Mentioned as a group of companies in the tech sector.
Startups - Mentioned in relation to the tech sector.
Finance - Mentioned as a sector covered by Bloomberg Tech.
Defense - Mentioned as a sector covered by Bloomberg Tech.