Corporate Resilience and Labor Market Cracks Shape 2026 Outlook - Episode Hero Image

Corporate Resilience and Labor Market Cracks Shape 2026 Outlook

Bloomberg Surveillance · · Listen to Original Episode →
Original Title:

TL;DR

  • Corporate America's resilience is demonstrated by consistently increasing earnings and margins over the past five years, despite numerous economic shocks, suggesting continued market support.
  • The labor market is showing cracks, with significantly lower job gains and potential overstatement in official data, indicating a need for Federal Reserve easing.
  • Fiscal stimulus totaling $160 billion for households and $200 billion for corporate capital expenditures in the first half of the year will likely sustain employment and offset slowdowns.
  • AI investment is a key driver of potential economic strength, but its ability to fully offset a significant slowdown in consumer spending, which constitutes 70% of the US economy, remains uncertain.
  • The market's expectation of only one or two Fed rate cuts in 2026 may be too conservative, given the observed labor market weakness and disinflationary trends.
  • Gold's role has shifted to a central bank trade, driven by demand for assets outside of fiat currency and central bank liquidity concerns, suggesting continued upward potential.
  • The US dollar's trajectory is uncertain, with potential for weakness contingent on aggressive Fed rate cuts, which are not yet reflected in current data or market expectations.

Deep Dive

The 2026 market is poised for continued gains, driven by resilient corporate earnings and expanding margins, though the path forward will be non-linear and subject to policy noise and potential geopolitical disruptions. While the market has historically overcome shocks due to corporate America's adaptability, the sustainability of growth hinges on offsetting a potential slowdown in consumer spending with investment booms, particularly in AI, and a supportive Federal Reserve policy.

The labor market is showing signs of cracking, with job gains significantly decelerating compared to previous periods. This weakness, coupled with moderating inflation, supports the expectation of Federal Reserve interest rate cuts, potentially more aggressively than currently priced in by the market. However, the extent to which AI investment can offset a consumer spending slowdown remains a key question, as consumption constitutes a larger portion of the economy. The housing sector may see a modest recovery driven by rate cuts, but elevated long-term rates present a challenge.

Globally, while emerging markets showed strong currency-adjusted gains previously, future outperformance will likely depend on the U.S. dollar's trajectory. A weaker dollar could support rest-of-world equities, but current trends suggest stability. Commodities, particularly metals like gold and silver, have seen extraordinary gains driven by central bank demand and potentially decoupling from traditional inflation narratives, though their future performance may moderate.

The potential for a recession in 2026 is a risk, though not the base case for many analysts, who anticipate a slowdown rather than a sharp downturn. The effectiveness of AI investment and the Fed's easing cycle will be crucial in navigating these economic crosscurrents. Investors should prepare for a market environment with a wider range of extreme outcomes, both positive and negative, and recognize that the timing of potential downturns can be protracted and difficult to predict.

Action Items

  • Audit investment strategy: For 3-5 key asset classes, quantify correlation between stated market trends and historical performance (ref: AI, Fed policy, commodities).
  • Track consumer spending divergence: For 3-5 income brackets, measure spending shifts against inflation and job growth data to identify K-shaped economy impact.
  • Analyze currency impact: For 3-5 major currency pairs, calculate sensitivity of rest-of-world equity performance to USD fluctuations.
  • Evaluate commodity trends: For 3-5 key commodities (gold, silver, copper), assess drivers beyond inflation narrative (e.g., central bank demand, industrial use).
  • Measure AI investment impact: For 3-5 sectors, quantify AI-driven investment growth against overall economic contribution to assess cushioning effect.

Related Episodes

Key Quotes

"we we think yes but we think it's a non linear year this year and the way that it was non linear in 2025 you know ultimately a year ago we had a 6600 price target on the s p and we're ending more or less here we we moved our target up you know mid year as as the markets recovered from you know peak tariff uncertainty we're looking for 7600 next year we just don't think it's linear we are looking for 13 earnings growth margins are expanding and so in the end like there'll be policy noise you know there'll be issues with maybe the dollar or with bond markets you as japan is is hiking but ultimately you know the fundamentals are the fundamentals and every year the panic kins tell you why this is the year that it's all going to fall apart and what we've learned is that corporate america is amazingly resilient think of the shocks that have come in the last five years and we've the one thing that's happened is earnings have moved higher and margins have moved higher"

Alicia Levine, Head of Investment Strategy at BNY Wealth, argues that the market is poised for gains in the coming year, though not in a straightforward, linear fashion. Levine highlights that despite potential policy noise and global economic shifts, the underlying fundamentals of corporate America's resilience and expanding profit margins are strong drivers for market growth. This perspective suggests that focusing on these core economic indicators is more reliable than reacting to yearly predictions of market collapse.

"so so i think the issue really is the labor market here and i think it's good that the fed is cutting and it's good that they've restarted the cycle over the summer i think christopher waller was really frankly far ahead on this seeing the cracks in the labor market earlier than when then the official data was telling us that's the risk here what you're gonna have though in the first part of the year is 160 billion coming back to households through the tax code so there'll be immediate fiscal stimulus and on top of that you have about 200 billion coming towards the corporate sector for cap backs and investing and when corporates are raising cap x you don't get lower you don't get lower employment right so you sustain employment when there is cap x i think this quarter is probably the worst quarter of the year it's probably we're feeling the slowdown certainly the six week shutdown was not helpful some of that growth that we missed is going to come back in the first quarter of next year some of it's gone forever we're feeling the effects of that this quarter so this massive fiscal stimulus is coming in the first half of the year and the fed's in a cutting cycle"

Alicia Levine points to the labor market as a key concern, noting that the Federal Reserve's decision to cut interest rates is a positive step in response to emerging weaknesses. Levine suggests that while the official data may lag, early indicators of labor market strain are present, and that upcoming fiscal stimulus through tax cuts and corporate investment in capital expenditures will help sustain employment. This indicates a belief that proactive policy measures can mitigate potential economic slowdowns.

"look there's i've seen some murmuring about hey you know there's some of this data maybe kind of sketchy it's incomplete but you know you can quibble about all you want maybe a tick here or tick there but really the underlying signal through all this noise is that the labor market is cracking and inflation is coming down so to me that sets up uh fed easing next year more than what the market's pricing in uh i would just note the last seven months starting in may we've only added about 120 000 jobs total in seven months the seven months prior to that was 1 2 million if you add in uh chair powell's assertion that monthly gains are overstated by 60k then we're talking you know minus 300 400 000 negative jobs negative jobs so you know it's and all the other sort of concurrent adp revellio all the other i think data really supports that so yes you can quibble about the the the the reliability of the data but i think the signal is very clear"

Win Thin, Chief Economist at Bank of Nassau, asserts that despite potential data inconsistencies, the overarching trend indicates a weakening labor market and declining inflation. Thin believes this signals a greater likelihood of Federal Reserve easing than currently priced in by the market, citing a significant drop in monthly job gains compared to previous periods. This analysis suggests that the underlying economic signals are strong enough to warrant anticipation of interest rate cuts.

"so you look you go back to ecom 101 you got c plus i plus g plus net exports so consumers you know um cutting back g in terms of government spending cutting back we've given out some tax cuts obviously under the the big beautiful bill but actual government spending is going to be i think a net negative next year net exports that's a tough one given that you know with this ongoing tariff wars so it's really up to investment and again i keep pointing to ai that's been a big driver why a headline growth in the us has been so strong it's it's you know all this investment in energy chip production all that can that be sustained is that enough to offset again 70 of the economy again i i don't think it can totally offset but it'll kind of cushion the blow and again the fed starts cutting rates we get some maybe life in the housing sector which is really under pressure"

Win Thin identifies investment, particularly in areas like AI and chip production, as a crucial driver for future economic growth, especially if consumer spending and government expenditure decrease. Thin explains that while investment may not fully compensate for a potential slowdown in the 70% of the economy driven by consumption, it can cushion the impact. The prospect of the Federal Reserve cutting rates is also seen as a potential boost, possibly revitalizing sectors like housing.

"i think on gold it's very interesting this new factor here because it's no longer sort of gauging fiat currency and whether central banks are too liquid or not it's really a central bank trade now because when the us puts sanctions on the russian central bank that was it every every rogue nation or like soon to be rogue nations started buying gold and so again supply and demand now there is a massive demand for gold assets and so we do think gold can move higher into next year but that's not the same move as we saw this year like you can't you can't have the parabola every year"

Alicia Levine highlights a shift in the drivers for gold prices, moving beyond traditional currency valuations to a "central bank trade" influenced by geopolitical events like sanctions. Levine explains that such actions have prompted nations to increase their gold holdings, creating significant demand. While Levine anticipates gold prices may continue to rise, she cautions against expecting the same parabolic growth seen in the previous year, suggesting a more measured increase.

"well i'd say i mean i think the ai trend is the one that

Resources

External Resources

Books

  • "The Big Beautiful Bill" - Mentioned in relation to tax cuts provided under this legislation.

Articles & Papers

  • Bloomberg News story on new online scams targeting travelers - Mentioned as a topic covered in newspapers.
  • Wall Street Journal reporting on YouTuber-turned-Boxer Jake Paul facing former world champion Anthony Joshua - Mentioned as a topic covered in newspapers.

People

  • Alicia Levine - Head of Investment Strategy at BNY Wealth, discussed market outlook for 2026.
  • Anthony Joshua - Former world champion boxer, mentioned in relation to a fight against Jake Paul.
  • Christopher Waller - Mentioned for seeing cracks in the labor market earlier than official data indicated.
  • Jake Paul - YouTuber and boxer, mentioned in relation to a fight against Anthony Joshua.
  • Katy Kaminski - Chief Research Strategist at AlphaSimplex, discussed trends in stocks, fixed income, commodities, and the US dollar for 2026.
  • Lisa Mateo - Provided newspaper headlines.
  • Paul Sweeney - Co-host of Bloomberg Surveillance.
  • Win Thin - Chief Economist at Bank of Nassau, discussed labor market data, inflation, and the Federal Reserve's easing potential.

Organizations & Institutions

  • AlphaSimplex - Mentioned as the institution where Katy Kaminski is Chief Research Strategist.
  • Bank of Nassau - Mentioned as the institution where Win Thin is Chief Economist.
  • BNY Wealth - Mentioned as the institution where Alicia Levine is Head of Investment Strategy.
  • Bloomberg News - Mentioned for a story on online scams targeting travelers.
  • Bloomberg Surveillance - Podcast name.
  • Federal Reserve (Fed) - Discussed in relation to interest rate cuts and economic outlook.
  • FINRA - Mentioned as a member of J.P. Morgan Distribution Services, Inc.
  • FTC - Mentioned as the source of information on business imposter scams.
  • J.P. Morgan Asset Management - Mentioned for active fixed income ETFs.
  • J.P. Morgan Chase & Co. - Mentioned as the parent company for J.P. Morgan Asset Management.
  • J.P. Morgan Distribution Services, Inc. - Issued a communication regarding J.P. Morgan Asset Management.
  • Lowe's - Mentioned for its pro rewards program and app.
  • Netflix - Mentioned for its upcoming boxing match broadcast.
  • New England Patriots - Mentioned as an example team for performance analysis.
  • Pro Football Focus (PFF) - Mentioned as a data source for player grading.
  • Shell - Mentioned for its V-Power Nitro premium gasoline.
  • The Wall Street Journal - Mentioned for reporting on Jake Paul's fight.

Websites & Online Resources

  • brooksrunning.com - Mentioned for shopping the Glycerin Max 2.
  • duo.com - Mentioned for Cisco Duo's phishing resistance.
  • jpmorgan.com/getactive - Mentioned for learning more about J.P. Morgan Asset Management's active fixed income ETFs.
  • lowes.com/terms - Mentioned for terms and conditions related to Lowe's Pro Rewards.
  • mintmobile.com - Mentioned for unlimited wireless plans.
  • omnystudio.com/listener - Mentioned for privacy information.
  • shop.colgate.com/total - Mentioned for the Colgate Total Active Prevention System.
  • venmo.me/stash/terms - Mentioned for terms and exclusions related to Venmo Stash cashback.

Other Resources

  • AI (Artificial Intelligence) - Discussed as a driver of investment and a trend in stocks.
  • Active Fixed Income ETFs - Mentioned as a way to capture more of the US public bond market.
  • Business Imposter Scams - Mentioned as a warning for travelers during the holiday season.
  • Cisco Duo - Mentioned for its multi-factor authentication and phishing resistance.
  • Colgate Total Active Prevention System - Mentioned as a routine for oral health.
  • Consumer Spending - Discussed as a significant part of the US economy and a potential area of slowdown.
  • Corporate America - Mentioned for its resilience and expanding margins.
  • Dollar - Discussed in relation to its impact on international outperformance and potential future movements.
  • Dual Cell DNA Tuned Cushion - Mentioned as a feature of Brooks Glycerin Max 2.
  • Eagles at the Sphere tickets - Mentioned as an example of a scam.
  • Emerging Markets Equity and Debt - Mentioned as an area where allocations were raised.
  • Energy Chip Production - Mentioned as an area of investment driving US headline growth.
  • Equities - Discussed as having a positive signal but with recent uncertainty.
  • Extreme Market Environments - Mentioned as a potential scenario for the next year.
  • Fixed Income - Discussed in relation to rising yields and potential Fed rate cuts.
  • Glide Roll Rocker - Mentioned as a feature of Brooks Glycerin Max 2.
  • Gold - Discussed as a central bank trade with increasing demand.
  • Gronk and Jules - Mentioned in relation to "Dudes on Dudes" and Uncrustables sandwiches.
  • Housing Sector - Discussed in relation to mortgage rates and modest recovery.
  • Inflation - Discussed as a factor influencing Fed policy and economic outlook.
  • Investment Strategy - Mentioned as Alicia Levine's role at BNY Wealth.
  • J.P. Morgan Distribution Services Inc. - Mentioned as a member of FINRA.
  • Labor Market - Discussed as a key concern for the economy and a factor in Fed policy.
  • Last Minute Deals - Mentioned in relation to Amazon.
  • Lowe's App - Mentioned for pro rewards and digital wallet features.
  • Lowe's Pro Rewards - Mentioned for earning points and accessing benefits.
  • Mind the Business Small Business Success Stories - Podcast mentioned.
  • Mint Mobile's Unlimited Wireless - Mentioned as a gift idea.
  • Monetary Policy Divergence - Discussed as a factor potentially affecting USD-JPY.
  • Morning Uncrustables Sandwiches - Mentioned for their protein content and flavors.
  • Mortgage Rates - Discussed in relation to the housing sector and Fed policy.
  • Multi-Factor Authentication - Mentioned in relation to Cisco Duo.
  • NEVER ENDING PASTA - Mentioned in relation to Olive Garden's menu.
  • New England Patriots - Mentioned as an example team for performance analysis.
  • New Morning Uncrustables Sandwiches - Mentioned for their protein content and flavors.
  • Naysayers - Mentioned in relation to market expectations for the next year.
  • Oil Prices - Discussed in relation to inflation and supply.
  • Olive Garden - Mentioned for serving lighter portions.
  • Online Scams - Mentioned as a warning for travelers.
  • Passive Fixed Income ETFs - Mentioned as capturing only a portion of the US public bond market.
  • Performance Robbing Deposits - Mentioned in relation to Shell V-Power Nitro gasoline.
  • Phishing Season - Mentioned in relation to Cisco Duo.
  • Podcast Name: Bloomberg Surveillance - Mentioned as the podcast name.
  • Premium Gasoline - Mentioned in relation to Shell V-Power Nitro.
  • Pro Football Focus (PFF) - Mentioned as a data source for player grading.
  • Rate Cut Hopes - Mentioned as shaping equity market swings.
  • Recession - Discussed as a risk for the economy.
  • Retail Sales - Mentioned in relation to consumer spending.
  • Russia and Ukraine Deal - Mentioned as a factor that could bring Russian oil back to the market.
  • Sam Rule - Mentioned in relation to recession predictions.
  • Scammers - Mentioned as taking advantage of travelers during the holiday season.
  • Second-Order Summary - Not applicable as this is not an analysis mode.
  • Shell V-Power Nitro Premium Gasoline - Mentioned for its performance-enhancing qualities.
  • Silver - Discussed as a catch-up trade in commodities.
  • Small Business Success Stories - Mentioned in relation to the "Mind the Business" podcast.
  • Soft Landings - Mentioned as a feature of Brooks Glycerin Max 2.
  • Stash - Mentioned in relation to Venmo cashback.
  • Stocks - Discussed in relation to trends and market environments.
  • Tariff Issues - Mentioned as a factor affecting year-over-year inflation comparisons.
  • Tech Uncertainty - Mentioned as shaping equity market swings.
  • The Fed - Mentioned in relation to interest rate cuts and economic outlook.
  • The Trump Administration's Plan - Mentioned in relation to bringing oil prices down.
  • Tools & Software - Not applicable as no specific tools or software were mentioned.
  • Trade Landscape - Mentioned in relation to FedEx.
  • Travelers - Mentioned as targets of online scams.
  • Unemployment - Discussed in relation to the labor market and economic health.
  • USD-JPY - Mentioned in relation to potential decline on monetary policy divergence.
  • US Public Bond Market - Mentioned in relation to passive and active fixed income ETFs.
  • Venmo Debit Card - Mentioned for earning cashback on purchases.
  • Videos & Documentaries - Not applicable as no specific videos or documentaries were mentioned.
  • Wall Street Journal - Mentioned for reporting on Jake Paul's fight.
  • YouTube - Mentioned as a platform to watch Bloomberg Surveillance live.

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