Bullish U.S. Equity Outlook For 2026 Driven By Converging Catalysts

Key Quotes

"A series of bullish catalysts are lining up at the same time, and the market is still underestimating their collective impact. There's been a lot of focus on individual positives--solid earnings growth, further Fed easing--but in our view, the real story is how these forces are reinforcing one another. Deregulation, positive operating leverage, accommodative monetary policy, and increasingly supportive fiscal policy are all working in the same direction."

Mike Wilson argues that the market is overlooking the combined effect of several positive economic factors. Wilson highlights that while individual strengths like earnings growth and Fed easing are noted, their synergistic reinforcement through deregulation, operating leverage, and monetary and fiscal policies is the more significant, underestimated driver.

"Importantly, this isn't a market that’s already priced for the outcomes I envision. Positioning in cyclical trades remains relatively light, and sentiment in economically sensitive areas is far from exuberant. That combination--of improving fundamentals with cautious positioning--is exactly what tends to characterize the early stages of a recovery."

Wilson points out that current market conditions do not fully reflect the potential positive outcomes he foresees. Wilson explains that light positioning in cyclical trades and subdued sentiment in economically sensitive sectors, alongside improving fundamentals, are characteristic signs of an early-stage economic recovery.

"I continue to believe these tailwinds are most underappreciated in cyclical areas like Consumer Discretionary Goods, Financials, Industrials, and small- and mid-cap stocks. Many of the indicators we track are only just beginning to turn higher. This doesn’t look late-cycle to me--it looks early in what I have deemed to be a rolling recovery."

Wilson identifies specific sectors where positive market forces are most overlooked. Wilson suggests that consumer discretionary goods, financials, industrials, and small- and mid-cap stocks are poised for growth, as indicated by early upward trends in key indicators, signaling an early-stage recovery rather than a late-cycle phase.

"My view is different. I believe a three year rolling recession ended with Liberation Day. If that’s true, then the moderate softness we’re now witnessing in lagging labor data is constructive for equities because it keeps the Fed leaning dovish for longer and more aggressive--a positive for equities."

Wilson presents a contrarian view on the current economic state and its implications for the stock market. Wilson posits that a past recession has concluded, and current softness in labor data is beneficial for equities by encouraging a prolonged dovish stance from the Federal Reserve.

"Another tailwind that doesn’t get nearly enough attention is energy prices. Gasoline prices in particular are sitting near five-year lows, which is providing real economic relief for lower- and middle-income consumers. That cushion matters, especially as other parts of the economy firm. This past weekend’s events in Venezuela argue for lower oil prices for longer."

Wilson draws attention to the overlooked impact of energy prices on the economy. Wilson notes that low gasoline prices offer significant economic relief to consumers, which is a supportive factor as other economic areas strengthen, and recent geopolitical events suggest sustained low oil prices.

"Liquidity has been our top concern since September, and markets have reflected that through weakness in speculative assets. The good news is that the Fed has responded by ending quantitative tightening early and restarting asset purchases through the Reserve Management Program. This effectively adds liquidity to a system that was showing signs of stress this past several months."

Wilson addresses a key market concern and the Federal Reserve's response. Wilson explains that while liquidity concerns have impacted speculative assets, the Fed's actions to halt quantitative tightening and resume asset purchases are injecting needed liquidity into the financial system.