Despite prospects for another government shutdown and last week's market swoon over tariff threats and Greenland takeover tensions, economist Jeremy Siegel expects a good 2026 for the stock market.
The past week "reinforces my optimism for the year ahead. Growth is strong, productivity is improving, inflation is contained, and markets are broadening beyond last cycle's narrow leadership. While noise around policy and geopolitics will persist, the fundamental trajectory for both the economy and markets remains firmly positive," the Wharton School and WisdomTree economist said in his weekly column Monday.
Democrats "have thrown a monkey wrench" into the market by threatening another government shutdown, Siegel wrote, noting prediction markets have moved from a less than 10% chance to more than 70% that another shutdown will occur, "which should impede the upward movement in the market."
As for the Federal Reserve's next rate decision on Wednesday, Siegel expects a pause in cuts and no policy change. "The key point is that nothing in the incoming data since December has undermined the Fed's prior message. The economy remains strong, jobless claims are hovering near 200,000, and recession fears continue to recede," he wrote.
"Growth momentum remains the central story. The GDPNow estimates are tracking growth north of 5% for the fourth quarter, though that figure may be revised lower once one-off factors ... are adjusted. Growth comfortably above 4% would be extraordinary, especially given modest employment gains," Siegel said.
"This divergence underscores what I see as the defining theme of 2026: a genuine productivity revival driven by technology. We are producing more output with fewer workers, precisely the kind of dynamic that supports higher real growth without reigniting inflation, but higher earnings growth for corporates," he added.
"Geopolitics briefly rattled markets during the week, including headlines around Greenland and renewed tariff rhetoric," but these matters acted more as bargaining tactics than trade war signals, Siegel said, calling President Donald Trump's tariff rhetoric more a background risk than an imminent threat.
Earnings season reinforces the positive backdrop, with a reassuring picture overall, he added. "There is no evidence of deterioration in consumer spending or labor markets, and corporate profits are holding up well," and equity markets leadership is broadening.
"Small-cap stocks and value stocks are meaningfully outperforming in 2026, marking one of the strongest relative runs for value since the growth-led bull market began several years ago," Siegel said. "This rotation is consistent with my view that beneficiaries of artificial intelligence are primed to become consumers and users of AI, not just its producers."
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