Market Commentary

• In the past, we have often used the analogy of the U.S. economy being like a gigantic aircraft carrier that is hard to knock off course.
• Expect the giant ship that is the U.S. economy to weather the swirl of headlines that has begun the year and that might lie ahead.

Over many economic and market cycles, this weekly piece has used the analogy of the American economy being similar to a gigantic aircraft carrier. Think about it. Once one of our massive aircraft carriers starts moving steadily and persistently in a certain direction, it takes a lot of force to knock it off course and usually a lot of time to turn it around. In our view, the domestic economy is moving into the early stages of the new year on a steady growth course that also features moderate to moderating inflation.

We expect consumers, particularly those at the upper end of the income scale, to continue to help push the economy ahead with the prospects for capital investment, much of which is the result of spending on the artificial intelligence (AI) and broader automation infrastructure buildout, also playing a key role.

Let’s consider two of the important positive trends that we expect to help keep the “USS American Economy” pushing ahead over the balance of this year. Not surprisingly, and mentioned above, are capital expenditures related to the AI revolution. Hundreds of billions of dollars are currently being spent and planned to be spent constructing huge data centers and building out the power grid needed to operate these structures. This spending will trickle through as revenue for other sectors of the market in addition to tech and tech-like sectors including our favored Industrials and Utilities sectors. After all, someone has to build the data centers and upgrade the utility grid. Everything from bulldozers and track hoes to electrical components and equipment are needed to do the job.

Another meaningful economic benefit in 2026 we expect is from the tax rebates and business tax incentives resulting from the One Big Beautiful Bill Act passed by Congress last year. Consumer tax cuts alone are expected to be in excess of $190 billion this year,¹ helping to drive spending and corporate earnings growth. Remember, consumer spending accounts for around 70% of U.S. gross domestic product (GDP).

We expect better economic growth this year versus last, which combined with another year of record earnings for the S&P 500, should encourage increased demand for loans and debt issuance, more merger and acquisition (M&A) activity, and a higher volume of initial public offerings (IPOs). This activity, along with noticeable deregulation, should benefit our most favored sector, Financials.

With these positive trends in place and the likely prospect of easier Federal Reserve monetary policy as the year rolls forward, we see the giant ship that is the U.S. economy weathering the swirl of headlines that has begun the year and that might lie ahead. We expect more volatility in the coming months and view equity pullbacks as opportunities to increase exposure to our favored sectors.

¹ "Tax Windfall=Spending Surge," Piper Sandler, January 14, 2026.

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