Comments based on information available as of 7:30 am CT on 1/16/2026

Growth: Brighter days ahead?

The Fed’s Beige Book (a collection of qualitative information from around the country) finally said economic activity is improving. It’s a “slight to modest” improvement, but an improvement nonetheless. Economic output has been growing strongly since the end of the first quarter, but the labor market has been struggling. With some stimulus in the pipeline from tax refunds to capital spending by businesses, the labor market could be pulled up instead of being dragged down. The outlook isn’t completely rosy, but it’s also not bleak.

Inflation: Services trump goods

December inflation remained above the Fed’s target, but the trend is beginning to bend in the right direction. Progress may be slow—goods inflation is proving stubborn—but services inflation continues to cool. Because services make up the largest share of the consumer basket, the disinflation there is likely to outweigh lingering goods pressures in the headline readings.

Policy: Drinking from a firehose

In 2025 we had policy shifts that raised tariffs, reduced immigration, maintained and cut select taxes, and cut interest rates. The year 2026 is off to a furiously fast start. The year opened with the ouster of Nicolás Maduro in Venezuela, the prospect of revolutionary unrest in Iran, and even protests in America. Meanwhile, President Trump has floated capping credit card interest rates, advancing a “Great Healthcare Plan,” and directing Fannie Mae and Freddie Mac to purchase more mortgage‑backed securities. Added to that, a grand jury has issued a subpoena to the Federal Reserve—and January isn’t even over. Taken together, the pace and breadth of developments suggest that 2026 may be defined less by any single policy shift and more by the sheer volume of changes. Investors may feel like they’re drinking from a firehose.

Looking ahead: The Great Rotation

There’s a new king of the hill to start 2026. Instead of large‑cap growth, small‑cap value is taking the crown. After years of head‑fakes—moments when it seemed big‑cap tech’s dominance might finally give way to broader market participation—the long‑anticipated “Great Rotation” may finally be taking shape. This shift is being powered by a potent mix of policy and pricing dynamics. With the Fed’s policy down to 3.50%–3.75% and corporate tax incentives unlocking capital spending, sectors beyond tech are finding firmer footing while select high‑fliers face overdue valuation resets. Supported by cyclical tailwinds and strengthening market breadth, this emerging leadership looks like more than just another fleeting blip.