Equities are starting 2026 with a simple narrative: slower inflation plus easier policy equals higher multiples. Yahoo Finance highlighted expectations that CPI inflation stays near 2.7% YoY and that “inflation will surprise to the downside” in 2026, supporting the idea that Fed cuts can arrive without a growth scare. CPI at 2.7% is the key near-term checkpoint markets are trading around.
At the index level, expectations remain upbeat. The Motley Fool compiled Wall Street’s 2026 targets with an average implied gain of about 10% from early-January levels. In that same snapshot, the S&P 500 was around 6,966, reflecting how much optimism is already baked in after a powerful run. S&P near 6,966 is a reminder that “good news” has to stay good to keep upside smooth.
The catalyst beneath the optimism is twofold:
- Lower yields if the Fed cuts. That supports housing, capex, and the discount rate used for growth stocks.
- Policy tailwinds like accelerated investment incentives. Yahoo pointed to the OBBB’s 100% depreciation for qualifying capex, which can pull spending into 2026. That’s a sharp turn from last quarter’s corporate caution.
But the market is juggling a contradiction: weaker hiring is good for cuts, yet bad for earnings breadth. December payrolls were just 50,000, and 2025 job growth totaled 584,000, which suggests demand may cool further. Add ongoing tariff uncertainty, and investors may remain selective rather than indiscriminately bullish.
Positioning takeaway. The base case can still be “risk-on,” but expect a choppier tape around CPI and Fed communication. If inflation data cooperates, upside broadening beyond megacaps becomes more plausible.
