THE YEAR 2025 was a good example of the prevailing regime. That is, we are witnessing markets that are driven less by fundamentals and traditional business-cycle dynamics and more by fiscal and monetary policy influence. As fundamentals have taken the back seat, policy decisions have emerged as one of the most impactful forces driving market direction.
What does that mean for 2026? In an environment where policy shifts and market momentum increasingly outweigh fundamentals and valuations, we believe investors should remain patient and avoid overreacting to short-term sentiment swings — as policy and momentum-driven markets cause severe fluctuations in price, which can then challenge behavioral biases. We saw this in 2025, when stock prices swung wildly from policy-induced lows to momentum-driven highs, and we expect this pattern of higher volatility to persist.
The good news is that we expect policy to be a tailwind for markets. We believe monetary decision-makers will continue easing policy as economic conditions downshift and inflation remains contained. Corporate earnings may help, though there will be little room for error. Core bonds will quietly offer some value, which should be aided by a more dovish Federal Reserve (Fed). In this policy and momentum-driven market, we strongly encourage investors to look at non-correlated alternative investments.
As you explore the 2026 Outlook, please know that the LPL Research team continuously monitors for these market regime shifts. We use a multitude of tools that allows us to analyze momentum, policy inputs, sentiment, fundamentals, and more to plot a course under any conditions. The market has become more complex, so we invite you to increasingly lean on us. Thank you for the trust and confidence you place in our team.