Resilience and Rotations Shape the Start of 2026
The LPL Strategic & Tactical Asset Allocation Committee (STAAC) determines the firm’s investment outlook and asset allocation that helps define LPL Research’s investment models and overall strategic and tactical investment thinking and guidance. The committee is chaired by the chief investment officer and includes investment specialists from multiple investment disciplines and areas of focus. The STAAC meets weekly to closely monitor all global economic and capital markets conditions to ensure that all the latest information is being digested and incorporated into its investment thought.
Key changes from STAAC:
- Raised 2026 GDP forecast to 2.7%
Investment Takeaways
U.S. equities started the new year on a positive note with the S&P 500 posting its best month since October, the Nasdaq snapping a two-month losing streak, and the Russell 2000 small cap index rallying over 5%. January trading was choppy with a market rotation the major focus as investors pressured mega-cap tech names in favor of cyclical pockets of the market. Nonetheless, additional evidence supporting the resilient economy narrative aided risk sentiment, while equities broadly shrugged off a deluge of geopolitical volatility amid the U.S. capture of Venezuelan President Nicolas Maduro, European-U.S. tensions, and developments in Iran. Meanwhile, earnings season started strong, although muted reactions underscored a high bar, particularly for banks and artificial intelligence (AI) related names.
Core bonds overcame mid-month weakness to end January slightly higher, measured by a 0.1% advance in the Bloomberg U.S. Aggregate Index. U.S. Treasuries, however, posted a fractional loss after yields were pressured higher as a forceful sell-off in Japanese government bonds spilled across the Pacific, sending five- to 30 year yields to their highest levels in four months. Simultaneously, a surge in oil prices and a pause in Federal Reserve rate cuts also contributed to upward pressure on Treasury yields. Mortgage backed securities advanced while corporates edged higher.
Looking forward, investors may be well served by bracing for additional bouts of volatility as ongoing rotation dynamics and increasing AI investment scrutiny linger. Pullbacks may be shallow given technology-fueled earnings strength, likely additional Fed rate cuts, and the fiscal stimulus boost this year. Our analysis shows positioning remains relatively neutral, but valuations are elevated.
LPL Research expects mid-to-high single digit returns for equities in 2026 amid policy crosscurrents and surging AI investment, as discussed in Outlook 2026: The Policy Engine.
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IMPORTANT DISCLOSURES
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. Precious metal investing involves greater fluctuation and potential for losses.
Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
All index data from FactSet.
The Strategic and Tactical Asset Allocation Committee (STAAC) is a division of LPL Research.
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