Fed rate-cut expectations, the Dells’ gift and our outlook for 2026.
Financial markets have traded sideways this week, waiting for the Federal Reserve and Chairman Jerome Powell to provide some direction. Economic data is coming fast and furious now, however, key reports on manufacturing and hiring are not particularly encouraging. That said, the Institute of Supply Management’s (ISM) barometer on service sector activity showed expansion and September’s delayed personal consumption expenditures report had both core and headline inflation rising 2.8% year over year, lower than anticipated.
One bright spot this week was the announcement that billionaires Michael and Susan Dell are donating $6.25 billion to provide 25 million American children 10 and under an incentive to claim the new investment accounts created as part of the One Big Beautiful Bill.
The so-called “Trump accounts” will launch on July 4, 2026, the 250th anniversary of U.S. independence. The Dells will put $250 into each eligible child’s account, which will be invested in low-cost stock index funds to grow over time. The funds can be withdrawn at age 18 for education, buying a home or starting a business, or can be converted into a retirement account. The Dells are trying to reach kids who need the money the most, which is why the gift targets recipients with social security numbers who live in ZIP codes where the median income is less than $150,000. Recall that every American baby born from this year through 2028 is in line to automatically receive a Trump Account funded with $1,000 from the U.S. Treasury.
This news made for a spectacular Giving Tuesday, and followed the news that, despite economic uncertainty, U.S. shoppers spent $11.8 billion online on Black Friday, with Cyber Week sales projected to hit $78 billion. With prices higher, those dollars spent are a bit deceiving, but the National Retail Federation predicts we will ultimately see a record $1 trillion in holiday spending before the year is done, up from $976 billion last year. Tech continues to dominate sales, with Apple AirPods and AirTags, and Nintendo Switches and Mario Kart top sellers. Lululemon and On Cloud were also raking in sales, and luxury retailers noted strong performance and high traffic.
With the Fed poised to cut interest rates next week, the pending announcement of a Trump-selected dovish Fed chair (White House advisor Kevin Hassett is the apparent frontrunner), as well as these Trump accounts and maybe $2,000 tariff dividends coming soon, what could stop or slow a year-end Santa rally? Maybe nothing, or maybe already elevated valuations and AI bubble concerns, or the always looming geopolitical risk.
It was notable that Google CEO Sundar Pichai told Fox News Sunday that Google’s goal is to start putting data centers in space, powered by the sun, as soon as 2027! All the big tech CEOs have made similar murmurs, though perhaps not with quite so aggressive a timeline, as their massive AI infrastructure-build plans are hitting the reality of the constraints of our terrestrial power grid and water supply.
Notably, a week ago, trading on the Chicago Mercantile Exchange was halted by a data-center fault due to overheating, causing 10 hours of disruption to the trading of contracts tied to stocks, bonds and commodities. It did not matter that it was only 28 degrees in Chicago last week; it was over 120 degrees inside that building, and apparently opening a few windows and doors didn’t cut it.
As we partner with you to set your investment plan for 2026, we are carefully considering the risks and opportunities ahead of us. While the overheating CME data center might be too obvious a metaphor for the risk of a market bubble, in contrast, some are predicting 2026 will bring a kind of “economic nirvana” from declining interest rates and a spending boom on AI.
We are more balanced in our view, seeing the potential benefits of the AI-driven recalibration broadening earnings and productivity growth to lift the overall market. This growth may be more modest than in the last few years, though, when concentrated valuation explosions in a handful of tech stocks stole the show and drove double-digit market returns. We would pencil in conservative but more sustainable growth in stock prices for 2026, perhaps in the mid to high single-digit range.
We do think the inflation bogeyman will remain a risk but not get worse, and the supportive regulatory environment along with declining interest rates will fuel capital formation and growth. One only has to consider the deal announced today—Netflix is buying Warner Brothers for $27.75 per share in cash and stock—to see that M&A activity is picking up as capital markets thaw from their post-pandemic malaise.
With all that said, we believe the biggest cloud on the horizon for U.S. investors is our navigation of geopolitics in the near-term. We fear the U.S. seemingly ceding its allyship with Canada, Mexico, Europe and Japan may mean giving up what has been our biggest advantage over others in the economic arms race. Our wealth, the strength of our military, our technology prowess—all of those could be matched or exceeded by others, but our global leadership and economic superpower status was cemented by our strong relationships with these allies. We believe now more than ever that diversification will offer benefits for U.S. investors, to ensure your portfolio keeps up with these changing dynamics and benefits from broadening markets and shifting trade and economic relationships, even as U.S.-centric investments form your portfolio’s foundation. We look forward to discussing our recommended portfolio positioning and our 2026 outlook with you and guiding you to a successful finish to 2025.
Written by a human.