The year 2025 exemplifies the prevailing regime — markets driven less by fundamentals and traditional business-cycle dynamics and more by fiscal and monetary policy influence. Today, policy decisions have emerged as one of the most impactful forces driving market direction.
What does that mean for 2026? 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 challenge behavioral biases. We saw this when stock prices swung wildly in 2025 and expect higher volatility to persist.
The good news is that we expect policy to be a tailwind for markets and for the Federal Reserve (Fed) to 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 Fed. In this policy and momentum-driven market, we strongly encourage investors to look at non-correlated alternative investments.
Please know that your LPL Research team constantly accounts for these market regime shifts. We use a multitude of tools to analyze momentum, policy inputs, sentiment, fundamentals, and more. The market has become increasingly more complex, so we invite you to lean on us. T
To learn more about the opportunities and challenges to be on the lookout for through the end of this year, read the 2026 Outlook today.
Disclosure
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All index data from FactSet.
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This research material has been prepared by LPL Financial LLC.
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