As we enter 2026, I would say last year seemed a lot like 1998, and 2026 could be like 1999, one of the best years for stock markets. Among the many big events looming this January, we should see continuing strong earnings reports, as the stock market is now enjoying its strongest sales growth in three years and fastest earnings growth in four years. Furthermore, earnings surprises last quarter ran at the fastest pace in four years, and the analyst community has been revising their consensus earnings estimates steadily higher. All this comes while the Fed may be cutting key interest rates further, and if deflation emerges, the Fed will likely pick up the pace of their rate cuts.
Some other key events are slated to happen this month. After earnings reports begin this week, President Trump will likely nominate a new Fed Chairman in January, and this should end the Fed’s overly cautious policy and make them more pro-business. The President is also moving major chess pieces in our hemisphere in an attempt to stop illegal drug flows and also releasing the energy resources of Venezuela.
I’m not sure which Kevin the President will nominate at the Fed, but the President seems to favor positive and competent leaders rather than perpetual worrywarts. Kevin Hassett (head of the President’s Council of Economic Advisors) is a very competent and happy person! If Kevin Hassett becomes the next Fed Chair, we will have a welcome economic cheerleader leading the Fed, which will be very exciting.
Here are the most important developments recently and what they mean:
- After announcing JP Morgan’s fourth quarter results, CEO Jamie Dimon said, “The U.S. economy has remained resilient.” Dimon added, “While labor markets have softened, conditions do not appear to be worsening. Meanwhile, consumers continue to spend, and businesses generally remain healthy.” Jamie Dimon is notorious for being grumpy, but this is the most optimistic that I can remember him being on the overall economic outlook.
- The Labor Department on Tuesday announced that the Consumer Price Index (CPI) in December rose 0.3% and 2.7% in the past 12 months. Excluding food and energy, the core CPI rose 0.2% and 2.6% in the past 12 months, which was better than economists’ consensus estimate of 0.3% and 2.7%, respectively. Food prices rose 0.7% in December, while gasoline prices declined 0.5%. Owners’ equivalent rent (shelter costs) rose 0.3% in December and accounted for much of the CPI increase, but shelter costs are expected to cool in the upcoming months. The federal government shutdown distorted some of the data collection, so the December CPI is not expected to impede any Fed cuts. On Wednesday, the Producer Price Index (PPI) and retail sales will be announced.
- Fed Chairman Jerome Powell revealed in an interview that the Fed has received a grand jury subpoena that could result in a criminal indictment. The DOJ investigation is about the billion-dollar construction project at the new Fed headquarters. Obviously, if Fed Chairman Powell is being investigated by the DOJ, it may be hard for Chairman Powell to do his job. So, the real question is, was the DOJ investigation intended to oust Chairman Powell? This potential threat to Fed independence has rattled the currency market, since the U.S. dollar sold off in the wake of the DOJ investigation news.
- President Trump, in addition to directing Fannie Mae and Freddie Mac to buy mortgage securities, is also considering capping credit card interest rates. Obviously, lower credit card interest rates would be widely popular with struggling consumers and boost President Trump’s popularity. Financial stocks, as a group, are expected to post strong quarterly results this week, since the yield curve has gotten steeper and will help boost their profitability.
