'DIVERSIFY' in 2026 amid Trump's push for affordability, expert says

Key Concepts

• AI-Driven Productivity: The impact of Artificial Intelligence on job creation and wage growth, challenging fears of widespread job displacement.
• Earnings Growth: Projected double-digit earnings growth for publicly traded companies in the coming year, extending beyond the technology sector.
• International Equities: The attractiveness of international equity valuations despite U.S. market strength, emphasizing the need for portfolio diversification.
• Federal Reserve Policy: Anticipated Federal Reserve rate cuts, with differing expectations between market participants (two cuts) and analysts (one cut).
• Fed Chair Nominee Impact: The potential influence of the next Federal Reserve Chair appointment on monetary policy and market confidence.
• Cyclical Stocks & Small/Mid-Cap Stocks: Opportunities for growth outside of the tech sector, particularly in these areas.
• Lean Hiring Plans: Corporate strategies of prioritizing capital investment over increased hiring.

Market Outlook for 2026: MGP Wealth Advisor President Brian Vendig on CNBC

Introduction

This discussion, featuring Brian Vendig, President of MGP Wealth Advisor, on CNBC’s “The Word on Wall Street,” focuses on the current market state, projections for 2026, and the potential impact of upcoming economic and political events. The conversation covers earnings growth, international equities, the labor market, and the upcoming Federal Reserve Chair appointment.

1. 2025 Performance & 2026 Earnings Projections

The year 2025 is concluding with strong market performance. All three major indices – NASDAQ (up 22%), Dow (up 15%), and S&P 500 (up 18%) – have posted double-digit gains, driven by strong economic growth and three consecutive Federal Reserve rate cuts. Vendig projects a 15% increase in profit outlook for publicly traded companies in 2026. Crucially, he anticipates that a significant portion of this growth will come from sectors outside of technology. He highlights cyclical stocks, mid-cap stocks, and small-cap stocks as areas with potential for expansion. Tax incentives related to infrastructure and supply chain innovation, fueled by AI, are expected to contribute to this broader earnings expansion.

2. International vs. U.S. Equities

Despite initial expectations, international equities have performed surprisingly well. Vendig believes this trend could continue, citing de-escalation in trade tensions and countries reinvesting in themselves. However, he still sees strength in U.S. equities. He emphasizes the importance of diversification, noting that U.S. markets are trading above historical valuation averages. Therefore, international equities should have a place in client portfolios. The discussion highlights a tension between attractive international valuations and continued U.S. market momentum.

3. The Labor Market & AI’s Impact

Concerns are rising about a potential slowdown in the white-collar labor market, with companies outlining “lean” hiring plans for 2026 – prioritizing capital investment over hiring. Economists are noting that job growth has slowed from 370,000 jobs per month to 55,000. However, Vendig argues that a recession is not imminent. He points to increased productivity, particularly driven by AI, as a mitigating factor. He references a recent Vanguard report indicating that AI has created more jobs than were lost during the COVID era, and that companies exposed to AI are experiencing wage increases. He dismisses fears of widespread job displacement as “unfounded.” The S&P 500 has experienced double-digit earnings growth for two to three quarters, benefiting not just the “Magnificent Seven” stocks but a broader range of companies.

4. Federal Reserve Chair Appointment & Rate Cuts

The impending appointment of a new Federal Reserve Chair is a key focus. President Trump is reportedly considering Kevin Hassett, Kevin Ward, Christopher Waller, and BlackRock’s Rick Rieder as finalists. Bank of America CEO Brian Moynihan has publicly warned against any move that would undermine the Fed’s independence, emphasizing its critical role in financial stability. Vendig acknowledges the importance of maintaining confidence in an independent Fed, allowing it to review input from the President while maintaining its own decision-making process.

There is disagreement regarding the number of rate cuts expected in 2026. The market anticipates two cuts, while Vendig’s firm predicts only one, potentially occurring mid-year after the Fed Chair announcement in January and taking effect in May/June. This divergence is based on expectations of more robust economic growth and stickier inflation.

5. The Independence Debate & Market Certainty

The discussion touches on the debate surrounding the Fed’s independence. One participant questions the notion of Jerome Powell’s independence, suggesting he was influenced by Democrats. However, the overall sentiment is that investors prioritize certainty. Kevin Hassett is speculated as a likely nominee, and the focus will likely shift to the actual rate cuts rather than the individual making the announcement.

6. Technical Terms & Concepts

• Cyclical Stocks: Stocks whose performance is closely tied to the economic cycle. They tend to do well during economic expansions and poorly during recessions.
• Mid-Cap Stocks: Stocks of companies with a market capitalization between $2 billion and $10 billion.
• Small-Cap Stocks: Stocks of companies with a market capitalization between $300 million and $2 billion.
• Magnificent Seven: A group of seven large-cap technology companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta) that have driven a significant portion of the stock market’s gains in recent years.
• Ten-Year Treasury Yield: The yield on a 10-year U.S. Treasury bond, often used as a benchmark for long-term interest rates.
• Two-Year Treasury Yield: The yield on a 2-year U.S. Treasury bond, often used as a benchmark for short-term interest rates.

Conclusion

The outlook for 2026 is cautiously optimistic. While strong earnings growth is anticipated, particularly outside the technology sector, the Federal Reserve’s policy decisions and the appointment of a new Chair will be critical factors. Diversification, including international equities, is recommended. The labor market, while showing signs of slowing, is not expected to trigger a recession due to increased productivity driven by AI. Ultimately, market participants are seeking certainty and will likely focus on the economic fundamentals and rate cuts, regardless of who leads the Federal Reserve.