In this Market Update, Jack Ablin, Chief Investment Officer, joined host Doug Regan to discuss the widening divide in U.S. consumer health, the potential for fiscal and monetary stimulus in 2026, and how narrowing market leadership may influence investment positioning. Jack described how affordability pressures, policy developments, and concentrated spending patterns are shaping both the economic backdrop and the considerations for portfolios.
A split consumer base:
Confidence has weakened, yet retail sales have remained resilient in part because higher-income households continue to contribute a substantial share of overall spending. Lower- and middle-income consumers are experiencing pressure from rising rents, elevated auto costs, and softening real income.
Affordability strains:
Housing affordability is near multi-decade lows, and rents have been growing faster than wages in many markets. These pressures are redirecting discretionary spending and contributing to varying consumption patterns across income levels.
Shifting spending patterns:
Luxury travel and high-end experiences remain comparatively strong, while some affluent shoppers are choosing lower-priced options for certain essentials. This mix reflects both relatively healthy balance sheets among higher-income households and continued cost sensitivity elsewhere.
Possible fiscal and monetary support in 2026:
Jack outlined a scenario in which fiscal incentives, early-year tax refunds, and a more accommodative Federal Reserve stance could provide support to economic activity. These factors may influence business investment, household spending, and overall liquidity, though outcomes will depend on policy decisions and economic conditions at the time.
Potential reappearance of an Operation Twist–type policy:
A modern variation—selling short-term Treasuries and buying longer-term maturities—could help ease mortgage rates and provide some support to the housing market. Jack noted, however, that such an approach may carry inflation risks and could affect bond market confidence.
Markets, breadth, and earnings:
Earnings expectations remain generally constructive across sectors, but market returns continue to be concentrated in a small group of mega-cap stocks. Broader market participation may depend on the path of interest rates and overall financing conditions.
Outlook:
Jack suggested that 2026 could begin with solid momentum if stimulus materializes, while markets may later adjust expectations if growth and inflation exceed current assumptions. Private credit remains an area of interest, particularly for tax-aware strategies that aim to improve after-tax outcomes, though results will vary and are not assured.
