Will 2026 be a good year for stocks and bonds?
Posted on December 26, 2025

Happy Holidays! Last week I went to a talk by Stu Hoffman, past chief economist from PNC. I think I’ve attended this event in all but one year out of the last ten or so. Here are the highlights of his prediction for 2026, barring major geopolitical events:

 

• The economy is good: expect 10% increase in corporate profits.

 

• Stocks accordingly should improve by roughly 10% – their long run average (including inflation).

 

• Bond interest rates will remain where they are and earn a few percentage points greater than inflation.

 

• Money market rates will be a bit lower and roughly match inflation: 0% real return.

 

Details:

 

Consumer spending is strong. Consumer spending is about 70% of our economy, so this is an important component. Spending is going in the opposite direction of the measure of consumer sentiment; Stu doesn’t put much faith in that measure.

 

Many will see lower taxes on their 2025 tax return and the amount that the IRS sends back to taxpayers for over withholding will be much more this year than in the past. They’ll have more to spend.

 

Unemployment is low and will remain low: it won’t go above 5% which is considered low. It’s 4.6% now.

 

Job growth will be okay. Stu thinks job growth will be less than the Federal Reserve forecast of about 55,000 new jobs/month. We have 1 million fewer in the workforce from low immigration and migration.

 

We have 180 million employed. Even a small error rate in the count results in swings and adjustments of employment. The annual number is revised in greater detail in January, and we may find there was no job growth in 2025.  

 

The Federal Reserve will lower interest rates at least two times in 2026. The ten-year US Treasury bond interest rate will remain roughly where it is now, about 4.1%. Bonds prices won’t change much: expect 4% total return.

 

Inflation will fall to less than 2.5% in 2026 and keep falling in 2027. The current level of tariffs is about 11% on average; we are still working through the final effects, and they may settle at 12% or 13%. They are half of Trump’s initial proposal of 25% tariffs.

 

Economic growth (GDP) will be okay. We have no prospects for a recession. Stu thinks GDP growth will be less than 2%. The Federal Reserve forecasts 2.3% GDP growth for 2026.

 

 

Conclusion:  I attended a talk by Stu Hoffman, former chief economist for PNC. Here are the highlights:

 

Expect stocks to return 10% and bonds to return about 4% in 2026. Our economy is good. We will not have a recession. Expect corporate profits to improve 10%. Expect inflation to fall. Expect interest rates to remain steady.