Economy & Equity Markets
Mark Luschini, Chief Investment Strategist
Although the government shutdown precluded a variety of economic reports from being released, including third-quarter Gross Domestic Product (GDP), data from other, more frequent and efficacious sources offer a reliable current assessment. For instance, a couple of the regional Federal Reserve Banks we often refer to, those in Atlanta and New York, post an updated estimate of growth trends in real time. Together, they show figures for the third quarter running north of 2% and for the fourth quarter as well. While those are certainly positive and suggest momentum encouraging the expansion’s continuation, much will depend on the labor market’s evolution.
There has been a notable downshift in job creation, and the narrowness of the industries reporting increased hiring is somewhat worrisome. In fact, the annualized pace of payroll growth has fallen below 1%, usually a hallmark of an environment immediately preceding or in the early stages of a recession. Fortunately, the unemployment rate, while creeping higher, stands at 4.6% today, still near historically low levels.
Fixed Income & Interest Rates
Guy LeBas, Chief Fixed Income Strategist
We think the U.S. dollar bond markets are set up for an environment where income, not big capital gains, does the heavy lifting in 2026.
Economic growth will end in 2025 in the low-2% range, a deceleration from two years of above-trend expansion. The October government shutdown creates an unusually large blind spot for markets, but the unemployment rate should end the year at about 4.6%, up from 2024’s 4.0%. Core PCE inflation, the Fed’s preferred measure, will meanwhile finish in the 2.8%-3.0% range, still high but a deceleration from recent price pressures. For the coming year, we anticipate consumer spending will moderate, though remain positive; job growth will trend sideways; housing investment will contract; and tech-related corporate investment will drive growth on the margin. As the year-over-year effects of tariffs fade, the annualized pace of inflation should decelerate, with the core PCE falling to the low-2% range by the end of 2026. For bond investors, that mix argues for modest rate volatility around a mostly stable trend, barring political capture of the Federal Reserve.
You can read the full Outlook 2026 here.
This is for informative purposes only and in no event should be construed as a recommendation by us or as an offer to sell, or solicitation of an offer to buy, any securities. The information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed here.
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This presentation has been prepared by Janney Investment Strategy Group (ISG) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. The information presented herein is taken from sources believed to be reliable, but is not guaranteed by Janney as to accuracy or completeness. Any issue named or rates mentioned are used for illustrative purposes only and may not represent the specific features or securities available at a given time. Preliminary Official Statements, Final Official Statements, or Prospectuses for any new issues mentioned herein are available upon request. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, securities prices, and market indices, as well as operational or financial conditions of issuers or other factors. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. We have no obligation to tell you when opinions or information contained in Janney ISG presentations or publications change.
Definition of Ratings
Overweight: Janney ISG expects the target asset class or sector to outperform the comparable benchmark (below) in its asset class in terms of total return.
Marketweight: Janney ISG expects the target asset class or sector to perform in line with the comparable benchmark (below) in its asset class in terms of total return.
Underweight: Janney ISG expects the target asset class or sector to underperform the comparable benchmark (below) in its asset class in terms of total return.
Benchmarks
Asset Classes: Janney ISG ratings for domestic fixed income asset classes including Treasuries, Agencies, Mortgages, Investment Grade Credit, High Yield Credit, and Municipals employ the “Barclays U.S. Aggregate Bond Market Index” as a benchmark.
Treasuries: Janney ISG ratings employ the “Barclays U.S. Treasury Index” as a benchmark. Agencies: Janney ISG ratings employ the “Barclays U.S. Agency Index” as a benchmark.
Mortgages: Janney ISG ratings employ the “Barclays U.S. MBS Index” as a benchmark. Investment Grade Credit: Janney ISG ratings employ the “Barclays U.S. Credit Index” as a benchmark.
High Yield Credit: Janney ISG ratings employ the “Barclays U.S. Corporate High Yield Index” as a benchmark.
Municipals: Janney ISG ratings employ the “Barclays Municipal Bond Index” as a benchmark.
Analyst Certification
We, Mark Luschini and Guy LeBas, the Primarily Responsible Analysts for this report, hereby certify that all views expressed in this report accurately reflect our personal views about any and all of the subject sectors, industries, securities, and issuers. No part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.
