US equity midyear outlook: Looking toward 2026 for upside

In 2025, the US equity markets are navigating a complex landscape of risks and opportunities after two strong performance years. The primary concern remains tariffs, which threaten corporate profits more than geopolitical events or fiscal policies. While the market has shown resilience by rallying to all-time highs despite tariff concerns, it currently stands near fair value with limited short-term upside potential. Inflation expectations are stable for now; however, an increase in goods inflation due to tariffs is anticipated as pre-tariff inventory depletes.

Looking ahead to 2026, optimism persists with multiple catalysts expected to drive earnings growth once current risks subside. A resolution of tariff negotiations could lead to a one-time price adjustment rather than ongoing impact on profits and prices. Additionally, investments driven by AI advancements and other deregulated industries could spur economic activity further supported by monetary and fiscal stimuli like reduced Federal funds rates and initiatives from the One Big Beautiful Bill (OBBB).