StoneX 2026 Outlook: Rates Set the Tape

2026 does not look like a boom or a bust. Early in the year, easing financial conditions and stable inflation expectations allow real yields to drift modestly lower. Later in the year, inflation persistence, fiscal supply, and a rebuilding of term premium raise the risk of a rate-driven reset. The dominant risk is not an earnings collapse but a repricing of long-dated rates. Markets do not require inflation at 2.0%. They require inflation to be stable enough for policy to move toward neutral without forcing a repricing at the long end of the curve.

The year naturally divides into two phases. In the first phase, growth slows but remains positive. Labor demand cools without breaking. The Fed has delivered insurance easing rather than stimulus.  

That combination lowers the expected path of real short rates and reduces uncertainty. Real yields can ease modestly even if inflation remains above target. In that environment, bonds and equities can perform together through discount-rate relief rather than earnings acceleration. 

This is a rates-driven market. Earnings evolve gradually, but discount rates can reprice quickly. When real yields or term premium move higher in a short period of time, valuations adjust even if earnings remain intact. Equity downside in 2026 would not require an earnings recession. It would come from a rapid repricing of long-dated rates driven by inflation credibility, supply dynamics, or funding stress. 

As of year-end 2025, on a core CPI-adjusted basis, 10-year real Treasury yields sat near 100 bp, among their highest levels since 2015. Measured against the policy rate, long-end real yields already embed a meaningful amount of easing. That configuration supports early-year upside as uncertainty falls, but it also means the bar for further gains rises quickly...

 

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