Two Reasons Why Markets Are Staying So Resilient
The theme of 2026 so far (and admittedly it’s very early) is that, seemingly every week, the market must consider some sort of volatile geopolitical, policy, or trade headline. Yet despite these headlines, stocks remain largely stable. That happened last week as markets looked past the European tariff threat and Japanese Government Bond volatility, and it’s continuing this week with Trump’s 100% tariff threat against Canada.
But one question many investors and advisors are wondering about through the first four weeks of the year is: Why are markets ignoring all these headlines? The simplest answer is that the core factors determining stock prices remain healthy, namely earnings growth and underlying economic growth. Corporate earnings growth is expected to be more than 10% between 2025 and 2026, and while the start to earnings season has been mixed, that’s mostly been from guidance, and no one is talking about reducing expected 2026 S&P 500 EPS. Economic growth, meanwhile, is stable.
The unemployment rate remains in a low historical range; we’re not seeing a spike in jobless claims, and activity across industries is generally “fine.” While there are other forces supporting stocks (expectations for Fed rate cuts, belief in tariff stability, AI enthusiasm), it’s really the two fundamental realities (earnings growth and stable economic growth) that are acting as a buffer against policy chaos.
As long as the fundamentals are in place, markets will continue to be resilient in the face of policy chaos (that headline will still cause short/sharp drops, but the second the policy eases up, markets will rebound).
However, it’s very important that investors and advisors do not fall into the trap of thinking “nothing matters” and that stocks just always rebound. So far, none of these volatile policy headlines have negatively impacted expected earnings growth or overall economic growth; however, neither are impervious. The next two weeks of earnings are the “meat” of earnings season, and while we don’t expect disappointing results, the start of the season hasn’t been great.
On economic growth, the economy is in solid shape, and it’s been “run hot,” but that doesn’t mean affordability challenges can’t cause a slowdown. The reality is that the economy is not very far from stalling (expected GDP growth in Q1 only looks around 1% according to most Wall Street estimates, and all the stimulus efforts have largely been enacted). Bottom line, expected earnings growth and solid economic growth have insulated the market from these non-stop volatile headlines because none of them have led markets to believe earnings growth could disappoint or economic growth could stall.
But neither event is as improbable as the resilient market may lead one to believe, and if we all of a sudden see doubts about earnings growth or continued economic growth emerge, then a suddenly resilient market will be anything but. We therefore can’t get complacent, so we won’t.
Don’t be fooled by my overly positive view on the markets. Last Friday, I sent out a piece by Capital Group that mirrors my concern for midterm election years. Probably won’t feel the effects of the election until the spring or beyond, but we will feel the uncertainty with the elections, particularly with all that is happening with ICE protests. Therefore, our 40% position in bonds is reinforced. Keep the faith, all of this will result in a very strong 2027.
Source: Sevens Report 1-26-26