Principal Financial Group sees a favorable setup for U.S. equities heading into 2026

[Gold Colored 2026 On Blue Financial Graph Background]
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Principal Financial Group believes the backdrop for U.S. stocks remains supportive, projecting a constructive outlook for 2026 as monetary easing and structural growth trends converge.

Following a strong six-month advance, the S&P 500 has climbed roughly 35% from its “Liberation Day” low, with market leadership beginning to broaden beyond large-cap technology. While artificial intelligence investment continues to drive the sector’s momentum, cyclical areas are now joining the rally—an encouraging sign for the broader market.

According to Principal, history suggests that equities tend to generate solid returns when the Federal Reserve cuts interest rates outside of a recession. The firm noted that current economic conditions fit that pattern, with a softening labor market but overall resilient activity. Fed easing, it said, should bolster growth without triggering the economic contraction that typically erodes corporate earnings.

Potential risks include a sharper slowdown in employment or renewed fiscal pressures that could lift bond yields and dampen sentiment. Still, Principal views the overall policy and investment mix as favorable.

“The combination of Fed rate cuts, pro-growth regulatory policies, enhanced tax incentives, and continued AI-driven capital spending creates a powerful foundation for risk assets into 2026,” the firm said.

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