2025 was a solid year for the U.S. economy...
The S&P 500 Index finished up roughly 16% after a rocky start.
Gross domestic product growth remained positive through the first three quarters, defying widespread recession fears.
Likewise, consumer spending reached new highs – $21.2 billion as of September 2025.
These types of outcomes normally fill investors with confidence.
Instead, the tone in early 2026 is largely negative... Folks are worried that the good track record won't last much longer.
While 2025 ended on a strong note, the path felt wobbly. The government shutdown lasted a record 43 days. And unemployment has started rising over the past few months.
So it's normal to feel cautious about the economy. But the recent shift in sentiment may be healthier than it looks.
Gallup's annual survey of Americans' expectations captures the change in mood...
Compared with 2025, optimism for 2026 fell sharply across most of the 13 categories Gallup tracks, including employment, taxes, and economic prosperity.
Take a look...
Employment expectations saw the steepest decline... The share of Americans expecting full or increasing employment dropped from 54% to 36%.
Expectations also fell for economic prosperity – from 44% to 30%.
All of this makes sense. The labor market has softened after a long period of strength. Along with rising unemployment rates (4.6% in November 2025), we're seeing slower job growth and fewer job openings.
Americans also expect taxes to rise and challenges in political cooperation to persist.
Even stock market expectations have fallen. While most investors think equities will rise by year-end, the positive prediction for a rising market dropped from 66% to 55%.
Many investors are skeptical of the AI rally that powered much of the market last year...
The 10 largest stocks in the S&P 500 make up more than 35% of the index. And many of those stocks are big AI-related companies, like Nvidia (NVDA) and Alphabet (GOOGL).
The market hasn't been this concentrated since the 1960s... when blue-chip stocks, like Coca-Cola (KO) and McDonald's (MCD), led the pack.
So it's no surprise that folks are worried. But we haven't seen any breakdown in AI growth yet. (We'll cover this point in more detail in tomorrow's Daily Authority.)
From a market perspective, widespread skepticism can be stabilizing...
It means there's a mix of bullish and bearish approaches... And this tends to send the market higher.
As we noted back in October, the wall of worry is sturdier than euphoria.
In other words, major market downturns rarely emerge when investors are cautious. They tend to form when optimism becomes the consensus.
A cautious market offers more flexibility. It's less dependent on perfect outcomes, which means it can handle ups and downs.
So far, the foundation of the U.S. economy remains intact... Consumers are still spending money, and the AI rally is forging ahead despite a potential bubble.
In that sense, a little worry may be doing more good than harm.
Joel Litman
January 8, 2026
