A sour mood is doing the market a favor...
Folks are bracing for a rough 2026. They seem to think it'll be tougher across the board than 2025.
We covered some of this sentiment shift yesterday. Americans have grown less confident that the stock market will rise this year... and more confident that unemployment will climb.
That kind of skepticism can spread fast. People tend to feel negative emotions, like fear of loss, more than they do the joy of a gain.
Believe it or not, this isn't a bad thing. Markets tend to work best when investors are cautious and sentiment leans more neutral.
When the crowd is already thrilled, good news has nowhere to go. When the crowd is wary, good news can keep surprising to the upside.
While investors are getting more guarded, economists are as bullish as they've been in the past year.
And that gap in expectations is setting up a compelling opportunity for the new year...
The U.S. is outpacing its peers when it comes to productivity...
AI is a big reason for those gains. The U.S. has invested more aggressively in AI than any other region. In 2024, for example, we spent more than $109 billion on AI... over 10 times more than the second-largest spender, China.
And those investments are showing up in the numbers. According to the Organization for Economic Cooperation and Development ("OECD"), U.S. labor productivity – measured by GDP per hours worked – rose 10% between 2019 and 2024.
Productivity was largely flat for the U.K. and the eurozone over the same stretch.
That's no accident. In a recent survey by the Financial Times, economists suggested that the U.S. wins on four fronts...
- Deeper financing...
- A more flexible labor force...
- A lead in technology development...
- And relatively low energy costs to power AI.
Nina Skero, CEO at the Centre for Economics and Business Research, called AI and related digital tech "the new productivity frontier." She said U.S. leadership in investment and development should extend its lead.
And when you ask economists about the same data, you get a lopsided answer...
In that same FT poll, 31% of respondents said the U.S. would retain its productivity advantage. Another 48% said the advantage would extend.
Said another way, more than three-quarters of the experts think we'll keep our lead, if not widen it.
The FT also asked economists for their 2026 GDP growth predictions in each quarter of 2025. And the latest results reflect their bullish outlook.
The U.S. is the region with the highest expected GDP growth, at more than 2%. It's also the only region with higher expectations as of the fourth quarter of 2025 versus the start of last year.
Take a look...
The American public might be cautious... but economists aren't. They're confident the economy is on a good path heading into 2026.
Thanks to this setup, we don't need euphoria for stocks to climb...
The skeptics are keeping sentiment closer to neutral levels. Meanwhile, economists are bullish on U.S. AI. They realize AI investment is helping boost our economic output.
This is the best possible scenario.
It's easier for markets to deal with uncertainty when the economy is gaining speed. And it's easier for rallies to extend when the crowd still insists the next year will be worse.
Productivity gains should keep widening the gap between the U.S. and our global peers. As long as that's true, we don't need to see universal confidence in 2026. We're on track for a better result than most folks expect.
Joel Litman
January 9, 2026
