The segments of the economy that will help broaden out the market

00:00 Speaker A

Now turning to us, Matt Stucky, equity portfolio manager at Northwestern Mutual Wealth Management. Nice to see you, Matt. So, we’re starting to get these kinds of Wall Street 2026 predictions, and a lot of them are pretty optimistic here, not crazy, but reasonable, I guess. Um and many are talking about artificial intelligence as one of the reasons behind this. So at this point, what kind of fiction do you think for 2026?

00:27 Matt Stucky

Look, I think if we’re thinking about the next 12 months and what’s going on in the markets and how we expect that to change in 2026. We see the potential for markets and the economy to expand next year. And if you’re an investor, that’s a good thing. Um, what’s really driving this is, you know, we’ve been in a pretty tight economy for the last two and a half years and we’ve had tight markets as a result, you know, the Fed has raised rates restricting things like manufacturing and housing. and actually the strength of the growth, you know, has been in companies related to the ongoing development of AI computing capability. We think this will probably continue next year. Companies will continue to spend on artificial intelligence. But, you know, we think there’s an opportunity for other parts of the economy, like housing and manufacturing, to start recovering next year as well. And with that, I think a broader market and market participation will come in terms of power over the next 12 months.

01:52 Speaker A

What do you think will drive this expansion? Because we the people have long hoped to expand, but this has not fully happened. Is it just the Fed’s interest rate cut?

02:05 Matt Stucky

I think we’ve actually been seeing this for the last four or five months, and what I’ve been watching from a sustainability standpoint and whether that will ultimately happen is earnings revisions. And what you’re seeing is, for the first time in the last few years, there’s sustained earnings revision strength in things like US small caps and US mid caps. It’s not just the Mag 7 that boosts the gains. More and more segments of the economy and markets also show that there are some underlying forces. And in fact, if you look at some of the strongest types of earnings growth revision trends over the next 12 months, you’ll see that it’s coming from a small cap. Although he remains strong, it hasn’t come from a major cap. And I think that should continue through the fourth quarter and into the first quarter of 2026. And these expectations for earnings growth need to be tracked by actual earnings growth in terms of what is reported. And this, in my opinion, is the most important element of a constant rotation, a constant expansion in terms of markets.