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As we step into 2026, the fundamental backdrop for markets appears more favorable than anything we’ve seen since 2021. It may be hard to remember after wrapping up a strong year for global markets, but investors climbed a significant wall of worry throughout 2025. Policy uncertainty dominated headlines: Would DOGE trigger a recession? Was the U.S. heading into a trade war? Would the Fed prioritize fighting inflation or supporting the markets?
Many of these questions have been answered, and two powerful forces are now working in investors’ favor: policy clarity and Federal Reserve support. Range looks at the potential impact of policy on markets this year.
The Macro Reset: Policy Fog Has Lifted
Investors hate uncertainty more than they hate bad news. Throughout 2025, they faced three major policy unknowns that froze decision-making and weighed on markets. Now, they finally have answers.
The Fear of DOGE
Following the creation of the Department of Government Efficiency, headlines suggested a staggering $2 trillion in immediate spending cuts. Markets worried about the risk of “shock therapy” that could trigger a government-induced recession.
The 2026 Setup: The U.S. endured some hiring freezes and increased scrutiny on government waste, but the catastrophic demand shock never arrived. DOGE quietly wound down in November 2025 and a “slash and burn” approach to government spending is no longer a market concern.
The Tax Cliff
The looming expiration of the Tax Cuts and Jobs Act created a massive overhang at the beginning of 2025. CFOs froze spending plans and M&A slowed, as it was difficult to model returns on investment without knowing tax policy.
The 2026 Setup: The “One Big Beautiful Bill Act” was enacted in July 2025, setting tax rates for the next several years. Businesses now have the visibility they need to unlock their balance sheets.
Tariff Russian Roulette
Perhaps the most traumatic policy risk of 2025 was trade rhetoric that seemed to escalate daily. Threats of 100% tariff rates became a regular occurrence, and investors feared an extreme universal tax that would reignite 1970s-style stagflation.
The 2026 Setup: Tariff-related fears briefly sent us into a bear market in 2025, but investors now recognize that tariff-related inflation is a manageable friction, not an existential risk to margins.
The Fed Has Shown Its Cards: Support, Not Restraint
Perhaps more than fiscal policy, valuations, or even earnings, a highly important variable for markets is the Federal Reserve. In 2026, the Fed appears ready to shift from fighting inflation to protecting expansion, acting as a powerful backer for markets.
For the first time since 2021, the Fed is using both of its primary tools to support asset prices:
1. Lowering Short-Term Rates
The Fed cut rates three consecutive times through December, bringing the target range down to 3.5%-3.75%. This directly stimulates economic activity.