2026 | January Risk Odometer

Happy New Year!  While the calendar year has changed our Risk Odometer remains the same at +3 with a “Positive” outlook.  For the seventh consecutive month, our Risk Odometer score and Current Outlook have remained in bullish territory.  Since our Risk Odometer has remained so stable for such an extended period of time, we felt that expanding on our bullish outlook for what we see in store for 2026 would be warranted. 

The biggest theme we see playing out in 2026 is one of reflation.  Reflation refers to deliberate attempts, often by governments or central banks, to increase price levels to stimulate an economy.  The Federal Reserve is lowering rates, and the White House is pressuring them for more with little regard for budget constraints.  The economy is growing at a healthy level, and inflation remains sticky above the Fed’s target.  Corporate AI capital expenditures remain at sky-high with no end in sight, with easing financial conditions that create headwinds for continued expansion.  All characteristics of reflationary environments.

Reflationary environments often occur at the beginning of an economic cycle and benefit cyclical sectors of the economy such as banks, energy, and commodities.  Although it may not feel like the beginning of an economic cycle given the timing of the last recession, we still appear to be early in this AI driven economic cycle.  Value stocks typically do better in reflationary cycles, which should also benefit International and domestic small cap sectors.  All of these sectors provide good complements to technology investments, which we still like. 

We also believe diversification becomes more important than in years past.  Valuations and concentration of widely held US stock market indices are at historical extremes.  We do not believe these provide timely warnings, but we do recognize they become bigger risks when sudden, unforeseen changes spook investors.  What would normally be routine minor corrections morph into more severe market stress.  Securities which have outperformed the most on the way up fare the opposite on the way down.  This is when diversification is your best friend.  It can also give you freedom to treat those environments as opportunities.  Given current historical extremes and the time elapsed since the latest significant correction, we believe intelligent diversification is a prudent, timely answer.

Lastly, we want to remind our readers that despite our bullish outlook, 10% stock market corrections typically occur every year.  They are usually noise which we often discount or view as opportunistic.  The important thing is to expect them and not panic when they occur.  We believe investors should not be willing to invest in stocks if they are not willing to experience at least 10-20% drops in their account values at any given time.  We try to remind our clients of this when times are good, so they do not panic when inevitable corrections occur.

As always, we continue to believe our Risk Odometer provides guidance in making better investment decisions because it keeps us objective and disciplined.  We use this methodology and advise our clients to do the same.  Emotions are our enemies in investing. 

The Equity Market Risk Odometer is our guide for judging risk in the equity market. It is used as a guide for investment decisions in our proprietary investment strategies. It is composed of various indicators based on leading economic indicators, earnings, technical price action, breadth, and volatility. Its score can range from +5 to -5. Readings greater than one are positive and readings less than or equal to zero are negative.

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_{This information does not have regard to the specific investment objectives, financial situation and the needs of any specific person who may view this information.  Statements, opinions, and forecasts made represent a particular observation and assessment of the market environment at a specific point in time and are not intended to be a forecast of future events or a guarantee of future results.  Statements regarding future prospects may not be realized and may differ materially from actual events or results.  Past performance is not indicative of future performance.}

_{FC Wealth Solutions and its representatives do not provide legal or tax advice.  You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.}

_{Michael Fickell is an investment advisor representative of FC Wealth Solutions}

_{Securities and investment advisory services offered through FC Wealth Solutions, a registered investment advisor.}

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