Stocks have a pretty good backdrop for 2026, says Piper Sandler's Michael Kantrowitz

Market Overview - The market has been focused on interest rates, driven by inflation concerns, with a softening labor market suggesting lower rates ahead [2][12] - The current economic environment may indicate the beginning of a rally rather than the end of a cycle, contrasting with past downturns like in 2008 [4][5] Employment and Interest Rates - Softening employment data and falling interest rates could signal a transition from a bear market to a potential rally [5][12] - The labor market is undergoing a reset, with significant job cuts from companies like Amazon, which had previously expanded its workforce during the pandemic [9][11] Economic Indicators - Forward-looking indicators suggest that by 2026, there may be a return to economic expansion, driven by changes in interest rates, oil prices, money supply growth, and the yield curve [13][14] - The Federal Reserve's rate cuts over the past year are expected to help normalize the economy, despite prevailing bearish sentiments [15] Sector Performance - The Russell 2000 index has returned to its highs, primarily due to price-to-earnings (P/E) expansion rather than earnings growth, as inflation has decreased [7][8] - There is a notable divergence in performance between large-cap growth stocks and smaller businesses, with the latter facing cyclical pressures [11][12]