Why the Fed is stuck between inflation and the labor market, 2026 emerging markets growth outlook

Market Overview - The US stock market is experiencing a modest rally, with the Dow up approximately 100 points (about 0.2%), the S&P up nearly 0.5%, and the NASDAQ composite leading the gains [2] - Small-cap stocks have shown a year-to-date increase of about 14.5%, while the S&P has risen closer to 17% [3][4] - Crude oil prices have seen an upward trend due to geopolitical tensions, particularly involving Venezuela, which has also positively impacted energy stocks [4][5] Investment Trends - Emerging markets are expected to lead earnings growth in the coming year, with a notable outperformance compared to US equities [8][11] - The MSCI excluding the US has risen by 28% this year, indicating a shift in equity leadership from US to non-US markets [8][9] - Factors contributing to this trend include global growth, a weak dollar, and a commodity super cycle [10] Sector Insights - The biotech sector is anticipated to continue its positive momentum into 2026, following a strong performance in the latter half of 2025 [106] - The Federal Reserve's stance on interest rates is expected to remain steady, with a focus on inflation concerns rather than labor market conditions [39][41] - The banking sector is experiencing a recovery in earnings, with a return on assets approaching 1.4% for better-performing banks [22][27] Company-Specific Developments - Nvidia shares have increased following reports of plans to ship H200 chips to China early in the new year, positively affecting Tesla and Meta shares as well [7] - Hut 8's stock price target has been raised to $85 due to a significant data center deal, reflecting strong market confidence [69] - Oracle's stock is projected to have nearly 50% upside potential, despite a recent decline of around 40% over the last three months [70] Regulatory and Policy Impacts - The bio-pharma industry is cautiously optimistic about easing tariff concerns and ongoing negotiations with the administration regarding drug pricing [108][109] - The FDA's operational efficiency remains a concern, as any delays in drug approvals could impact investment in the sector [110][111]