Dow and S&P 500 close at record highs

Market Overview - The S&P 500 reached a record close, marking its 39th of the year, with major averages on track for their third consecutive year of gains [1] - There are concerns about inflation not being fully priced into the market, which could affect future market performance [2][3] Inflation and Interest Rates - Inflation is expected to persist for the next few years, complicating the path to achieving the 2% target [3] - Structural factors such as global deglobalization and protectionism are likely to exert upward pressure on inflation, potentially limiting the number of anticipated rate cuts [4] - A steeper yield curve may result if rates are cut, as long-term rates are not expected to decline significantly [5] AI Investment and Market Dynamics - The market rewarded AI capital expenditure (capex) in 2025, and future performance will depend on the return on these investments [6][7] - Increased global competition, particularly from China, may pressure profit margins related to AI investments [8][9] Healthcare Sector Outlook - The healthcare sector is expected to outperform in 2026, particularly during a midterm election year, based on historical trends [10] - Companies in the healthcare sector, especially pharmaceuticals, are anticipated to benefit from advancements in drug discovery through AI, leading to improved valuations [11][12] - The healthcare sector is currently viewed as undervalued, making it a favorable allocation in investment portfolios [12]