Market Outlook - The current broadening of the market is expected to be durable, with a stronger economy favoring value and smaller stocks [2][3] - Anticipation of two more rate cuts is expected to benefit smaller stocks more than larger ones [3][4] Economic Indicators - Short-term interest rates are crucial for smaller stocks, while the 10-year bond rates are not expected to decline significantly [4] - Fiscal tailwinds are expected to support consumer spending, contributing to a strong economic outlook heading into 2026 [5][6] Stock Valuation - Smaller and value stocks may face valuation ceilings compared to high-growth stocks, but lower price-to-earnings (PE) ratios can still yield good returns with modest growth [6][7] - Companies with a PE of 15 can achieve substantial returns even with growth at nominal GDP levels, unlike those with higher PE ratios [7] AI Integration - The current year is seen as pivotal for AI adoption, with only 15-20% of firms having fully integrated AI to reduce costs [8] - Moderate incorporation of AI techniques could lead to profit margins rising by 2-3 percentage points across firms [11] Labor Market Implications - The unemployment rate remains low, allowing job seekers to find employment despite potential job displacement from AI [10] - Historical trends suggest that new job opportunities typically arise even as technology evolves, though the speed of this transition remains uncertain [9]