Market Outlook 2027 · Part 1: Themes Heading Into the New Year
First, about Thursday
Stocks fell hard on Thursday after the election. Our market outlook 2027 hasn’t changed. We’re not worried. Yet.
The S&P 500 fell 4.4% and the Nasdaq 5.5%, its worst day since April 2025. Technology fell the most, more than 7%. Energy had already taken its hit on Wednesday when oil dropped 9%. Chip stocks were hit hardest, with the iShares Semiconductor ETF down 12%, its worst day since March 2020. The VIX, which measures how nervous investors are, closed at 28.18, its highest since March.
Two things are happening at once: the mood swing that follows every midterm, and the usual year-end selling. Today buyers are back picking up bargains, and so are we. This morning’s jobs report was a blowout: 165,000 jobs against 60,000 expected. Good news for the economy, and it puts a December rate hike back on the table. None of this surprised us, and the outlook below still holds.
Start with Lunch Money
School lunch is a good place to start, because it shows what rising prices do to a family budget.
By the numbers, since 2006
- School lunch prices: up about 100%. They’ve nearly doubled.
- Prices overall (the Consumer Price Index): up about 64%.
- Private-sector weekly pay: up about 89%, from $694 to $1,315.
So lunch rose a lot faster than prices in general, and a little faster than paychecks. Somewhere a kid is paying double for rectangle pizza, and the fruit cup keeps getting smaller. I’d love to know what a choco-mint costs these days.
You see the same trick with protein bars. The box is the same price. There are fewer bars in it.
Why It Matters
Consumers are about two-thirds of the U.S. economy. Every theme below runs through the family budget, and through every retirement plan that depends on it. Energy costs hit it first. The AI build-out depends on it, because the companies spending $1.1 trillion on data centers next year need customers who can pay. When families are stretched, both stories get harder.
Here are the three things we’re watching.
1. Oil, the Paycheck and the Fed
The chain works like this: oil goes up, prices go up, the Fed raises rates.
Oil was in the $110s two weeks ago. It dropped 9% the day after the election and sits around $100 now, which is still 50% higher than a year ago. Gas is about $4.10 a gallon, down from the $4.30s last month but still a dollar higher than a year ago. The cause is supply, not demand. The Strait of Hormuz, where a big share of the world’s oil ships through, is running at roughly two-thirds of normal, depending on who’s counting.
That’s a problem for the Fed. Higher rates can cool spending, but they can’t make oil. The Fed raised rates in September and held in October. The odds of a December hike dropped on Thursday and jumped right back this morning. Higher rates hurt growth and tech stocks first, because their profits are further in the future.
Are families okay? Credit card balances hit a record $1.26 trillion. That sounds bad, but compared to income, households owe less than they did in 2019 and far less than in 2007. The strain shows up at the edges: late payments on cards and car loans are elevated, and more people are using buy-now-pay-later at checkout. It’s a slow squeeze, not a break.
Who’s carrying the spending
- Spending is still up about 2.6% after inflation.
- Late card payments are at 2.9%, well below the 6.8% peak in 2009.
- Household net worth is up about 70% since 2019. Pay is up 33%, but prices are up 30%, so after inflation most workers are only about 2.5% ahead. People who own homes and stocks are doing the spending.
What it means for stocks. A gloomy public hasn’t been a bad sign. The last four times consumer sentiment fell this low, stocks rose 15% to 22% over the next year. That’s only four examples, and stocks had already rallied hard before sentiment bottomed, so it’s a hint, not a signal. If energy keeps squeezing budgets, expect it to show up first in companies that sell to everyday consumers, not the AI names.
The Forecast
Three paths
1. Gradual easing (our base case). Oil stays high this quarter, then fades to the low $70s next year as supply returns. We’re not holding our breath.
2. Faster normalization. Oil drops sooner, inflation cools, the Fed stops hiking.
3. Prolonged disruption. Oil stays high, more hikes follow, borrowing costs keep climbing.
Watch oil. It’s steering inflation, and inflation is steering the Fed.
2. The AI Build-Out Gets a Stress Test
AI spending still drives earnings. The stocks are now pricing in the risk.
The case for it
- The biggest tech companies plan to spend about $1.1 trillion in 2027, up 37%.
- Tech is expected to deliver about 81% of next year’s profit growth.
- Tech stocks are cheaper than they were. Prices relative to expected profits are down 20% this year.
The stress test. Last week investors asked who pays for all this. Alphabet fell 12% in a day, its worst day ever. The four biggest spenders put more into buildings and equipment last quarter than their businesses generated in cash. A year ago they had cash left over. Intel fell 29% on a weak forecast. Then Thursday happened.
Our view. The spending is locked in. The question is who gets paid. In the portfolios we manage through our investment management practice, we favor the companies selling the chips and equipment, and the ones funding it with their own cash. We’re tougher on the biggest spenders until the returns show up.
3. The Broadening Took a Detour
For most of this year the average stock led the index — the broadening we’ve written about. Then, from mid-September into early October, a handful of mega-caps took over and the rest of the market stalled. Like a group project where one kid suddenly does everything: the grade looks fine until that kid stays home sick.
The proof
- In the third quarter the S&P 500 gained 2% while the equal-weight index fell 2% and small caps fell 7%.
- Third-quarter profit growth is about 29%. Without the ten biggest contributors, it’s closer to 11%.
- In October, stocks started moving on their own stories instead of as one crowd. That’s healthy.
The good news. Since early October, three out of four S&P stocks have beaten the index. The broadening is back on track. It’s not a trend yet, and with the 10-year Treasury near 4.85%, borrowing costs are still a headwind.
The Forecast
Our wish list
- Oil and yields come down.
- The Fed holds in December instead of hiking.
- Profit growth spreads beyond a few names.
The Bottom Line for Our Market Outlook 2027
Thursday tested our thinking, and it held. Profit growth outside a few names is thin, oil is the wild card, and a stretched consumer runs through all of it. None of that changed because the market had a bad day after an election.
What changed is price. The indexes got marked down 4% to 5.5% in one session, and chip stocks 12%. That’s what a buying opportunity feels like from the inside: uncomfortable. We’re not calling a bottom, but we are putting money to work where the selling went too far.
On the midterms, we’ll say what we always say. Sentiment moves markets more than policy does, and guessing how it plays out is like herding cats. Thursday was sentiment. The policy part takes months.
Stay tuned for Part 2 of Market Outlook 2027.
— Meridith on the Markets
Source for the school lunch figures: Bureau of Labor Statistics, U.S. Department of Labor, The Economics Daily, “School lunch prices over the last 20 years” (visited October 15, 2026).
Sources for the household figures: Federal Reserve Bank of New York, Household Debt and Credit report, Q2 2026; Bank of America Institute, Consumer Checkpoint, October 2026; Federal Reserve Z.1 household net worth, Federal Reserve G.19 revolving credit, and BLS average hourly earnings and CPI-U, via FRED (fred.stlouisfed.org).
Market data: S&P Dow Jones Indices; FactSet Earnings Insight (Oct. 23, 2026); Citadel Securities; State Street; FOMC statement, Oct. 28, 2026; BLS Employment Situation, Nov. 6, 2026; AAA; Kpler; market closes through Nov. 5, 2026 and prices as of the morning of Nov. 6, 2026.
For informational purposes only. Not investment advice.
