As markets approach 2026, shifting economic indicators are commanding increased attention from investors. A slowing economy, softer job creation, and a rising unemployment rate are beginning to influence expectations for Federal Reserve policy. Against this backdrop, Jay Hatfield, CEO of Infrastructure Capital Advisors, shared his outlook on inflation trends, equity markets, and investment positioning during a recent interview.
Hatfield focused on key macro indicators, particularly easing inflation and expectations surrounding Federal Reserve interest rate adjustments. He expressed a bullish outlook for equities, projecting the S&P 500 to reach 7,000 by year-end and potentially climb to 8,000 in 2026. This outlook is anchored in the expectation that the Personal Consumption Expenditures core inflation measure could fall below 2%, a development that would likely prompt three interest rate cuts by the Federal Reserve.
Recent labor data points to weakening employment conditions, contributing to more cautious sentiment among workers. Despite this, equity markets have responded positively. The S&P 500 has posted gains approaching 15% year-to-date, reflecting optimism that cooling inflation may outweigh concerns around slowing job growth. Hatfield cited a real-time PCE index indicating near-zero inflation in shelter costs, supporting his view that headline PCE readings could trend lower in the months ahead.
From an asset allocation standpoint, Hatfield emphasized opportunities within fixed income markets. He favors high-yield bonds and preferred stocks, noting that these instruments tend to outperform investment-grade bonds during bull markets. Infrastructure Capital Advisors manages two funds focused on these asset classes. As equity prices rise, Hatfield expects credit spreads on high-yield bonds to tighten, enhancing their appeal in the current environment.
The discussion also addressed fiscal policy considerations ahead of the 2026 midterm elections. Hatfield argued that modest tariffs, structured more like sales taxes than punitive trade barriers, could help support federal revenues. He estimates the budget deficit could decline to approximately $1.45 trillion, remaining below projected GDP growth of 5%. Reduced borrowing, he noted, could contribute to improved economic conditions, with tariffs adding an estimated 0.2% to growth.
Hatfield also identified sectors positioned to benefit in the coming year. He pointed to reasonably valued technology companies such as Marvel and Amazon, along with established financial institutions like Citizens Financial Group. He stressed the importance of engaging with the risk curve, suggesting that while defensive sectors offer stability, they may underperform more growth-oriented investments if bullish market conditions persist.
While Hatfield’s outlook remains constructive, he acknowledged downside risks. A resurgence in inflation or unexpected shifts in Federal Reserve policy could derail anticipated rate cuts. Such developments could pressure the housing market and reintroduce recession concerns if inflation proves more persistent than expected.
Overall, Hatfield outlined a strategic framework for investors navigating the path toward 2026. By focusing on inflation trends, positioning within high-yield fixed income, and selectively rotating into growth-oriented sectors, investors may be better equipped to manage market volatility. As inflation data, fiscal policy, and political dynamics continue to evolve, aligning portfolios with these macro forces will be critical to maintaining resilience and capturing potential upside.