U.S. stock markets are building on recent gains, extending a rally that has been supported by strength across both equities and cryptocurrencies. The advance comes ahead of the closely watched release of the November core Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge that excludes food and energy. Markets also drew support from comments by President Donald Trump suggesting progress toward a potential trade deal with Europe that could ease tariffs, helping calm some of the geopolitical concerns that have weighed on sentiment in recent months.
Offering perspective on the current backdrop, Bob Doll, CEO and Chief Investment Officer at Crossmark Global Investments, said recent market leadership has come from small and mid-cap stocks rather than large-caps. He noted that this trend could continue if earnings improve, but added an important caveat. Roughly 40% of companies in the Russell 2000 are currently unprofitable. For small-cap leadership to be sustainable, Doll said that figure needs to come down.
Inflation remains a key variable shaping investor expectations. Doll acknowledged that price pressures have proven more persistent than the Fed’s 2% target, with inflation running closer to 3%. That reality matters, he said, because current stock valuations reflect optimism that inflation will ease further. If inflation remains anchored near 3%, it could limit upside for equities and put pressure on price-to-earnings multiples.
Looking ahead, Doll pointed to historical patterns tied to midterm election years. The second year of a presidential term has often delivered strong GDP growth, but it has also tended to be one of the more challenging periods for stock market performance. While economic growth could benefit from supportive policy and legislative momentum, Doll cautioned that translating that growth into strong market returns may be more difficult.
Outside of equities, metals have outperformed U.S. stocks, with gold and silver posting notable gains. Doll said he favors industrial metals, particularly copper, which he views as a barometer of both U.S. and global economic activity. At the same time, he warned that precious metals could see increased volatility in the months ahead, suggesting investors should be prepared for potential pullbacks.
As investors consider the outlook for 2026 and beyond, Doll urged realistic expectations. He said the outsized returns of recent years are unlikely to be repeated, but opportunities remain for those who focus on companies with solid earnings growth, strong cash flows, and reasonable profitability. In his view, selectivity and discipline will be increasingly important as markets navigate a more uneven path.
Overall, the current environment reflects a mix of optimism and caution. Inflation remains above target, policy and political factors continue to influence markets, and volatility is likely to persist. For investors, staying focused on fundamentals and maintaining flexibility will be essential as the market moves through the next phase of the cycle.