Once again, April has snuck up on us and we’re now well into the new year. Spring is here and temperatures have been higher throughout most of the country. Additionally, temperatures have been rising across the globe with conflict in the Middle East garnering concern and attention. War is scary, sad and uncertain. It is difficult to set aside the human tragedy to focus on market implications, yet it is our responsibility to look clearly at the headwinds and tailwinds shaping the year ahead.
In January, the International Monetary Fund (IMF) was optimistic on global growth for 2026 with a projection of 3.3% growth[1]. This, of course, was before the start of the broadening of the conflict in the Middle East that has restricted shipments through the Strait of Hormuz, resulting in a surge in energy prices. As I mentioned in one of my previous Advisory Monthly articles, energy costs have first (cost at the pump), second (cost to suppliers) and third order effects (suppliers passing costs to consumers) on prices which create upward pressure across most industries. The OECD expects this to keep inflation not only sticky, but higher throughout 2026[2]. This prolonged inflation can play a part in Central Banks and the Fed keeping monetary policy more restrictive than previously thought in 2026. As I write this on March 31, 2026, the Fed watch tool shows a 2.6% probability of a rate hike, where a month ago, the market was only pricing in steady rates or cuts[3]. This can all be a drag on the growth projection and bring the economy into an uncomfortable position of lower growth while higher than desired inflation—the dreaded stagflation topic is getting thrown out more in media and advisor newsletters.
While there are some inflationary pressures, there has been evidence of AI-related productivity gains that could bolster growth and keep the economy relatively smooth during these turbulent times. We are beginning to move past AI as only a chatbot, to AI agents that can execute tasks. The Federal Reserve Bank of St. Louis released a report in October noting the hours saved by employees that use AI during their workday saved about 5.4% of their hours on average with power users able to scale that number up higher[4]. In software development, there have been even greater boosts of productivity[5]. Despite AI driven efficiency, the labor market has still been relatively stagnant with a low-hire, low-fire dynamic recently with the quits rate around its lowest number since the height of the COVID pandemic. This dynamic, paired with potential AI displacement in knowledge-heavy sectors, creates a complex landscape for the 2026 workforce.[6] The long-term impact of the AI boom on labor is still a central debate for the 2026 outlook.
Overall, there is a ton of uncertainty as we move toward the summer months. This has been highlighted by the volatility in the markets both domestically and abroad. It only takes looking at the news to know that near-term volatility is a likely norm while this conflict continues and escalates. It is important to remind clients that intra-year drawdowns, while still painful, are common and should be expected. Focusing on long-term goals and methods of achieving (insurance, diversification, etc.) often win out in the long run.
Ben Tiller, CFA
Director of Advisory Services
[1] https://www.imf.org/en/publications/weo/issues/2026/01/19/world-economic-outlook-update-january-2026#Projections
[2] https://www.oecd.org/en/publications/2026/03/oecd-economic-outlook-interim-report-march-2026_254a8d56.html
[3] https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
[4] https://www.stlouisfed.org/open-vault/2025/oct/generative-ai-productivity-future-work
[5] https://www.motivalogic.com/blog/the-impact-of-generative-ai-on-jobs-and-productivity-in-2026/#:~:text=This%20trend%20highlights%20how%20generative,faster%20than%20those%20working%20unaided.
[6] https://www.goldmansachs.com/insights/articles/how-will-ai-affect-the-us-labor-market
