Next Zero Finance Macroeconomic Update: Why the Bull Market Could Extend into 2026

Welcome to the latest edition of the Next Zero Finance newsletter. In this update, I'll dive into the current U.S. macroeconomic landscape, which blends resilience with moderation to set the stage for sustained growth. This environment not only supports ongoing economic expansion but also bolsters the case for an extended bull market in equities. As of August 28, 2025, the S&P 500 closed at 6,501.86, reflecting a year-to-date gain of approximately 11.5% which is significantly different compared to the volatility we saw back in April. Below, I'll break down the key drivers: robust economic growth, a balanced labor market, easing inflation, a dovish monetary policy pivot, and strong corporate earnings potential. Together, these factors could propel the market higher through the end of 2025 and beyond.

The U.S. economy continues to show impressive strength, as evidenced by the Bureau of Economic Analysis's upward revision of Q2 GDP to an annualized rate of 3.3%. This beats the initial estimate of 3.0% and consensus expectations, driven by strong consumer spending, business investment, and inventory builds. Notably, consumer expenditures which account for about 70% of GDP rose 0.5% in July, underscoring household resilience despite headwinds like elevated tariffs and restrictive immigration policies that have constrained labor supply and global trade.

Historically, this growth trajectory echoes the mid-2010s expansion, where annual GDP averaged 2-3% and fueled a multi-year bull market in stocks. Today's pace aligns closely with the economy's potential output of around 2.5%, as estimated by the Congressional Budget Office, without signs of overheating. For investors, this is bullish: sustained GDP growth historically correlates with rising corporate revenues, lowers economic risks, and draws capital into equities in a stable, higher-growth environment.

The labor market remains a cornerstone of economic stability, with the unemployment rate steady at 4.2% in July near historical lows. Weekly initial jobless claims dropped to 229,000 last week, indicating minimal layoffs and solid hiring momentum. While nonfarm payroll additions have moderated to 73,000 in July, this slowdown reflects tighter labor force growth due to immigration constraints rather than weakening demand.

This setup mirrors the 2015-2019 period, when unemployment hovered around 4%, boosting consumer confidence and disposable income without sparking wage spirals or inflation (unlike the late 1990s). A stable job market like this sustains consumer spending and corporate profits, while reducing the risk of demand shocks that have triggered past bear markets.

Inflation is cooling in a way that opens doors for policy flexibility. The Personal Consumption Expenditures (PCE) price index rose 2.6% YoY in July, with the core measure (excluding food and energy) at 2.9%. These readings meet expectations and appear tied to one off factors like tariffs, not entrenched pressures which is drastically different from the 2021-2022 surge.

When core inflation dips below 3% in a growing economy, it often signals the start of central bank easing cycles, which have historically led to strong equity performance. For stocks, controlled inflation is a tailwind: it avoids the valuation compression from aggressive rate hikes, as seen in 2022.

Federal Reserve Chair Jerome Powell's Jackson Hole speech on August 22 marked a clear shift toward addressing employment risks alongside inflation. He noted, “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” This dovish tone contrasts with his prior hawkishness and has markets pricing in an 87% chance of a 25 bps cut at the September FOMC meeting.

History shows Fed easing cycles are powerful for equities as the 2019 cuts (three 25bps reductions) drove the S&P 500 up 30%. Lower rates reduce borrowing costs, spurring business investment, consumer spending, and a weaker dollar that aids exporters. For corporations, this means more cash for capital expenditures and buybacks; for consumers, cheaper mortgages and loans fuel GDP growth and, in turn, earnings.

Powell's updated framework balances the Fed's dual mandate of price stability and maximum employment. With PCE inflation at 2.6% (headline) and 2.9% (core), plus unemployment at 4.2%, the Fed can ease without risking wage-price imbalances. I see this echoing the mid-2010s, where gradual cuts prolonged the bull market.

Based on current data and CME Group projections for rates settling around 200 basis points by the end of 2026, I'm forecasting the S&P 500 could hit 7,000 by the end of 2025 and 8,000 by the end of 2026 assuming the Fed begins cutting in September. This would pave the way for stronger Q4 2025 earnings (reported in early 2026) and a favorable environment throughout 2026 as capital costs decline. Of course, if incoming data shifts, so will my outlook. I'll provide quarterly economic recaps with updated S&P targets to keep you informed.

In summary, the U.S. economy's resilience fueled by growth, jobs, cooling inflation, and Fed support positions us for an extended bull run. While risks like geopolitical tensions or policy changes linger, the fundamentals are strong. Stay tuned for more insights, and as always, invest wisely.

Disclaimer: This is not financial advice. Market forecasts are based on current data and subject to change. Consult a professional advisor for personalized guidance. I am not an investment advisor or professional. This article is my own personal opinion and is not meant to be a recommendation of the purchase or sale of stock. The investments and strategies discussed within this article are solely my personal opinions and commentary on the subject. This article has been written for research and educational purposes only. Anything written in this article does not take into account the reader’s particular investment objectives, financial situation, needs, or personal circumstances and is not intended to be specific to you. Investors should conduct their own research before investing to see if the companies discussed in this article fit into their portfolio parameters. Just because something may be an enticing investment for myself or someone else, it may not be the correct investment for you.

Thank you for reading—feel free to reply with questions or feedback!