The Federal Reserve is on a rate cutting path that could send markets flying higher in 2026, according to Shannon Saccocia, CIO – wealth at Neuberger.

In the market commentary note, Saccocia outlined a bullish scenario in which falling rates stimulate a re-acceleration in the economy and supports risk asset prices.

“While market expectations on the Federal Reserve making a quarter-point cut to rates on 10 December have flip-flopped wildly over recent weeks, what is most important is the overall easing bias the central bank is engaged in and the constructive implications this has for the US economy and risk markets,” she said.

“While risks to the timing and extent of the rate cuts that the Fed undertakes remain, we don’t believe they alter the likely final destination – a lower and more accommodative fed funds rate into the second half of next year.”

Saccocia added there is still ‘ample reason to remain cautious’ particularly around the backlog of US macro data due to the government shutdown.

Despite this, ‘a Goldilocks scenario’ increasingly looks like the baseline case, with US and global growth having slowed less than feared and inflation rising only modestly.

There are other reasons beyond the Fed to be positive on markets, in Saccocia’s view.

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These include the possibility of fiscal stimulus, ‘robust’ household and corporate balance sheets; high equity prices, low bond yields, a weaker dollar and strong tailwinds related to AI capital expenditure.

While these things risk being inflationary, this should be counterbalanced by the base effects of tariffs waning, and technology-driven productivity gains potentially reducing costs and unlocking efficiencies more meaningfully. The net result should be positive for risk markets and equities in particular, Saccocia said.

“Overall, we see the balance of risks favouring staying invested in cyclicals and quality growth companies that benefit from both easing and activity, while remaining open to options as 2026 comes into focus,” she added.