by Denise Chisholm, Director of Quantitative Market Strategy, Fidelity Investments
Inflation surprised to the downside this week, with Core CPI (excluding food and energy) coming in at 2.6% year over year. Will it stick? Hard to say, especially with questions about how complete the price sampling was during the government shutdown.
Still, from where we started a year ago, even half of the deceleration over the past two months would rank in the top quartile historically - an ironic twist given the tariff-related price pressures earlier this year. If goods prices start lapping those tariffs next year and disinflation continues, historically, that’s been a clear tailwind for stocks: outside of deflationary crisis, the bigger the inflation slowdown, the better the equity gains tend to be the following year. Bottom line? If the trend holds, inflation might just be the unexpected hero driving bullish conditions for equities.
For the past 15 years, these disinflationary trends have had clear sector implications. They have tended to favor pro-cyclical areas, with Technology and Consumer Discretionary historically posting strong odds of outperformance, while defensives like Staples, Utilities and Healthcare might continue to lag. No guarantees, of course, but the relationship is hard to ignore: if disinflation sticks into 2026, growth leadership looks likely yet again. Combine that with themes we’ve been highlighting in recent notes, and the setup for next year could be / has the potential to be more of the same - durable growth, slowing inflation, and a secular bull market that seems to be refusing to quit.
This information is provided for educational purposes only and is not a recommendation or an offer or solicitation to buy or sell any security or for any investment advisory service. The views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Opinions discussed are those of the individual contributor, are subject to change, and do not necessarily represent the views of Fidelity. Fidelity does not assume any duty to update any of the information.
Copyright © Fidelity Investments
