Wall Street is trotting out a new playbook for a high-growth, high-inflation economy in 2026

• Wall Street has a new phrase to describe the economy in 2026: “run-it-hot.”

• The scenario involves robust economic growth and above-target inflation, forecasters say.

• Commodities, small caps, and cyclicals are some areas that should be on investors’ radar.

The US economy will keep burning hot in 2026, extending a yearslong run of dodging a recession.

That’s a view that is increasingly being woven into consensus forecasts on Wall Street, where top researchers have generally brushed off the risks of a near-term recession and are anticipating another year of stable economic growth and hot inflation.

Bank of America dubbed this the “run-it-hot” scenario for the US economy back in September, and others have since adopted the phrase.

In its year-ahead economic outlook, BofA said it believes growth will remain strong and inflation will stay above target next year, pointing to tailwinds such as the Fed’s rate cuts, AI investment, more supportive trade policy, and stimulus in President Donald Trump’s Big Beautiful Bill.

“Tariff cuts, tax cuts, rate cuts…’run-it-hot’ US policy, implicit guarantee economy & stocks ‘too big to fail,'” a team of analysts led by Michael Hartnett wrote in a separate client note this fall.

Morgan Stanley strategists also unveiled their “run it hot” investment thesis heading into 2026, pointing to the Fed’s rate-cutting cycle and the central bank’s recent announcement that it would begin reserve management purchases.

Goldman Sachs said it also saw economic growth remaining robust in 2026, thanks to the Fed cutting rates in a non-recessionary macro environment.

“Despite stagnant job growth, we expect policy rate cuts to limit labour market weakness and help extend the economic cycle further,” Goldman said, though it noted that valuations in the stock market are already “hot.”

Here’s how the forecasters think investors should position themselves in a “run it hot” market.

Commodities are the top run-it-hot trade heading into next year, Bank of America strategists wrote in a note in December.

Oil and energy are also favorable investments under the run-it-hot regime, they added.

“Trump runs it hot, oil bounces post Russia-Ukraine fix, China keeps yuan cheap, soon all the commodity charts will look like gold,” strategists wrote. “We say long commodities the best ‘run it hot’ trade in ’26, and long despised oil/energy without question the best ‘run-it-hot’ contrarian trade.”

Cyclical assets — which, by definition, tend to do well when the economy is expanding — are likely to benefit from the macro picture next year, Goldman Sachs said.

The bank pointed to areas like housing and consumer-facing sides of the market, which include consumer discretionary and retail stocks.

“After a patch of worry in November, cyclical assets—including cyclical equities and copper—have been rallying again. But even after these recent moves, we think our more optimistic growth views are not fully reflected in markets,” the bank wrote.

Morgan Stanley thinks consumer discretionary goods investments fall into the “run it hot” investing playbook. The bank noted that firms generally have higher pricing power today, which should boost revenue growth.

That dynamic is already playing out in the discretionary goods sector, strategists said. The rate for top-line earnings beats in the sector for the third quarter clocked in at 6%, above the 2% rate for the overall S&P 500, per Morgan Stanley’s analysis.

Small-cap stocks also look attractive, with earnings and pricing power in the sector poised to accelerate heading into next year, Morgan Stanley added.

“On the earnings front, the two most important aspects of our constructive call are the return of (1) positive operating leverage and (2) pricing power. This combination is especially impactful for the small cap earnings recovery we foresee into 2026,” the bank’s strategists added.

Forecasters at Bank of America and Goldman Sachs have also issued bullish calls on small-cap stocks heading into 2026, largely because valuations in the sector are more attractive than in areas such as mega-cap tech stocks.

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