How investors should unpack the resilient US economy

There were times in 2025 when calls for a US recession were not outside of the mainstream. The economic upheaval caused by global tariffs, the pressures of an unfinished fight with inflation, and the pall of uncertainty that hung over key business decisions all played into a view that the US economy might falter. Instead, resilience has become a watchword, perhaps best exemplified by the release of the January jobs report, which saw job additions come in at almost double expectations. While it came with significant revisions to 2024 and 2025 jobs data, and therefore should be tempered somewhat, it may be cause for some investors who had been allocating marginal dollars away from the US to reconsider the United States.

Kevin Headland, Co-Chief Investment Strategist at Manulife Investment Management, explained how these signs of US economic resilience can be felt in equity markets. He noted how those markets, which have long been defined by concentrated performance from mega-cap tech, are broadening out and seeing smaller-cap names drive appreciation. He drew the line between economic resilience, stimulative policy, and this broader set of opportunities in US equity now that advisors may want to avail themselves of.

“Resilience is the name of the game when it comes to US. economy. And now, as we've been resilient, we're starting to see some benefits there. One of the benefits, as you can see, also supporting, is the rate cutting cycle from the Federal Reserve,” Headland says. “Rate cuts tend to be supportive of the economy. It takes about 12 to 18 months for rate cuts to work their way through the economy. So we're still in the early stages of that supportive metric, shall we say. You also have the one big, beautiful bill, which you look at the benefits from a tax perspective. We haven't seen that benefit just yet. That, actually could help a lot of individuals not necessarily with a material boost, but support them from seeing perhaps personal weakness in their spending patterns or spending habits.”

While the jobs numbers can be seen as supportive of the resilient narrative, US retail sales point to another trend: the K-shaped economy. That phenomenon, where higher income earners and asset owners have seen their lifestyles, buying power, and wealth increase and improve while lower income earners have struggled more. Headland notes that this trend is innately investable, where lower cost consumer-oriented stocks may benefit from an influx of consumers. Consumer behaviour is always an important metric in the US, as it represents two thirds of GDP. US markets can sometimes react violently to consumer data releases, though Headland notes that equity investors seem to take both ‘good’ and ‘bad’ economic news as reasons to push the market higher.

Relatively weak December retail sales, he explains, are interpreted as a sign that inflation is slowing and the Fed may cut rates further, easing capital costs for companies and driving stocks higher. Strong jobs numbers are interpreted as signs of resilience in the economy and among US consumers, which should also be supportive for equities. While market digestion of these conflicting datapoints may cause small periods of volatility, Headland notes that another theme is playing out in the US: a broadening of performance.

In the three years of double-digit returns just passed, leadership in the US was extremely concentrated in a few mega-cap names, largely in the tech sector. In 2026, he notes, many of the small and mid-cap names that lagged those leaders have been stronger performers. Underperformance at the top of the market has kept certain market cap indexes like the S&P 500 back somewhat, pointing to a view that index investing may be less valuable right now. Other approaches, he argues, may serve investors a bit better in this environment.

In his continued assessment of US markets and the US economy, Headland says he’ll be watching for news around the ongoing AI spend. That spending, he notes, should start translating into meaningful productivity wins for companies, but he tempers that by noting that there could be some bandwagons to avoid. He wants to see how AI has proven accretive to certain businesses. There could be momentum to the upside or downside as certain AI promises are realized or fall flat. He stresses that while paying attention to this news is important, keeping a calm and disciplined approach is essential. For advisors watching the US economy now, Headland notes that the pieces they need to pay attention to are more disparate and wide-ranging than ever. If they can manage that complexity, though, they can gain advantage.

“It's important now to perhaps broaden your indices or data points that you would have typically looked at to craft your messaging. And one of the analogies I've used is, perhaps when I started, or my earlier in my career close to 25 years ago, the economy was like a hundred-piece puzzle. There were certain metrics that just worked time and time again, and it's all you needed. And I would say, now it's more like a thousand-piece puzzle now,” Headland says. “We have to look at different things. Even going back to COVID, we were looking at TSA data and CDC reports, which is nothing you would ever look at before. You have to start looking at these other sources of data, different types of data to either confirm or give you pause over the data you're getting from official sources.”