Six Issues That Could Move Markets in 2026

A quick look back at market performance in 2025 shows a strong year across the major indexes, with the S&P 500^® up more than 16% for the year. The Nasdaq performed even better, up 20% for the year, while the Russell 2000 index of small-cap stocks gained 11%, and the Dow Jones Industrial Average was up about 13%. 

But that strong performance masks a bit of a roller coaster beneath the surface. It's easy to forget that the S&P 500 fell more than 19% and the Nasdaq about 24% between mid-February and early April. And while indexes performed well over the course of the year, the individual stocks that make up those indexes showed a lot of churn. The average member of the S&P 500 saw a maximum decline of 24% after the April index low—in the Nasdaq, that average decline of individual member stocks was a whopping 43%.

Similar movement happened in sectors as well. Technology was the highest performing sector in six out of 12 months last year, but it was among the three worst performing sectors in three of the other six months. Communications services, on the other hand, was the best performing sector only once in 12 months—but its consistent performance month over month made it by far the best performing sector of the year in 2025.

I point all this out to remind us all as investors that past performance is no guarantee of future results and that just looking at how the major indexes performed over the year tells a fraction of the story. And all that churn beneath the surface probably helps explain why investors retain a high level of anxiety about the markets even with strong overall performance. 

As we begin 2026, it already feels like the market has absorbed and moved on from some major news events—the military operation in Venezuela and the news that the chairman of the Federal Reserve was under criminal investigation, to name two. And that's all just two weeks into the new year. Call it foreshadowing, but it certainly feels like we are in for another year in which there will be a lot for investors to pay attention to.

Welcome to WashingtonWise, a podcast for investors from Charles Schwab. I'm your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation's capital and help investors figure out what's really worth paying attention to.  

That's been our guiding principle since we started this podcast six years ago, but it's more important now than ever. There is so much noise in Washington, so much confusion, so many unprecedented developments that it feels overwhelming not just to investors, but to all of us as citizens. As we begin 2026, I really want to lean into that goal of helping our listeners navigate the daily barrage of news and events coming out of Washington and particularly coming out of the White House. Because the reality is that a lot of what's going on every day is being ignored by the markets. You may feel strong emotions—happiness, anger, fear, relief, frustration, horror—about what's going on, but as we all know, it is important to keep emotions separate from our investing. The goal of WashingtonWise is to shine a light on the facts and offer perspective—some insight into what impact those facts may or may not have on the markets and investors' portfolios. 

What I want to do in today's episode is look at six major areas that are capturing headlines here at the start of 2026 and talk about what I think are the important things for investors to watch for in each of them. 

I'll start with the Federal Reserve because of the blockbuster news that emerged last weekend that the administration has opened a criminal investigation into Fed Chairman Jerome Powell. 

What has happened is this: According to multiple news sources and Powell himself, the U.S. attorney's office in the District of Columbia has opened a criminal investigation over the central bank's renovations of its headquarters and whether Powell lied to Congress in testimony last year about the project. Opening a criminal investigation, of course, doesn't mean that there will ultimately be any charges brought. And the Justice Department has not confirmed that there is an ongoing investigation. But it's hard not to see this as an extension of the president's year-long feud with Powell over interest rates. Trump has talked for months about wanting to fire Powell. He has tried to fire another Fed governor, Lisa Cook, though that case is pending at the Supreme Court, which will hear oral arguments in the case next week. Trump has appointed a loyalist, Steven Miran, to an open seat on the Fed board. And he said time and time again that he wants the Fed to lower rates more aggressively and more quickly.

Beyond escalating the ongoing pressure campaign that the president has waged on Powell and other Fed members to lower rates, the news of a criminal investigation raises serious questions for the markets about whether the central bank can remain independent of political pressure. Some see this as a warning to whomever succeeds Powell as chair when his term ends this spring that contradicting the president's wishes could come with a price. The president is expected to name his nominee to succeed Powell in the coming weeks. 

Markets were choppy on Monday, with stocks opening down sharply before rebounding later in the day. Gold hit a record high, the dollar was down, and long-term bond yields rose—all signs that markets were concerned about the news from the Fed.

For the most part, Powell has taken all the provocations and name-calling of the past year in stride, rarely responding beyond saying that he and his colleagues at the Fed are focused on the economy and the data as they make monetary policy decisions. 

Well, his taking-it-in-stride attitude changed over the weekend. In an extraordinary response, Powell released a two-minute video message in which he pushed back hard on the accusations and said explicitly that he views the threat of criminal charges from the administration as a direct consequence of the Fed not lowering interest rates as much as the president would like. "This is about whether the Fed will continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation," Powell said in the video. 

So now we wait to see what happens next. There is no timetable for when the investigation will be completed and no guarantee that criminal charges will be brought. The entire episode could fade away, or it could trigger a lengthy court fight that is unlikely to be resolved before Powell's term ends this spring. But while Powell's term as chair ends in May, his term as a regular Fed governor continues until January 2028. Historically, chairs have not stayed on as governors after their term ends, but this situation may increase the chances that Powell does so, since staying on would prevent the president from appointing a new Fed governor.

Central bank independence has long been seen as a cornerstone of the global financial system. My colleague Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research, said, "A loss of Fed independence would likely send longer-term yields higher, steepen the yield curve, and send the dollar lower." We saw exactly that on Monday, with a bit of volatility in equities as well. 

But the other interesting aspect of this is that it seems to be a line that Republicans on Capitol Hill aren't willing to cross. Thom Tillis, a Republican senator from North Carolina, has become something of a thorn in Trump's side since deciding not to run for re-election to the Senate. Over the weekend, he said that he will "oppose the confirmation of any nominee for the Fed—including the upcoming Fed chair vacancy—until this legal matter is fully resolved." This matters: Tillis sits on the Senate Banking Committee, which would conduct confirmation hearings for any Fed nominee. And his opposition could make things tricky in the committee, which currently has 13 Republicans and 11 Democrats. If another Republican were to vote with Tillis in opposing a nominee, that would prevent that nomination from moving forward. Kevin Cramer, a Republican from North Dakota and also a member of the Banking Committee, said he was no fan of Powell but that he did not believe he was a criminal. And Congressman French Hill, a Republican from Arkansas who just happens to be chair of the House Financial Services Committee, issued a statement calling the investigation "a distraction" and calling Powell a "man of integrity."

Bottom line, this investigation is not playing well on Capitol Hill. 

Beyond this particular situation, the Fed's monetary policy decisions in the year ahead will of course be closely watched by the markets. It's important to remember in the context of the threats to Powell that it is the Fed Open Markets Committee, the FOMC, that sets monetary policy. The important word in that name is the last one: "committee." The FOMC includes 12 voting members—the seven Fed governors, the president of the Federal Reserve Bank of New York, and then four of the other 11 Fed regional bank presidents. Which four are voting members changes each year on a rotating basis. The Fed chair's vote counts just the same as every other member. The FOMC's next meeting is January 27 and 28—that's when they will vote on whether to lower rates for the fourth consecutive meeting or take a pause. The CME's FedWatch tool, which uses fed fund futures to estimate the chances of a Fed rate move, showed a 95% chance of no rate change at the January meeting as of the beginning of this week. 

The second issue to watch is the geopolitical landscape. At the moment, the hot topic is Venezuela—which thus far is turning out to be more of a geopolitical event than a market event. Historically, international military operations have had little impact on the markets, regardless of whether the U.S. was involved or not. The Persian Gulf War in the early 1990s was a big positive for the S&P 500. Other events—from the war in Afghanistan after 9/11 to the Russian invasion of Ukraine in 2022—saw a modest uptick in the markets. 

As my colleagues Liz Ann Sonders and Kevin Gordon pointed out in an article last week, while much of the discussion around the military operation in Venezuela has focused on its potential impact on oil prices, Venezuela is a relatively small global player, ranking just 17 among the world's oil producers. It does have the world's highest oil reserves, but the infrastructure there is woefully inadequate. That's why we saw a lot of hesitation from oil company executives when President Trump convened them at the White House on January 9 and urged them to spend $100 billion or more to beef up Venezuela's oil infrastructure. In recent years, U.S. oil companies have suffered massive losses in Venezuela, and without better guarantees about what the country's future looks like, some of those companies don't seem eager to jump back into what is likely to be a decade-long project, one that could extend well after Trump's term is over.

The future of Venezuela is the key unknown here. On Capitol Hill, there is a lot of concern. While there was some frustration that the mission to remove former President Nicolas Maduro was done without any advance notice to or consultation with Congress, there is at least general agreement that Maduro was a bad guy who had to go.

Where things get much more complicated is around the question of what is next. The president has said that the U.S. will be "running" Venezuela, potentially for a number of years. What does that mean? What are the goals? Will there have to be a U.S. military presence on the ground in Venezuela? And what will the cost be to the United States? 

Last week, administration officials including Secretary of State Marco Rubio, Secretary of Defense Pete Hegseth, and others did a series of classified briefings for all senators and all House members. Lawmakers from both sides of the aisle left those briefings with more questions than answers about the longer-term plan.

That skepticism manifested itself last week, when the Senate began the process of approving a so-called "war powers resolution," which would prohibit the president from taking any further military action in or against Venezuela without congressional authorization. Five Republicans joined all the Democrats in moving forward with the resolution, which will see a final vote later this week. It's mostly a symbolic move, as there are some further steps to go for the Senate to pass the resolution itself, and then it would have to go to the House. Even if it passed the House, it likely would be vetoed by the president. But it's a notable symbolic action, in that it underscores the divisions that exist, even among Republicans, about the situation.

Other geopolitical concerns include the unfolding situation in Iran, where millions of protestors have been taking to the streets; Ukraine, which is just a month away from hitting the four-year mark in its effort to push back the Russians; and the president's threats to use force against other countries in our hemisphere, including Colombia, Cuba, and Mexico. And there is the president's series of threats to take over Greenland, whether by force, by negotiation, or by purchasing it from Denmark. 

Taken together, it feels like an abundance of unknowns to add to the list of uncertainties weighing on investors. 

Number three on my list is the courts, especially the Supreme Court. There are lots of big decisions looming that could have profound ramifications for society at large, including the birthright citizenship case that could upend decades of social structure and a voting-rights case that could force yet another flurry of redrawing of Congressional district lines. 

But there are two cases that will have a direct impact on the markets. One is the case I mentioned a few minutes ago, where the court will hear oral arguments on January 21 about whether the president has the ability to fire Fed Governor Lisa Cook. The other is the challenge to the bulk of the president's tariffs, a case that was argued in early November. 

During those oral arguments, the court seemed skeptical that the president had properly used an emergency authority to impose the so-called "reciprocal" tariffs on imports from about 100 countries, as well as some of the tariffs on imports from Canada, China, and Mexico. The market seems to have priced in that the tariffs will be ruled illegal. That could trigger a complicated refund process for the estimated $150 billion in tariffs that have already been paid to date, although it's uncertain whether refunds will be part of the court's decision. If they are, it could be a boon for companies, especially big importers who have taken a hit from the increased levies. 

Many court watchers thought the decision would be announced on January 9, when the court released its first batch of decisions in the new year. But that didn't happen. As each new batch of decisions rolls out, companies hoping for tariff rebates, as well as investors, will be watching closely to see how this decision comes down.

Number four on my list is Congress. Generally, the markets seem to be ignoring the ample examples of Congressional dysfunction, but here are four debates that could cause the markets to respond: 

First, will there be a second government shutdown? Congress is once again racing the clock. The agreement reached in November to end the longest shutdown in U.S. history only funds the government through January 30. To date, Congress has passed just three of the 12 appropriations bills to fund every government agency and federal program. Last week, the House passed a package of three of the nine remaining bills, which would fund the Departments of Commerce, Energy, Interior, and Justice, as well as the EPA and water and science programs. The Senate is moving forward on that package now. But the trickiest appropriations bills—those funding the Pentagon, Homeland Security, and the Labor and Health and Human Services departments—still remain. Getting them all done by the end of the month is a longshot. But the attitude on both sides of the aisle is different than it was last fall—neither party seems interested in another shutdown. I expect most of the appropriations bills to be completed in time, and then a temporary extension of funding for the rest while negotiations continue. I can't rule a shutdown out, but the odds seem low at this point. Markets historically have not reacted strongly to shutdowns, though a second shutdown in the span of just a few months could add to growing concerns in the market that the U.S. just cannot get its fiscal house in order. 

Second, health care. A key issue in last fall's shutdown was those expiring subsidies that help lower premiums for about 22 million Americans who purchase health insurance through the Affordable Care Act. The shutdown did not resolve that issue, and those subsidies expired as scheduled at the end of 2025. But now there is an effort underway to revive them.

Last week, 17 Republicans joined with all 213 House Democrats in favor of a bill to extend those subsidies for three years. The bill was brought to the House floor over the objections of Republican leaders by swing state Republicans who are worried about being blamed by voters for higher health insurance costs. That bill now goes to the Senate, where a bipartisan group of senators has been working for weeks on a compromise. They are reportedly close to a deal that would extend the subsidies for two years, with new income caps, a requirement that everyone pay a minimum amount for health insurance, and anti-fraud provisions. Keep an eye on the outcome here as it could impact insurance companies and other players in the health care sector.

Third, I'm watching how an important cryptocurrency debate plays out. The Senate is working on legislation to create a regulatory framework for digital assets. The House passed its version of this legislation last summer, but the Senate has been slow to build consensus. A new bill released this week seeks to clarify the role of regulators like the SEC and the CFTC, create some investor protections, and craft rules of the road for the cryptocurrency industry going forward. But it has also raised alarm bells in the traditional banking sector, which is concerned that crypto companies could siphon away deposits from banks. A banks vs. crypto companies battle is playing out on Capitol Hill right now, putting some lawmakers who want to support both industries in a bind. 

Finally, there is a new issue that came up last week, when President Trump called for a 10% cap on credit card interest rates that would begin on January 20. It's part of a series of announcements the White House has been making on affordability issues. However, it's unclear how he would make financial services companies comply. Any executive order is sure to face legal challenges. Such a plan could only be imposed by Congress, where the proposal faces an uncertain future. Banking trade associations quickly voiced objections, saying such a move would reduce credit availability. Some bank stocks were down in early trading Monday on concerns about the potential impact on a key source of revenue. But I don't expect that to last, as there just isn't a clear path forward for how a cap on credit card interest rates would become law. This feels like one of those issues that Republicans on Capitol Hill won't want to be seen as defying President Trump—but also don't really want to vote on. Don't be surprised if this one quietly disappears from the radar screen.

The next big area I'm focused on is regulators. This is the one that probably the fewest investors pay attention to, but it's the one that can have the most direct impact on investors and how the market itself works. The key regulatory agencies are the SEC, which oversees the stock market, and the CFTC, which oversees the derivatives markets, including commodities. There are also banking regulators, including the Federal Reserve, which supervises large banks, and the FDIC, which provides deposit insurance but also has a role in regulating the banking industry. And there's the Labor Department, which oversees employer-sponsored retirement plans like 401(k)s, and the Treasury Department, including the IRS, which regulates individual retirement accounts and will have a key role in the rollout later this year of the new Trump Accounts that provide $1,000 starter account for newborns. 

2026 is likely to be a big year for regulation—or perhaps I should say de-regulation—by these agencies for a couple of reasons. One is that it just takes a long time for a new administration to nominate heads of regulatory agencies, get them confirmed by the Senate, and then for those individuals to hire staff, fill various positions in the agency, and get everyone up to speed. It often takes much of a new president's first year in office to get the regulatory agencies sorted out. That was true in 2025. But the second year of a presidential term often sees a lot of regulatory initiatives, and I expect that will be the case this year.

The other reason is that midterm election years tend to be low on big legislative actions, and that leaves room for regulators to fill in some of the gaps. 

So here are the key things I am watching in 2026 from the regulators:

First, the SEC under the leadership of Chairman Paul Atkins has a big agenda of things that could be positive for companies, the markets, and investors. A top priority is simplifying investor disclosure rules for public companies, reducing complexity and lowering costs for companies. Atkins has said the overly complicated and expensive disclosure rules are a big reason that companies stay private for longer and why there have been fewer IPOs. Atkins also plans to propose a rule to implement President Trump's call for companies to have the options of reporting their earnings on a semi-annual basis rather than quarterly. Another key priority for the SEC has been making it more difficult to bring a proxy fight to a large company.

Second, the CFTC has long been the little brother to the SEC, but it will be taking on a more prominent role going forward with its increased responsibility to oversee the cryptocurrency space, as well as the fast-growing prediction markets. 

Third, banking regulators are in the process of easing the amount of capital that large banks are required to hold and reducing regulatory oversight, as well as simplifying rules to encourage more merger and acquisition activity in the financial sector. 

And fourth, the Labor Department is expected next month to propose a rule to implement another of President Trump's executive orders—this one to allow 401(k) plans to invest in private markets. 

As these plans unfold this year and we learn the details of these proposals, we'll be bringing experts on the podcast who can break down the implications for investors. There's a lot of potential impact on ordinary investors here, from changing the frequency and kind of information investors get from public companies to reducing regulation on large banks to broadening the investment options in your retirement plan. None of this will happen quickly—the regulatory process is a slow and deliberate one—but we will be on top of it. 

Finally, no look at the year ahead would be complete without a few words on the midterm elections. The battle for control of the House and Senate is already top of mind in Washington, but in a few months, it will consume just about everything, making legislative activity virtually impossible. 

Primary elections start in just a few weeks. Texas, for example, holds primaries on March 3 for each party to choose nominees for what will be a critically important Senate race.

It's a long time until November, so lots can and will change between now and then. But if I had to say today where I think things will come out, I'd say that Democrats are the favorite to recapture the majority in the House of Representatives, while Republicans are the favorite to retain their majority in the Senate. As we get closer to the election, I'll be talking more on this podcast about the key races to watch, how the balance of power is shaping up, and what the market implications may be for various potential outcomes in November. 

One other thing I'll be watching is the growing number of members of Congress who simply have decided that the job just isn't worth fighting for. As of January 12, 55 members of Congress—9 senators and 46 House members—are not running for re-election. Some are retiring from public office, while others are running for governor or another office. But many of those leaving have pointed to the divisiveness on Capitol Hill and the aggressive attempts by the White House to sideline Congress from key policy decisions as reasons for deciding not to run again. 

These are the issues that I'll be focused on in 2026 and that you'll be hearing more about from our expert guests. As always, my goal will be to examine the policy and political developments that are most likely to have a direct market impact and explain what the implications are for your portfolio, without partisan rhetoric or emotions. 

That's all for this week's episode of WashingtonWise. We'll be back in two weeks with a new episode. Take a moment now to follow the show in your listening app so you get an alert when that episode drops, and you don't miss any future episodes. And don't forget to leave us a rating or a review—those really help new listeners discover the show.     

For important disclosures, see the show notes or schwab.com/WashingtonWise, where you can also find a transcript.   

I'm Mike Townsend, and this has been WashingtonWise, a podcast for investors. Wherever you are, stay safe, stay healthy, and keep investing wisely.