Here's something you don't see every day: the U.S. economy charging ahead at full speed while inflation takes a nap. It's the kind of setup economists dream about and investors toast to, and we're living it right now as we head into 2026.

This rare combination of strong growth, contained prices, and a resilient labor market creates what market watchers call a "Goldilocks" environment. Not too hot, not too cold, just right for risk assets like the SPDR S&P 500 ETF Trust (SPY) and smaller companies tracked by the iShares Russell 2000 ETF (IWM). President Donald Trump gets to enjoy this economic momentum one year into his second term, which isn't a bad backdrop for any administration.

Growth That's Actually Impressive

The numbers tell a compelling story. According to the Bureau of Economic Analysis, U.S. gross domestic product expanded at a 4.4% annualized rate in the third quarter, up from an earlier estimate of 4.3% and significantly above the economy's long-term trend. That's an acceleration from the second quarter's 3.8% growth, which was already pretty solid by historical standards.

But here's where it gets interesting: the momentum appears to be building, not fading. The Atlanta Fed's GDPNow model pegs fourth-quarter growth at a blistering 5.4% annualized pace. You typically only see numbers like that coming out of recessions or pandemics, not in the middle of an expansion.

The Dog That Didn't Bark

What makes this growth story remarkable is what hasn't happened alongside it: inflation hasn't exploded. The Personal Consumption Expenditures price index rose 2.8% year over year in November, exactly in line with what economists expected. Monthly prices increased just 0.2%, matching October's pace and forecasts.

Core PCE, which strips out volatile food and energy prices and happens to be the Federal Reserve's favorite inflation gauge, also came in at 2.8%. No surprises, no overheating, no panic.

The implication here is pretty significant: productivity gains might be doing the heavy lifting, allowing the economy to grow faster without pushing prices through the roof. That's the whole point of productivity, after all, but it's nice to see it actually working.

Consumer fundamentals are holding up their end of the bargain too. Personal spending rose 0.5% month over month in November, matching October's gain, while personal income climbed 0.3%, marking six consecutive months of increases.

"Rising wealth has been playing in supporting consumer spending, particularly from older, wealthier households," noted Michael Pearce, chief U.S. economist at Oxford Economics, in an emailed note.

He added that "Real consumer spending is on track to rise by close to 3% annualized in Q4, only slightly below the 3.5% pace in Q3 and well above our baseline forecast for a 2.1% gain."

The Job Market Stabilizes

Remember all those recession fears from earlier in the cycle? The labor market is quietly putting those to rest. Initial jobless claims have come in lower than expected in recent weeks, and fears of widespread layoffs haven't materialized.

"A wave of layoff announcements in the fall never translated into a significant increase in initial jobless claims… Continued claims are also trending lower, suggesting employers aren't pulling back further," said Nancy Vanden Houten, economist at Oxford Economics.

She added that "Notifications by employers of pending layoffs were down sharply as of December after a jump in October."

What This Means for Your Portfolio

Strong economic growth doesn't automatically translate to higher stock prices, but it certainly doesn't hurt. The current macro backdrop is about as supportive as you can hope for when it comes to risk assets.

"The U.S. economy is producing at a very high level and the 4.4% real growth rate is much higher than normal and is likely to moderate over the course of the year," said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

But here's the kicker: "If we can stay above 3% for the entire year, it could lead to double-digit returns in the stock market," Zaccarelli added.

Sure, everyone knows the stock market isn't the economy. But corporate profits are what ultimately drive stock prices, and the profit outlook looks pretty solid. According to Ed Yardeni, president of Yardeni Research and a Wall Street veteran, consensus estimates for S&P 500 forward revenue growth stand at 7%, well above the 20-year average of 5.2%.

Forward earnings growth expectations are holding at 15.2%, just shy of a 54-month high and comfortably above the 20-year average of 11.4%.

Put it all together: sustained productivity gains, resilient growth, contained inflation, and solid earnings expectations. That's a fundamental backdrop that looks constructive for stocks. Not guaranteed, but certainly promising as we move through 2026.