Friends,
Happy New Year! Financial markets remained strong through the fourth quarter as stocks hit all-time highs. It was an excellent year for investors as asset classes across the board generated positive returns. U.S. stocks were up 16%, foreign stocks were up 30% and the bond market generated a 7% return. Even commodities such as gold and silver hit all-time highs. After “Liberation Day” on April 2nd and the announcement of wide-ranging tariffs on imported goods markets fell and uncertainty rose, and the labor market began to weaken. Nevertheless, the U.S. economy remained resilient, corporate earnings were stronger than expected and the “AI trade” led a market rally through the end of the year.
We are cautiously optimistic on both the economy and financial markets for 2026. Tailwinds include tax cuts for both consumers and businesses, deregulation, the expectation of modestly lower interest rates and the continued investment into AI (hopefully followed by meaningful increases in productivity). Having said that, risks remain and must be considered with regard to a prudent investment strategy. Persistent inflation, higher unemployment, renewed tariff/trade uncertainty and geopolitical risks all could become headwinds in 2026. Furthermore, higher than normal stock valuations and an increasingly speculative approach to investing increase the risk of a meaningful correction at some point in our future.
We are not inclined to "chase" a market at all-time highs so we are very focused on quality investments and portfolio diversification. For example, while we continue to hold large positions in the large cap tech sector of the stock market, we have increased our allocation over the last few months to dividend paying/value stocks and to foreign stocks. In addition, particularly for conservative and moderate risk portfolios, we are comforted by our healthy allocations to the bond market which have served us well and which we would expect to continue to perform well through 2026.
Let us know if you have any questions or if we can do anything for you.
PS: For a more detailed recap of 2025, including updates on several tax law changes, please follow the link below:
2025-In-Review-and-What-You-Should-Know
Thanks for your continued support,
Matt and Andrew