Market Update | Reflecting on 2025, Positioning for 2026
Invested In Us | Issue 10 | January 12, 2026
After a brief pause, it’s worth stepping back to assess where markets have been—and what the setup looks like heading into 2026.
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U.S. equities delivered another strong year in 2025. The S&P 500 finished up 16.4%, marking the third consecutive year of double-digit gains, despite significant volatility early in the year.¹ That volatility peaked around what the administration referred to as “Liberation Day,” when broad tariffs were announced across nearly every major U.S. trading partner.
Following those announcements, markets declined sharply before rebounding more than 40% from the trough, as investors refocused on fundamentals rather than headlines.² Corporate earnings across multiple sectors remained resilient, reinforcing confidence that profit growth—not politics—continues to anchor valuations.
Historically, equity markets rarely post four consecutive years of double-digit returns. Still, given deregulatory momentum, recent tax-code changes, and stable corporate profitability, another positive year remains plausible—though risks are rising beneath the surface.
Where We See Opportunity
Technology & AI-Driven Infrastructure
Technology has led the rally and remains a long-term allocation focus, particularly if interest rates decline.
Beyond software and platforms, we continue to favor real-asset beneficiaries of artificial intelligence, including data centers, power infrastructure, and connectivity assets, which underpin AI deployment at scale.³
Energy & Natural Gas
The AI build-out is energy intensive. This has renewed interest in natural gas and midstream energy infrastructure, which support data centers and industrial expansion while offering contractual cash flows and inflation-linked characteristics.⁴
Residential Real Estate (Selectively)
Housing remains structurally undersupplied. Estimates suggest the U.S. faces a shortage of approximately 3–6 million housing units, placing persistent upward pressure on prices and rents.⁵ While affordability challenges remain acute—particularly for first-time and lower-income buyers—the supply-demand imbalance continues to support long-term fundamentals.
Precious Metals
We remain constructive on gold and precious metals, which have performed well in recent years. Central banks globally continue allocating to gold, and we see little evidence that this trend is slowing. In an environment marked by geopolitical instability, inflation uncertainty, and unpredictable policy, hard assets often reassert their role as stores of value.⁶
Key Risks We’re Monitoring
Bond Markets & Central Bank Independence
We are closely watching the bond market. Historically, investor confidence has relied on central bank independence, allowing monetary policy to be guided by data rather than political pressure. Central banks have two mandates—managing inflation and employment—and two primary tools: interest rates and money supply.
Given record U.S. debt levels and persistent fiscal deficits, we expect fixed income markets to remain volatile, even if rate cuts materialize.⁷
Policy, Courts, and Fiscal Uncertainty
This week, markets are monitoring a potential Supreme Court ruling related to Trump-era tariffs. Any outcome that introduces uncertainty around tariff repayments could spill over into Treasury markets.
We are also watching the possibility of a federal government shutdown later this month, which—while often temporary—can amplify short-term market stress, particularly in credit markets.⁸
Portfolio Perspective
We remain overweight U.S. equities, favoring businesses with strong cash flows and pricing power.
We are cautious on long-duration fixed income, given fiscal pressures and policy uncertainty.
We are closely monitoring short-term fixed income, particularly in the context of potential rate changes.
Above all, we emphasize diversification. In this environment, it is easy to make money—but equally easy to lose it.
Closing Thought
While conditions support continued growth into 2026, the foundation is fragile. High debt levels, entrenched deficits, political uncertainty, and bond market sensitivity leave little margin for error.
Markets may continue to climb—but risk management matters more than momentum.