January 7, 2026
A Golden Era for Investors
Investors have had many reasons to feel encouraged over the past several years, and 2025 extended that trend. Despite periodic volatility, political uncertainty, and a constant flow of unsettling headlines, markets continued to reward patience and long-term discipline.
Over the last periods of three, five, and ten years, US equities have delivered substantial gains through a wide range of economic and policy environments. This period included rising and falling interest rates, inflation shocks, trade disputes, a pandemic, and multiple geopolitical conflicts. Through it all, asset owners benefitted from steady earnings growth and the compounding power of equity ownership.
Short-term market moves often dominate attention, but wealth creation comes from remaining invested through cycles rather than reacting to them.
In 2025, equity markets continued to build on the strong momentum of the prior two years. The S&P 500 rose 16.4%, while the Nasdaq gained just over 20%. These returns followed gains of more than 24% in 2023 and 23% in 2024, marking a rare three year stretch of consistently strong equity performance.
Fixed income also delivered positive returns after years of disappointment. The Bloomberg US Aggregate Bond Index rose 7.3% as interest rates moved lower and inflation continued to moderate. Precious metals were a notable outlier. Gold surged 67%, with silver and platinum rising even more, reflecting a weaker US dollar, geopolitical concerns, and continued central bank diversification away from traditional sovereign debt.
While returns were strong, the path was not smooth. Markets experienced a sharp selloff in the spring as new tariff announcements, concerns about Federal Reserve independence, and fears of slowing economic growth weighed on sentiment. Volatility spiked briefly, and investor confidence was tested. That period ultimately proved short lived, as markets recovered quickly and finished the year near their highs.
The broader economic backdrop in 2025 was mixed but resilient. Real GDP growth remained positive, supported by consumer spending and easing monetary policy. Inflation moved lower but remained above the Federal Reserve’s long-term 2% target. Housing activity stayed soft, while the labor market gradually weakened, with unemployment rising to the mid 4% range by year end.
One of the most important forces supporting markets throughout the year was corporate earnings. Earnings growth has been the primary driver of the current bull market, and that relationship remains clear when comparing stock prices to earnings expectations. While valuations have expanded, the increase in prices has been largely supported by higher profits.
This dynamic helps explain why markets have held up despite a challenging environment. Companies, particularly in technology and related sectors, continued to generate strong cash flows and invest heavily for future growth. As long as earnings expectations remain positive, equities can absorb periods of uncertainty without breaking longer term trends.
Capital spending by the largest technology companies has become one of the most important drivers supporting both the economy and financial markets. Capital expenditures tied largely to artificial intelligence are estimated to approach $500 billion in 2026, a level of investment that rivals the annual GDP of many developed countries. This investment is not confined to software or cloud services. It flows into data centers, utilities, industrial equipment, semiconductors, construction, transportation, and banks, creating demand across a wide range of industries. As a result, AI has become a broad economic driver that extends well beyond one sector.
Despite this, AI expansion is often viewed through a lens of cost and disruption rather than economic contribution. For asset owners, the tradeoff is straightforward. Any incremental increase in energy costs has been vastly outweighed by the gains in corporate earnings and stock prices tied to this investment cycle.
Alongside these investment trends, several broader structural forces shaped the year. Political pressure on the Federal Reserve increased, raising questions about policy independence ahead of leadership changes expected in 2026. Trade policy shifted toward a more protectionist stance, with tariffs contributing modestly to higher prices and uneven impacts across industries. The labor market softened gradually, while consumer spending became increasingly concentrated among higher income households that benefit the most from rising asset values.
Looking ahead to 2026, expectations on Wall Street remain constructive. Most analysts are forecasting continued earnings growth and positive equity returns. Consensus estimates point to another year of double-digit profit growth for the S&P 500. The spread between the most bullish and most bearish forecasts is relatively narrow by historical standards, suggesting optimism is widespread but not extreme.
History suggests that when expectations are broadly aligned, markets become more sensitive to surprises. That does not imply a negative outcome, but it does reinforce the importance of monitoring earnings trends, labor conditions, and financial markets for signs of stress.
Valuations are elevated relative to long term averages. Labor market weakness could eventually weigh on consumer confidence. Higher long-term interest rates could pressure housing and capital markets. Geopolitical risks remain difficult to quantify.
At the same time, monetary policy has become more supportive, fiscal stimulus is likely to flow into the economy in early 2026, and demographic trends continue to favor sustained spending by a large and wealthy retiree population.
Our outlook for 2026 remains optimistic. We are attentive to the risks that could shift the economic narrative toward recession, but we do not see much evidence of that outcome today. The overall environment remains supportive of equities, particularly if earnings growth continues.
We began this letter by emphasizing the benefits that asset owners have experienced in recent years. That remains true today. Our role is to help manage risk, adapt as conditions change, and keep portfolios aligned with long-term goals so clients can continue to benefit from a constructive investment landscape.
We appreciate the trust you place in us and look forward to the year ahead.
