Quarterly Market Outlook 2025 - Q4
January 2, 2026
Happy New Year! We hope everyone had a fantastic year last year. As we move excitedly forward into 2026, it is important for us to take stock of what we experienced in 2025. Some major themes dominated the year, led by a new administration in the United States and some of the changes and growing pains that go along with that. We also saw continued wars around the globe, though some seem to be getting close to an end. Lastly, we saw a very positive year for investments in general, though it was volatile. Much of the investment news was dominated by artificial intelligence (AI). As we look forward to 2026, much of our outlook remains consistent from 2025. First, we believe inflation will continue to be a dominant force in the marketplace, even if it is not fully captured by the official numbers. Second, we do believe demand for electricity will continue to drive some investment dollars, though it will likely not have the same level of impact as it did in 2025. AI will likely still be the most talked about investment trend but will probably look different this year. Lastly, there are still some signs that markets could weaken later in the year. While the risks of a recession seem to always be looming, the odds of a recession seem a little higher this year than they did last year. Let’s begin with what we saw in 2025.
Last year was a great year in the investment markets. We saw most investments rise by significant numbers. For the stock markets, we saw the S&P 500 index rise by 16.39% for the year, the Rusell 2000 index rise by 11.41% for the year, and the EAFE rise by a little over 27%.[i] We also saw rates drop in the fixed income world. The Federal Reserve dropped their Fed Funds Rate three times over the course of the year from 4.25%-4.50% to 3.50%-3.75%.[ii] Also, the rate on the 10-year treasury dropped about 9.01% over 2025.[iii] These rate decreases helped increase bond prices over the year and added some return to fixed income accounts. Commodity prices also increased over the course of the year, with Gold seeing a 66.65% increase year over year.[iv] However, not all investments went up. Despite have a strong year for most of the year, Bitcoin ended 2025 losing 8.36% in value.[v] Also, the price of oil dropped about 20.79%.[vi] Interpretting this outcome can be difficult. While we are still positive on the stock markets in general and on investments inside of the U.S., there are a couple of concerning developments. First, large company stocks significantly outperformed small company stocks again. Usually during robust bull markets, small stocks will tend to outperform large stocks. Similarly, international stocks outperformed U.S. stocks last year. That could mean a change in leadership to international stocks is coming, or it was just one year. Similarly, while the increase in commodity prices is good for investors in those commodities, it could be pointing to some potential inflation issues. Again, we are expecting at least a positive start to the year for most investments, but we want to make sure expectations are properly set after what was a very good year for investments in 2025.
We believe one of the largest areas for concern, as well as opportunity, in 2026 is inflation. While the official inflation numbers, as reported by CPI, remained relatively muted last year at around 3%, we believe the money supply is causing more significant price movements that maybe are not being fully captured.[vii] Our concern stems from the same place it has for the last five years, government deficits and debts. This problem has not been unique to the United States, it has been widespread across different countries all over the globe. Many countries run budget deficits. In order to pay for those deficits, countries must borrow the funds and print more of their currency to pay their obligations. Printing more of the currency increases the total amount of currency in circulation. Increasing the total currency in circulation without changing what backs that currency (the full faith and credit of the country) inherently makes the currency worth a little less than it was before. General economic principles would state that if you increase the supply of an item without increasing the demand by the same amount, price or value of that item will go down. While many governments have run budget deficits for decades without creating significant inflation, the size of the deficits since the COVID 19 crisis have been large enough to create large price actions.[viii] While budget deficits had stayed within a certain range for many years, the size of the deficits grew by large amounts very rapidly in the last ten or so years. As an example, the budget deficits at the end of the last three presidencies are as follows: -$584.650 million in the last year of Obama, -$3,132.456 million in the last year of Trump’s first term (2020), -$1,826.790 million in the last year of Biden. Even if you make an allowance for the COVID spending in the Trump term, the deficit still more than tripled from the end of Obama’s term to the end of Biden’s term. The problem did not really improve last year with the budget deficit for 2025 being -$1,775.357.[ix] These much higher deficits are leading to a faster increase in the money supply, which is likely to be eroding the purchasing power of the U.S. dollar. While this example is just the United States, a similar issue is playing out in most countries throughout Europe, South America, and Asia as well. This devaluation of the currencies could help explain why commodities like gold and silver were up so much in 2025, even while the stated inflation rates seemed normal. Since it appears after 2025, that the higher deficit rates are likely going to continue, it seems like a continued inflation through devaluation of the currencies is likely to continue. Therefore, we are continuing to look for investments that are likely to do well with a continued inflationary environment, much the same way we did last year.
While the inflationary environment laid out above is only about deficits and currencies, inflation can also be caused by growth. A positive type of inflation is created when productivity increases, investments increase, and the economy of a country generally grows. The reduction in interest rates we saw at the end of 2025 could help spark economic growth by making access to capital a little cheaper. That can cause more investments and help push the economy forward. This is one of the reasons we are bullish at least for the start of 2026. Increased investment in the economy generally benefits all and should hopefully be a bit of a tailwind to investments as we begin 2026. Specifically, it should help companies trying to raise money for projects. This is where we get back to our theme about electricity. Demand for electricity continues to outpace supply all over the globe. This requires more power generation any way we can get it. Lower rates and cheaper capital should make it easier to get access to funds to build power generation plants. These can be project specific for data farms or general plants to add more capacity to the power grid. Either way, we believe those operating in the power generation field are due to perform well in the upcoming year.
However, despite any tailwinds that we may have currently, there is always the risk that events can unfold to turn investment markets negative. The same way, the deficit spending that is leading currency devaluation can be an investment opportunity, it can also be a significant risk. The currencies are backed only by the full faith and credit of the country that issues them. If investors do not believe the country will have the resources to pay off its debt, it could lead to a mass exodus of that country’s currency and eventually it will see investors pull money out of the country. This is a very difficult situation to ever be able to predict, but with the deficits maintained at such significant levels it is a risk that cannot be ignored. It seems that Japan is potentially the country most at risk to this scenario, so we are watching Japan very closely. However, it could happen elsewhere first, or it could happen to more than one country, or not at all.
Also, while we expect AI to continue to dominate the investment news, there is likely to be a change in how AI investments are valued. Investors are likely to want to see more financial return on the capital spending that has gone into AI. They are also becoming more concerned about the concentration and consolidation into a small number of very large companies.[x] This could lead to more volatility in the market and the technology sector specifically. Some of these companies could even see their returns turn negative if enough investors lose confidence in their direction. Famed investor Michael Burry, who predicted the housing market collapse of 2008, has even taken long dated short positions on two of the AI darlings, Nvidia and Palantir.[xi] While Burry taking up short positions does not mean that the entire sector, or even just these two companies, are going to go down, it does point to the fact that AI investments are likely to be more scrutinized this year than they maybe were in 2025.
Lastly, there are significant domestic and international geopolitical risks. Internationally, there is a cease fire in Gaza that is holding. However, if that war reignites, or even expands to other areas in the Middle East, it would inject uncertainty into the marketplace. Investment markets do not like uncertainty and typically go down when large uncertainties occur. Similarly, while the war between Russia and Ukraine seems like it might be heading towards peace. However, if that war reignites and expands, it could potentially drag other countries into the conflict. Domestically, there are still many uncertainties around tariff policies. If the Supreme Court rules against the administration on the tariff issue, it could lead to a further expansion of the budget deficit and could ignite significant inflation in the U.S. that could start a recession. We are by no means predicting that any of these events will come to pass, and there are many more events that could occur as well that we did not include here. The point is simply that there are significant risks to our global bull market and that staying vigilant about the ever-changing landscape will help minimize the negative impacts of events as they unfold.
Many of these geopolitical risks could happen in any given year, and 2026 is no different. However, we do not see any of them as likely to occur. As we mentioned before, we believe the most significant risk, which we believe is also an investment opportunity, is the inflation being caused by government deficit spending. If the governments go too far, which no one knows where that line is, then we could see a recession triggered. However, if we do not see that spending get too far out of hand, then we believe there are enough positive tailwinds to this market to give us another positive investment year in 2026. We truly hope everyone had a great 2025 and is ready for a healthy and prosperous 2026.
Best wishes,
Christian D. Searcy, Jr. Melanie M. McDonald Vincent F. Cuomo
CFP®, CPWA®, AIF®, MBA CFP®, CEPA® Executive Partner
President Vice President, CCO
-Current market data is as of 12/31/2025. Source of data unless otherwise noted: Yahoo Finance. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. The opinions and predictions expressed herein are as of January 2nd, 2026, and are subject to change at any time based on market and other conditions. No predictions or forecasts can be guaranteed.
This material does not constitute a recommendation to buy or sell any specific security. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal investment.
Investment in equities involves more risk than other securities and may have the potential for higher returns and greater losses. Bonds have interest rate risk and credit risk. As interest rates rise, existing bond prices fall and can cause the value of an investment to decline. Changes in interest rates generally have a greater effect on bonds with longer maturities than on those with shorter maturities. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and/or interest payments. Index performance is presented for illustrative purposes only. Direct investment cannot be made into an index. The S&P 500 Index is an unmanaged index, which is widely regarded as the standard for measuring the U.S. stock market performance. It represents the 500 most widely held publicly traded companies.
[i] https://finance.yahoo.com/quote/%5EGSPC/, https://finance.yahoo.com/quote/%5ERUT/, https://finance.yahoo.com/quote/EFA/
[ii] https://www.bls.gov/news.release/cpi.nr0.htm
[iii] https://finance.yahoo.com/quote/%5ETNX/
[iv] https://finance.yahoo.com/quote/GC%3DF/
[v] https://finance.yahoo.com/quote/BTC-USD/
[vi] https://finance.yahoo.com/quote/CL%3DF/
[vii] https://www.bls.gov/news.release/cpi.nr0.htm
[viii] https://fred.stlouisfed.org/series/FYFSD
[ix] https://fred.stlouisfed.org/series/FYFSD
[x] https://finance.yahoo.com/news/ai-took-investors-on-a-date-in-2025-in-2026-analysts-say-its-time-to-foot-the-bill-140012067.html
[xi] https://www.wsj.com/finance/stocks/michael-burry-bets-he-isnt-too-early-to-go-against-the-ai-juggernaut-5d95d21e?gaa_at=eafs&gaa_n=AWEtsqfusczUOwD6fuGzBFRYqK9QsPXtiaAH77wsBf821q929TscJrFsqqA6Lbu4SVk%3D&gaa_ts=695bef55&gaa_sig=MrwP8ONmJwBm5HcGWLvvAPIH1bjKhRcIrGaLJov5qB2Qri2vsVCHOHxjEcH6mr3zTLKEA1o72cpnQLDBVlqSpA%3D%3D