Market Outlook and Commentary Q1 2026

What 2025 Taught Investors & What It Means for 2026

As we begin a new year, it’s a natural time to reflect on the forces shaping markets and portfolios. After a remarkable stretch for equities, shifting economic dynamics, and renewed relevance for bonds, investors enter 2026 facing both opportunity and uncertainty.

Below, we highlight key lessons from recent market trends and what they may mean for long-term investors.

A Rare Run for U.S. Stocks, and a Reminder About Expectations

U.S. stocks delivered gains of 15% or more in each of the past three years (2023–2025), a rare streak that has occurred only eight times since 1926.

History suggests that strong runs do not necessarily signal an imminent downturn. In fact, the year following similar streaks has averaged positive returns. But past patterns also remind us that markets rarely move in straight lines.

Key takeaway: Strong performance can persist—but chasing recent winners often undermines long-term results. Staying disciplined matters more than timing the market.

Volatility Is Normal, not a Warning Sign

Despite strong returns in 2025, the year was marked by periods of heightened uncertainty driven by policy debates, tariffs, and economic concerns. The S&P 500 experienced multiple large daily swings, a reminder that volatility is a natural part of investing.

Historically, markets have experienced far greater turbulence during major crises, yet long-term investors who stayed invested were rewarded.

Key takeaway: Market swings are the cost of long-term growth. Emotional reactions to short-term volatility can be more damaging than volatility itself.

Technology and AI: Growth Supported by Fundamentals

Technology stocks once again led the market in 2025, fueled by rapid earnings growth, particularly among AI-driven companies. Interestingly, valuations in the sector became more reasonable as earnings growth outpaced price increases.

Looking ahead, tech earnings are expected to grow faster than the broader market; supported by innovation, productivity gains, and a potentially supportive interest-rate environment.

Key takeaway: Growth opportunities remain compelling, but fundamentals, not momentum, should guide portfolio decisions.

Diversification Still Matters, Especially When Markets Are Strong

Extended bull markets can make investing appear deceptively easy. Yet the data tells a different story:

• Diversified mutual funds and ETFs have experienced minimal losses over the past three years.
• Nearly half of individual stocks declined during the same period.

This gap underscores why diversification remains one of the most powerful tools for managing risk.

Key takeaway: Broad diversification helps smooth returns and reduces the impact of individual stock failures.

Economic Cycles: Expansions Last Longer Than Many Expect

The current economic expansion, now more than five years old, remains relatively young by historical standards. Since the 1980s, expansions have averaged more than eight years, reflecting a more resilient service and technology-driven economy.

AI innovation, evolving supply chains, and policy flexibility have helped extend growth cycles and soften downturns.

Key takeaway: Economic cycles still matter, but patience and long-term perspective remain essential through both expansions and recessions.

Bonds: Stability Returns to Portfolios

In 2025, U.S. bonds delivered returns above their historical average, reaffirming their role as portfolio stabilizers after the unprecedented bond losses of 2022.

Over the long term, bond returns are closely linked to interest-rate levels. With rates having risen higher in recent years, future bond returns may be better aligned with historical averages.

Key takeaway: Bonds continue to play a critical role in managing risk and generating income.

Global Markets, Cash, and Portfolio Positioning

Looking beyond U.S. markets:

• International stocks and bonds outperformed U.S. assets in 2025.
• Emerging markets appear increasingly attractive, particularly in AI-driven sectors.
• Cash lagged both stocks and bonds, despite record inflows.

With a resilient economy and supportive macro backdrop, equities remain attractive relative to cash, while bonds continue to offer diversification and income.

Key takeaway: Portfolio positioning should reflect both opportunity and balance, not short-term performance trends.

Pulling It All Together: Investing in 2026 and Beyond

As we move into 2026, several themes stand out:

• Equities remain a key driver of long-term growth, particularly in AI-related sectors.
• Bonds provide stability and income amid uncertainty.
• Diversification across regions, asset classes, and strategies remains essential.
• Alternatives and options may enhance portfolio resilience and return potential.

Perhaps most importantly, history reminds us that markets are unpredictable, but disciplined investors who focus on long-term goals are best positioned to succeed.

Final Thought

Markets will continue to present both risks and opportunities. But the core principles of investing; diversification, patience, and discipline, remain as relevant as ever.

If you’d like to discuss how these insights apply to your portfolio or financial plan, please reach out to your advisor. We’re here to help you navigate whatever the market may bring.