In this report, we summarize what shaped 2025 and highlight the themes and opportunities we believe will be most important in the year ahead.

2025 in Review: Strong Performance with a Broader Foundation

Despite political turnover, fluctuating tariff announcements, and persistent debate about the Federal Reserve’s next steps, U.S. and global markets delivered surprisingly strong results in 2025. U.S. equities gained nearly 18%, while international developed and emerging markets rose more than 30%, supported by easing inflation, improving global fiscal spending, and strong demand for technology infrastructure.

Artificial intelligence remained the dominant story, but leadership broadened. Semiconductor companies, memory providers, utilities, and other companies tied directly to AI infrastructure saw strong demand, reflecting the enormous capital investment cycle underway.

Fixed income also stabilized meaningfully as the Fed shifted toward rate cuts late in the year. Yield levels fell from their 2024 peaks, and a steepening yield curve created a healthier backdrop for bonds. Meanwhile, private markets—including private credit, infrastructure, and real assets—saw improved transaction activity, better valuations in some sectors, and strengthening fundamentals.

Key Themes Shaping the 2026 Landscape

AI Transitions from Infrastructure Buildout to Earnings Impact

Despite political turnover, fluctuating tariff announcements, and persistent debate about the Federal Reserve’s next steps, U.S. and global markets delivered surprisingly strong results in 2025. U.S. equities gained nearly 18%, while international developed and emerging markets rose more than 30%, supported by easing inflation, improving global fiscal spending, and strong demand for technology infrastructure.

A Federal Reserve Near the End of Its Cutting Cycle

The Federal Reserve began easing in late 2025, and modest additional cuts are expected in 2026. However, structural deficits, rising Treasury issuance, and sticky inflation may keep long-term rates higher than in past cycles. This environment favors income-oriented fixed-income strategies, diversified yield exposure, and active management.

Equities Enter a More Earnings-Driven Market

With valuations above long-term averages, 2026 equity performance will depend far more on earnings growth. Companies with strong top-line momentum, healthy margins, and disciplined balance sheets are best positioned. International markets offer compelling value. However because of their outperformance last year, mostly resulting from dollar weakness will need to see real earnings growth to keep performance up. Broader sector leadership is also likely as fiscal spending and monetary easing support global demand.

Volatility Will Create Opportunity, Not Disorder

Investor leverage reached historic highs in 2025, contributing to the potential for more frequent market swings. While uncomfortable, volatility provides opportunities to add quality assets at better entry points. Volatility reflects normal late-cycle dynamics rather than fundamental stress. Because it is a mid-term election year, we may also see party differences highlighted and that too could cause volatility. The Federal government’s foreign policy along with global geo-politics will cause volatility and potentially a shift in longer term secular themes affecting market sectors such as defense, health care and banking.

Asset Class Outlook for 2026

Equities

We maintain a constructive but selective view. With more than 40% of the S&P 500 Index represented by the largest 10 companies, the diversity of equity portfolios are more important this year. We believe that companies with sustainable earnings, durable competitive advantages, and global diversification remain well-positioned. AI continues to offer meaningful opportunity, but fundamentals—not speculative growth—could determine this year’s winners.

Fixed Income

Elevated yields make 2026 one of the most attractive fixed-income environments in years. Intermediate-term Treasuries, high-quality corporates, and securitized credit offer compelling combinations of yield, stability, and diversification. It is important to maintain good credit quality and no more than an intermediate average maturity in portfolios to take advantage of the best parts of the fixed income markets. For municipal bond buyers, a longer average maturity may make sense as municipal yields offer attractive yields for highly taxed investors.

Alternatives

Alternatives remain essential in diversified portfolios. Particularly for those clients looking to diversify away from a more expensive public equity market or looking for additional yield not available in public bond markets. Private credit benefits from higher yields and renewed initial public offerings transaction activity in 2026 should benefit private equity funds. Infrastructure stands out as a long-duration, inflation-sensitive asset class supported by rising global investment needs. Real assets continue to provide diversification and income durability. The metals market certainly saw big gains in 2025 so investors should be careful when starting new positions. Volatility could provide opportunity to find points to add to existing positions.