U.S. stocks closed out 2025 with a steady advance in the fourth quarter, extending a remarkable three-year winning streak despite an onslaught of headline risks. Markets are often said to climb a “wall of worry,” and last year proved to be a textbook example. Time and again, equities absorbed bouts of volatility – from tariff disputes and geopolitical tensions to a government shutdown – and ultimately moved higher. Investors who remained disciplined and focused on long-term fundamentals were rewarded for looking past short-term uncertainty.
As we turn the page on an eventful year, that market resilience provides an important backdrop for our outlook heading into 2026. With this in mind, we believe it is helpful to highlight five key themes we are watching as the new year gets underway.
Magnificent 7
The “Magnificent 7” stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – now account for roughly 35% of the S&P 500. These megacap companies have dominated U.S. equity performance in recent years, fueled by surging demand for AI chips, cloud-based AI services, and AI-enabled products.
While this group has delivered earnings growth well in excess of the broader market, much of their outperformance has also been driven by valuation expansion. In other words, although the Magnificent 7 have powered the S&P 500 higher, their valuations have risen rapidly and now sit at elevated levels by historical standards. Elevated valuations are not inherently problematic, but they do increase the probability of more modest returns going forward.
As a result, earnings resilience and continued progress in AI adoption will be critical in determining whether these stocks can remain “magnificent.” We will continue to closely monitor both company performance and broader AI trends in 2026.
International Stocks
Developed international and emerging market equity indices both outperformed the S&P 500 last year. Investor caution toward international stocks has been understandable, given their significant underperformance over the past 15 years – the longest such stretch in the past half century.
Several factors contributed to stronger international equity returns in 2025, including improving economic and fundamental conditions, a weaker U.S. dollar combined with growing U.S. debt concerns, and generally more attractive valuations. Performance was also supported by early signs of investor rotation away from U.S. equities heavily concentrated in the “Magnificent 7” as discussed above.
Whether this resurgence in international stock performance can persist remains an important question and a key theme we will be monitoring as the year unfolds. Put simply, can international equities demonstrate the same resilience that has characterized U.S. markets?
Bonds, Interest Rates, & the Fed
Bonds posted strong performance in 2025, with the Bloomberg U.S. Aggregate Bond Index delivering a solid 7% return. Bond prices generally move inversely to interest rates, and rates declined over the year, most notably across the short- and intermediate-term portions of the yield curve.
Looking ahead, market attention remains firmly on the Federal Reserve, which is currently expected to cut interest rates at least twice in 2026. As discussed throughout last year, the Fed continues to walk a narrow path, balancing a cooling labor market – which could weigh on economic growth – against inflation that remains stubbornly elevated.
At the December Federal Open Market Committee meeting, when policymakers lowered rates by 0.25%, Fed Chair Jerome Powell captured this challenge succinctly:
“In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals.”
How successfully the Fed navigates this delicate balance will be a key driver of bond market dynamics in 2026, with broader implications for both the economy and equity markets. In short, financial market resilience may hinge on the Fed’s ability to maintain this tightrope walk.
Gold
Gold shined in 2025, posting an eye-catching gain of over 60%. Notably, gold has now outperformed the S&P 500 over the past two decades, an impressive result given the strong returns delivered by U.S. equities over that period. Much of this outperformance, however, has been concentrated in the past two years.
As discussed last quarter, several forces have supported gold’s recent rise, including declining short-term interest rates, elevated inflation, concerns around U.S. fiscal health, a weaker U.S. dollar, and ongoing geopolitical tensions. Many of these factors remain in place as 2026 begins. While this does not imply that gold will repeat its exceptional 2025 performance, the underlying backdrop continues to warrant attention.
We continue to view gold primarily as a portfolio hedge and diversifier. Even a modest allocation can offer meaningful risk-management benefits, as gold is one of the few assets that can deliver performance independently of broader market resilience.
Crypto
We continue to receive many questions about crypto, so we thought it would be helpful to share a few brief perspectives. Digital assets have become significantly more accessible in recent years, driven by the launch of numerous crypto-related ETFs. Today, investors can gain exposure to Bitcoin, Ethereum, Solana, XRP, and other digital assets through ETFs held in traditional brokerage or retirement accounts. There are even index-based crypto ETFs that provide diversified exposure to a basket of digital assets, similar in structure to stock or bond index funds.
That said, crypto remains in the early stages of its overall lifecycle and adoption. While Bitcoin is increasingly viewed by some investors as “digital gold,” it continues to exhibit periods of behavior more consistent with risk assets. Many other digital assets more closely resemble early-stage technology investments, offering the potential for widespread adoption – but also the risk of failure.
Our general view is that crypto exposure can make sense for certain investors, provided they are comfortable with the volatility and unique risks inherent in the space. Crypto is not going away, and we believe it will remain an important area to watch in 2026, particularly with the proposed CLARITY Act, which could establish a clearer regulatory framework for digital assets. That said, the resilience of the asset class as a whole remains uncertain.
The Year Ahead
How do we translate these five key themes into our portfolio strategy? Simply put, by staying true to our proven process. 2025 reinforced a simple but powerful lesson: discipline through uncertainty works, especially in volatile but resilient markets.
The coming year will no doubt bring both opportunities and challenges. We will continue to monitor these key themes, along with economic indicators and risk factors, and adjust portfolios prudently as conditions warrant. At the same time, we will avoid overreacting to headlines or short-term market movements. The core tenets of our philosophy – diversification, thoughtful asset allocation, and a long-term perspective aligned with your financial plan – remain as important as ever. By adhering to these principles, we aim to navigate 2026 with the same steady approach that guided our clients successfully through the twists and turns of 2025.