This year has been one of uncertainties regarding shifts in economic policies and government actions (shutdown and shrinkage). Markets have adapted to the new environment with developments in Artificial Intelligence (AI) dominating the market. Capital expenditure and investment in AI have been enormous – contributing to over half of the market’s growth. Recent expected interest rate adjustments, a reduction and elimination of most tariffs, continued consumer demand, corporate profitability, lower tax rates, and deregulation have all led to elevated stock market indices. International markets have also seen significant gains, enhancing our commitment to diversified portfolio performance.
There is great optimism about corporate profitability going forward, but the ability to pass along costs to consumers will play a role in maintaining those levels. The hope is that the Fed also continues to lower interest rates as economic conditions allow, but that is uncertain.
All in all, the markets have surprised many economists and investment managers with their continued strength. That doesn’t mean that there aren’t risks ahead, as there always are. We see elevated relative valuations, particularly in the technology sector, that have driven the growth. While the tariffs ended up being less harsh than anticipated, there is still a possibility of inflationary pressure gaining strength. We are starting to see signs of higher unemployment, especially with college graduates. Global trade policy itself remains uncertain. Our large national deficit is a major issue that needs to be addressed as interest payments become a larger part of the government’s budget.
Investment history shows that market cycles are normal and temporary. While we cannot predict the timing or duration of the current environment, our focus remains on the importance of a disciplined approach. The greatest risk for long-term investors is often making an emotional decision at the wrong time. Understanding that market cycles run their course allows us to maintain appropriate portfolio positioning aligned with your long-term financial plan, aiming to capture the potential returns of a full market cycle.
In my view, it’s been a successful year filled with uncertainty and, once again, our market surprised most of us with its resilience. Those who did not panic with the daily news have so far been rewarded for staying committed to their plan. Diversification away from the Magnificent 7 is important as we navigate ahead.
It is important to position yourself with a prudent cash reserve, try to minimize debts, and continue, if you are working, to maximize your retirement plan contributions as best you can. Please review the accompanying 2026 tax planning article in this newsletter for a good review of what lies ahead and some actions to take before year-end regarding income taxes.
As we look ahead to the year-end, I wish everyone a great holiday season, and we are looking forward to your continued trust and partnership going forward. As always, please keep us abreast of any changes to your situation. We are always here to help. Happy holidays and Happy New Year!
