A Solid Quarter for Stocks and Bonds
Markets delivered mixed (but positive) performance across the board:
U.S. Large Cap: +2.70%
U.S. Small Cap: +1.80%
International Developed: +6.01%
Emerging Markets: +1.15%
The bond market showed solid results with the weakest returns coming from long-term government bonds:
Short-Term Inflation-Protected: +0.38%
Intermediate-Term Corporate: +1.15%
International Bonds (Intermediate): +0.29%
Long-Term Treasury: -0.41%
Bold Stimulus for Global Markets
In response to slowing global growth, policymakers around the world are taking meaningful steps to support economic activity:
In the United States, the Federal Reserve has begun lowering interest rates. Lower borrowing costs can support housing activity and make it easier for businesses to invest and expand.
Regulatory easing in the U.S. may encourage increased lending activity, benefiting banks and other sectors that are not directly tied to the artificial intelligence boom.
Germany has announced a €500 billion infrastructure and defense investment package, signaling a significant fiscal commitment to long-term growth.
NATO allies are pledging to increase defense spending, creating sustained demand across industrial and manufacturing sectors.
Japan, South Korea, and China are pursuing corporate reforms and targeted stimulus measures aimed at improving productivity and strengthening economic momentum.
Together, these initiatives point to a more supportive global policy backdrop than markets faced just a year ago.
Lower Policy Uncertainty
Trade-related uncertainty has eased meaningfully. While fears of extreme tariffs dominated headlines in early 2025, subsequent trade agreements and policy adjustments have reduced those concerns. The actual effective U.S. tariff rate has hovered near 11% in recent months, far below earlier expectations.
Lower and more predictable trade barriers create a more favorable environment for global commerce—an essential ingredient for sustainable economic growth and corporate investment.
Valuations Remain Elevated
Equity valuations remain high, particularly in the U.S. While earnings growth is expected to be strong in 2026 (approximately 14%), elevated prices leave less margin for disappointment. If earnings fail to meet expectations, market pullbacks would not be unusual.
Our approach is not to predict these pullbacks. After decades of evidence and thousands of hours of research, one conclusion is clear: markets that constantly adapt to new information cannot be reliably forecast.
What we can do is remain patient and opportunistic. We are prepared to increase equity exposure when markets offer better value. We do not sell today in anticipation of future pullbacks, because history shows markets can remain expensive for years. Selling too early can be just as harmful as reacting too late—much like exiting the market in 1997 and missing several years of strong returns.
Elevated Fraud Risk
A reminder: financial scams remain widespread and increasingly sophisticated. Do not assume that calls, texts, or emails—no matter how convincing—are legitimate. Scammers often use elaborate tactics to gain trust and extract personal or financial information.
If something feels unusual or urgent, pause. We are always here as a resource. Please reach out if you receive a message or request you are unsure about—we are happy to provide a second opinion before any action is taken.
We hope your holiday season was full of joy and that you’re off to a great start in 2026!