2025 delivered one of the most resilient economic outcomes imaginable, given the policy shocks introduced early in the year, including trade-war concerns, immigration crackdowns, and shifting political dynamics, yet markets absorbed these developments with remarkable composure.
- The S&P 500 closed at 6,846, up 16%, marking the third consecutive year of double-digit returns. Cumulatively, that is approximately an 80% gain over three years.
- The Nasdaq rose 19%, while the Dow added 13%.
International leadership finally broke through
- The MSCI All Country World ex-USA Index surged nearly 30%.
- Emerging markets returned 34%.
- India delivered a 4% equity return despite 8% GDP growth. 2025 was a consolidation year. India now appears priced for growth rather than re-rating.
U.S. equity concentration persisted
U.S. leadership remained narrow, with only two of the “Magnificent Seven” outperforming the broader market in 2025. Sector leadership was led by:
- Communication Services: +34%
- Technology: +21%
The small-cap renaissance
- The Russell 2000 surged more than 12% in the final stretch of the year.
- Even after that burst, small caps still trade at a 33-year low relative valuation.
Crypto
- Bitcoin rallied to nearly $126,000 in October, supported by Washington’s increasingly constructive stance toward digital assets and a wave of crypto-market legislation.
- before falling roughly 30% to end the year near $87,600.
Gold and silver
- Gold: +64%
- Silver: +147%
- As some central banks, particularly in the East, reduced U.S. Treasury exposure and increased gold accumulation over the past two years, precious-metal prices continued to trend higher.
Fixed income: “Fiscal dominance” entered the conversation
Despite Fed cuts, the 10-year Treasury yield ended the year around 4.16%, defying the assumption that cuts automatically translate into lower yields.
2026 Macroeconomic Outlook
We expect real GDP growth of roughly 1.8% to 2.3%. This represents a deceleration from 2025’s stronger pace but remains respectable for a mature economy with an aging population.
The U.S. economy should continue to be supported by large infrastructure, clean-energy, and domestic manufacturing incentive programs. The latest fiscal package adds another burst of spending velocity in 2026, reshaping relative value across sectors and accelerating deployment.
By year-end 2025, the U.S. was adding only about 50,000 jobs per month, a sharp slowdown from 2024. Unemployment rose to 4.6%, the highest level since 2021. In a traditional cycle, those figures would signal recession risk. Yet in 2025, the consumer kept spending, companies kept investing, and the economy kept moving. We expect this underlying resilience to persist in 2026.
Sector and Asset Class Positioning: What we expect to pay off in 2026
We maintain neutral U.S. market exposure overall, with portfolio overweights to:
- Small Caps
- Industrials and Manufacturing
- Financials
- Energy
- Technology
International Outlook: Opportunity outside the U.S.
Opportunities remain abundant outside the U.S. in 2026. We expect to focus on international exposure as follows:
- Japan, which remains attractive in 2026
- India, poised for growth after a lull in 2025
- Europe, which offers compelling value and is currently trading approximately 26% cheaper than U.S. markets
- Emerging Markets ex-China
Fixed Income Outlook
Following the announcement of Kevin Warsh as the new Chair of the Federal Reserve, we expect:
- to see 50 to 75 bps of interest rate cuts over the year
- to overweight intermediate-duration, high-quality fixed income
- The front end of the yield curve is expected to move lower, with the long end also remaining relatively contained
Gold and Silver Outlook
Following heavy speculative positioning in silver and gold amid their persistent rally in January, we observed a blow-off top marked by unusually large intraday reversals (approximately -30% in silver and -12% in gold).
Looking ahead to 2026, the dispersion between the physical and paper markets remains wide. We expect this gap to narrow over time; after a period of consolidation and churn, the metals could resume a gradual grind higher. We do not plan to add at current levels, but we will maintain our existing positions.
Closing Thoughts: Conviction Requires Execution Discipline
This sets the central question for 2026: will AI translate into higher software sales and durable pricing power, or will it compress the sector by lowering barriers to entry? With the One Big Beautiful Bill allowing 100% expensing in year one, we expect elevated capex and continued investment by Big Tech to function as a form of stimulus.
The current administration’s policy posture appears supportive of business investment and equity markets. It remains prudent to stay invested in line with your risk profile. However, successful investing is not about having the “right” macro narrative—it is about executing that narrative with discipline:
- Rebalance regularly. Drift is a silent risk; rebalancing enforces humility.
- Harvest gains when available.
- Rotate as conditions evolve. In bull markets, tops are often closer than they appear — yet leadership can also rotate quickly into the next leg higher.
The 2026 landscape combines compelling opportunity with meaningful risk. An easing Fed, fiscal deployment, and transformative AI investment provide real tailwinds for equities. Yet labor-market ambiguity, sticky inflation, and valuation concentration demand portfolios built to both participate and endure.
We intend to capture a broadening opportunity set, including small caps, selected cyclicals, and international value, while avoiding concentration risk that can masquerade as conviction.