Beyond the Headlines

Answer: As we move into 2026, looking beyond the headlines may help us make clearer, more level-headed decisions. Here’s what our team is watching as we begin the new year.

Consumers Are Spending - Selectively

Holiday data showed that Americans still wanted to travel and shop. Thanksgiving TSA numbers were strong, and online sales posted yet another year of growth; both encouraging signs that the consumer is alive and well.

At the same time, income growth hasn’t kept pace for everyone. Many households are feeling stretched. Higher-income households tend to benefit from greater exposure to ownership in stocks, real estate, and retirement accounts, which softens the impact of rising costs. It’s possible for the overall economy to look healthy while individual budgets feel tight.

The Fed Is Walking a Tightrope

The Fed faces a tricky balancing act: cooling inflation without increasing unemployment. Most agree that interest rates are likely to lower in 2026, yet the path may be cautious or uneven. A few wildcards remain with debates over who will be the next Fed chair, differing views among policymakers, and previously delayed economic data releases. All of these could make rate movements less predictable. Portfolios should be positioned accordingly with flexibility in mind.

Bonds Quietly Delivered in 2025

Despite dramatic headlines, the 10-year Treasury ended lower than many expected, meaning that bond prices rose, resulting in positive total returns for most major fixedincome categories. This was a textbook example of bonds doing what they often do best: providing stability when it matters.

Long-term inflation expectations remained contained, supporting stable demand for Treasuries. Bond market volatility fell to its lowest level since 2021, a pleasant surprise.

Volatility could increase due to government funding debates and uncertainty around Fed leadership. Still, none of these changes the core role of bonds: income, and potential stability within asset allocation.

Technology, Especially AI-Linked Companies, Continue to Dominate

The tech sector outperformed broader markets in ten of the last eleven years. Earnings expectations for mega-cap names continue to outpace the rest of the market, presumably providing fundamental support behind the “AI boom” story.

But strong leadership doesn’t mean you should overload your portfolio with tech. Concentration risk becomes a problem when too much depends on just a handful of companies. We want enough exposure to benefit from innovation and AI, without allowing a single theme to define the entire portfolio.

AI Revolution and Electricity Demand

AI relies on massive computational power, and that requires enormous amounts of electricity. In 2025, datacenter construction accelerated, pushing residential electricity prices higher.

Utilities with the regulatory approval and infrastructure to expand electricity production may benefit, but success will vary by region. This is an emerging long-term trend worth watching, not a short-term trading theme. Still, it has real-world implications for your electric and energy bills and future infrastructure investment opportunities.

Cautiously Optimistic

This past year, earnings growth held up, inflation moved closer to 2%, unemployment hovered just above 4%, and markets ended the year near all-time highs. Tech did much of the heavy lifting, but most sectors finished up. While no year is perfectly smooth, these fundamentals provide a constructive starting point for 2026.

Diversify and Monitor

With interest rates still attractive, high-quality fixed income may continue to offer stability in 2026. A laddered approach helps manage reinvestment risk and keeps the portfolio flexible as rates evolve.

Equities should remain broadly diversified across growth and value, large-caps, dividend payers, selective mid-and small-caps, sectors beyond technology, innovators, including AI, but with clear limits.

Cash and money market funds providing attractive yields may be used to support goals but aren’t substitutes for long-term investing. Depending on your situation, holding six to twelve months of living expenses in cash for stability may provide stability while allowing the rest of your portfolio to stay invested for long-term goals.

Plan, Don’t Predict

We can’t predict every market move or economic headline. We don’t need to. A disciplined plan, especially one with a thoughtful withdrawal strategy for retirees, can weather uncertainty far better than trying to guess the next Fed move or tech trend.

Bottom Line

Consumers are still spending (though unevenly), the Fed is cautious, bonds proved their value, tech maintained its leadership, and electricity demand continues to rise alongside AI.

With quality investments at your core, a diversified growth strategy, and a steady focus on your long-term plan, rather than emotions and short-term noise and news, you may be well-positioned for whatever 2026 may bring. Stay focused and plan accordingly.