Looking Back to Look Forward

Answer: Before we look ahead to 2026, it’s helpful to take a quick look back at what shaped the economy and financial markets during 2025. Many of us felt the effects of political uncertainty and global tensions. Despite this, markets were remarkably resilient.

Interest in Artificial Intelligence (AI) continued to surge, corporate earnings remained strong, and several interest rate cuts from the Federal Reserve supported market gains. At the same time, hiring slowed, raising concerns over the labor market. Slower hiring could also give the Fed cause to lower interest rates again if necessary.

As Carl Sagan said, “You have to know the past to understand the present.” With that in mind, here are twelve developments from 2025 that could influence the year ahead.

1. America Turns 250

This birthday is a historical milestone honoring the Declaration of Independence. The patriotic celebration could boost travel, tourism, and spending while offering the opportunity to bring people together, reflect on shared values, and unify the nation.

2. Tariffs Didn’t Slow the Economy

Tariff turmoil didn’t halt growth in 2025, with the economy holding up better than expected. Looking ahead, Fed rate cuts and upcoming tax relief included in the One Big Beautiful Bill Act (OBBA) could provide extra fuel for growth in 2026.

3. Unemployment Up, But the Fed May Step In - Again

The unemployment rate rose to 4.6% as hiring slowed. Because of sluggish hiring, the “low-hire, low-fire” environment could persist. If this continues, the Fed could cut rates again, lowering borrowing costs for households and businesses. As uncertainty fades and the impact of OBBBA materializes, business confidence could lead to hiring in 2026.

4. Does the Bull Have Legs?

Historically, returns in the third year of a bull market tend to be smaller, averaging just 2.5%. This year the trend changed, thanks to strong performance from major tech names. With solid economic conditions, supportive fiscal policy, and healthy earnings, this bull market may still have room to run.

5. More New Highs

The Dow Jones Industrial Average posted its 13th consecutive year with at least one new record high. It’s even possible that the Dow could climb to 50,000. While gains in 2026 may be more modest, tax cuts, deregulation, and lower borrowing costs could keep the streak alive for another year.

6. Oil Prices May Stay Low

With oil prices at a four-year low and gas prices below $3 per gallon in many areas, consumers have more money in their pockets to spend on other needs, helping the overall economy.

7. Are Long-Term Government Bonds Looking More Attractive?

Concerns about government debt and deficits pushed long-term bond prices down, which raised their yields (the interest investors earn). This part of the market may still offer opportunities, especially where credit quality is strong.

8. Corporate Bonds May Look Attractive Too

Many companies have healthy balance sheets, rising earnings, and ability to cover interest payments. These factors support the selective appeal of corporate bonds for those seeking income in 2026.

9. Small Businesses Paying High Borrowing Costs

Tighter lending standards mean higher borrowing rates than in the past. The average rate is around 9% and has come down from 10% in 2024. The long-term average rate for small businesses to borrow is 6.8%. A continued decline in rates would be a welcome relief for small businesses in 2026.

10. Corporate Earnings Are Resilient

Even with rising costs and market volatility, companies, especially those in the tech sector, reported strong earnings. However, high stock valuations mean earnings will need to keep pace to support current prices.

11. All Eleven Are Positive, With One Exception

According to the Global Industry Classification Standard (GICS), there are eleven sectors in financial markets based on their primary activities; Communication Services (telecom, media, entertainment and internet), Consumer Discretionary (non-essential goods), Consumer Staples (essential goods such as food, beverages and household products), Energy, Financials, Health Care, Industrials (aerospace, defense, machinery, construction and transportation), Information Technology (tech, software, hardware, and semiconductors), Materials (chemicals, metals, mining, and packaging), Real Estate, and Utilities. As of mid-December, all but Real Estate are in positive territory for 2025. This is an encouraging sign for 2026.

12. Slowly but Surely, Sentiment is Improving

While overall confidence is still below long-term averages, consumers have moved past the extreme pessimism of the pandemic years. As tariffs settle, markets stay resilient, and tax cuts manifest, confidence could gradually improve.

Markets reached record highs in 2025, leaving investors cautiously optimistic, which is often a healthy place to be while focusing on long-term goals. Stay focused and plan accordingly.