As we close the final chapter of 2025, we would like to share our year-end perspective on the markets and the strategic path we are charting for 2026.

The year concluded with a period of healthy recalibration, and we do believe that the stage is set for potential positive returns continuing throughout 2026.

That said, we do caution that while we expect to see positivity in the markets for the year, we could likely experience periods of increased volatility in the markets.

December’s Message from the Fed

As you are likely aware, December was defined by the FOMC’s pivotal meeting in the middle of the month.

While the FOMC delivered a 25-basis-point rate cut, the updated Summary of Economic Projections (SEP) signaled a measured, “hawkish” transition into 2026.

The Committee’s median projection now places the Federal Funds Rate at 3.6% for the end of 2025, moving toward a median of 3.4% by the end of 2026.

Growth, Inflation, and the “Soft Landing” Narrative

The ”hawkish” tone was primarily driven by the increasingly optimistic economic outlook, in our opinion.

The FOMC revised its 2026 Real GDP growth projection upward to 2.3% (from a previous 1.8% estimate), while forecasting that PCE inflation will continue its descent toward a median of 2.4% by the end of 2026.

This “soft landing” narrative was further validated by the landmark December CPI print of 2.7%, a 5-year low, likely confirming that the disinflationary trend remains firmly intact.

A Tale of Two Halves in the Markets

December was a “tale of two halves” for the markets.

Early-month anxiety regarding tech valuations and shifting Treasury yields led to temporary volatility followed by a resurgence of the “risk-on” trade to close out the year.

One of the more interesting dynamics that occurred was the positive returns generated in many of the value-oriented names, as well as the remaining 493 names in the S&P 500, for the most part.

This dynamic further confirms the use of diversification as a tool to help offset some of the concentration risk while offering a degree of “insulation.”

Why Conviction Still Matters

The market’s late-month rebound, catalyzed by strong guidance from AI infrastructure leaders like Micron and cooling inflation data, reminds us why we maintain high-conviction positions in fundamentally sound companies that maintain fortress-like balance sheets.

These firms, characterized by robust free cash flow and dominant competitive moats, were the primary engines of the relief rally that closed out the year.

Opportunity, Volatility, and Fundamentals

Looking forward into 2026, we continue to view the market environment as opportunistic, in general, but note that it is critical to focus on the selection process.

While we do believe that valuations in certain names/sectors may be at stretch levels, it is important, as noted earlier, that we focus on the underlying fundamentals and the soundness of the business model in the current marketplace.

We do believe that there will be pockets of volatility in the markets, but we view this, as we have over the past few years, through the lens of opportunity.

Our initial thesis for the coming year is rather straightforward: Fundamentals drive long-term returns.

With a resilient consumer, a Fed prepared to support growth, and corporate earnings power remaining strong, we believe the current environment potentially offers attractive entry points for further growth.

Staying Disciplined Into the New Year

As always, our focus is to provide you with Financial Peace of Mind, and we remain committed to our disciplined 5-step due diligence process while continually monitoring the global economy and markets.

As noted previously, we may likely encounter pockets of volatility throughout 2026, but we will remain focused on providing you with updates and our analysis, which is the key driver for our Investment Committee’s decision-making process.

Above all, we hope that you have a wonderful start to 2026, and we look forward to seeing you soon!