Broadening Strength and a Constructive Outlook for 2026

Artificial Intelligence Developments: From Providers to Users

Some investors have questioned whether softening momentum among the “Magnificent 7” signals a broader slowdown, but we see this as a healthy market development. For the past three years, a small group of mega‑cap companies have delivered a disproportionate share of the market’s overall gains, benefiting from early‑stage AI investment. Towards the end of 2025, however, we began to see market leadership broaden. This was a welcome development, pointing to a healthier, more balanced market.

The benefits of AI are increasingly moving from the large technology providers to the companies deploying these tools, with firms beginning to see real productivity gains and operational efficiencies. This shift highlights an important development within the broader AI theme; one we believe is likely to unfold over multiple decades. The story is no longer limited to a handful of innovators; it is expanding across industries and market segments, which is positive for both the economy and markets.

Positioning Portfolios for the Year Ahead

After three consecutive years of strong equity returns, it’s natural for investors to feel some anxiety around valuations. However, the focus should remain on understanding the underlying forces that will drive the economy and markets moving forward, as the fundamentals remain broadly supportive. Continued monetary easing, AI investment, the economic boost from OBBBA‑related measures, and double‑digit corporate earnings expectations create meaningful tailwinds for 2026.

On the economic front, we expect fiscal policy measures to support growth, with Real Gross Domestic Product (GDP) to remain above 2%. Inflation is expected to stay elevated but stable in the 2.5% to 3% range, while labor markets should stay resilient with unemployment holding near 4% throughout the year. With 175 basis points of rate cuts already delivered since September 2024, we expect the Federal Reserve (Fed) to cut two more times, once in the second and once in the third quarter, bringing the federal funds rate to the 3% to 3.25% range.

From a portfolio positioning standpoint, we remain constructive on both equities and fixed income. We have a modest preference for equities and expect U.S. equities to deliver returns in the 8% to 12% range in 2026. The broadening theme in equities is expected to continue, making diversification across geographies, asset classes, and market capitalization an important part of portfolio construction.

Within fixed income, strong corporate health, an easing Fed, and a steepening yield curve support our expectation for a 5% to 7% return, which would represent another solid year relative to historical averages. We see the most attractive opportunities in the short‑ to intermediate‑term segments of the curve, where the impact of additional Fed rate cuts is likely to be most pronounced.

Key Messages for Investors

Markets continued to move higher over the last several years, but the journey has been anything but a straight line. Investors faced bouts of volatility that tested conviction, but those who stayed invested were ultimately rewarded.

When market sentiment turns negative and news headlines create anxiety, it’s important for investors to pause and ask themselves whether their financial situation or long-term investment objectives have changed. If they haven’t, then it’s important to stay invested. Staying anchored to a comprehensive Wealth Plan can help keep investment decisions aligned with long‑term goals rather than short‑term market swings. Remaining patient, disciplined, and focused on long-term investment objectives, especially during periods of uncertainty, continues to be one of the most effective ways to build and preserve wealth over time.

Lastly, investors may wish to use periods of market uncertainty to their advantage. For investors with excess cash reserves, periods of volatility may provide opportunities to deploy capital in accordance with their individual risk preferences, helping to ensure their portfolios are well positioned to support future investment goals.

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