2026 Market Outlook: What We Learned and What’s Ahead

As we step into 2026, it’s a good time to reflect on what happened last year and what might shape markets in the months ahead. 2025 reminded us that markets can surprise even the experts. Predictions of a recession and stubborn inflation gave way to strong returns and a shift in leadership from U.S. stocks to international markets. So, what does that mean for 2026? Let’s first take a look back and then ahead.

Looking Back at 2025

2025 turned out to be a much better year for investors than many expected. At the start of the year, there were worries about a slowing economy and stubborn inflation, but those concerns faded as the year went on. Here are the big takeaways:

• International Stocks Led the Way 
  
  For the first time in years, stocks outside the U.S. did better than U.S. stocks. Emerging markets—countries with faster-growing economies—were especially strong. A big reason was the weakening of the U.S. dollar during the year, which made overseas investments more valuable for U.S. investors.
  
  
• U.S. Stocks Still Did Well 
  
  Even though they didn’t lead, U.S. stocks had solid gains. Technology and healthcare companies continued to grow thanks to innovation and strong demand. Financial companies benefited from more stable interest rates later in the year, and utilities provided steady returns.
  
  
• The Federal Reserve Changed Course 
  
  The Fed, which sets interest rates, started the year focused on fighting inflation. But as prices cooled and the economy slowed a bit, they shifted to a more neutral stance. This helped calm markets and gave investors confidence.
  
  
• The Dollar Lost Strength 
  
  The US dollar weakened sharply leading up to the tariff announcements in the Spring, which was good news for international investments and commodities like oil and metals. but did stabilize into year end.
  
  
• Bonds Made a Comeback 
  
  After a tough stretch in previous years, bonds delivered modest gains as interest rates came down. This gave investors some balance in their portfolios.

Key Lessons from 2025

Last year clearly demonstrated the importance of diversification. After years where U.S. stocks dominated, having investments spread across different regions finally paid off—global exposure was a clear advantage in 2025.

Another lesson? Predicting short-term market moves is harder than it looks. Many forecasts called for a recession or a strong dollar, and neither happened. It’s a good reminder that chasing headlines often leads to frustration, while sticking to a long-term plan tends to work out better.

And even in a strong year, volatility didn’t disappear. Markets had their share of ups and downs along the way, which underscores why discipline is so important. Staying invested through the bumps is what allows investors to capture the gains when they come.

In short, 2025 rewarded patience and balance. A well-diversified portfolio proved its worth once again.

Looking Ahead to 2026

Markets have now been on a strong run, posting double-digit gains each of the last 3 years. What should investors keep an eye on this year? No one can predict the future perfectly, but there are three key themes that could shape markets in 2026:

1. Interest Rates and Inflation: The Fed’s Balancing Act
   
   The Federal Reserve spent two years fighting inflation. It worked as we’ve seen prices cool, but the job isn’t finished. Inflation still hasn’t hit the Fed’s 2% target, and now unemployment is starting to rise. That puts the Fed in a tough spot because they have two goals: keep prices stable and keep people working.
   
   When one improves and the other weakens, the Fed has to make hard choices. If the economy slows more than expected and job losses mount, they might cut rates later this year. If inflation heats up again, they’ll likely hold rates steady or even raise them.
   
   Adding to uncertainty, a new Fed Chair will be named this year. The President nominates the Chair, and the Senate confirms the choice. While the Chair is the public face of the Fed, they don’t act alone. Interest rates are set by the Federal Open Market Committee—a group of 12 voting members who meet regularly to review the data and vote on policy.

Why does this matter to you? Because interest rates ripple through everything: borrowing costs for businesses, mortgage rates for homeowners, and the value of stocks and bonds. It’s tempting to guess what the Fed will do next, but history shows that it’s a tough game to win. The better approach is to stick with a long-term plan.

2. Global Growth and the Dollar
   
   Last year, international stocks beat U.S. stocks for the first time in years, helped by a weaker dollar. Will that trend continue?
   
   If global growth holds up and U.S. rates stop rising, the dollar could stay under pressure.
   
   A softer dollar makes overseas investments more valuable for U.S. investors and often helps commodities like oil and metals.

Why it matters: Currency moves can swing returns in the short term, but the bigger story is diversification. Owning investments in different regions helps smooth out the bumps when leadership shifts. Leadership changes in markets don’t happen overnight. While international stocks had a strong year, we’re not ready to make a big shift just yet. We remain overweight to U.S. stocks compared to international, but within international markets, we continue to favor emerging economies. For now, we’ll keep a close eye on this trend and adjust as the picture becomes clearer.

3. Corporate Earnings and Productivity
   
   Stock prices ultimately follow company profits, and that became very clear in 2025. For much of the last few years, market gains were driven by what’s called multiple expansion—which simply means investors were willing to pay more for each dollar of earnings. Prices went up faster than profits. That can work for a while, especially when interest rates are low, but it’s not sustainable forever.
   
   Last year was different. The market’s strength came from earnings growth, not just higher valuations. Companies actually made more money, and that’s a healthier sign for a bull market. When profits rise, it gives stock prices a solid foundation instead of relying on optimism alone.
   
   Looking ahead to 2026, we believe earnings and productivity gains—especially from technology—will be key drivers. Earnings should act as a “support level” for markets, even if volatility picks up.

Why this matters: Over time, profits are what keep markets moving forward. Strong earnings can make stocks attractive even when the economy cools. For long-term investors, this reinforces the value of owning quality companies that can grow through different cycles. Markets may swing, headlines may shout, but in the end, fundamentals win.

Closing Thoughts: Lessons That Still Matter

If 2025 taught us anything, it’s that markets have a way of surprising us. Forecasts called for trouble, yet investors who stayed the course were rewarded. That’s a powerful reminder of a few timeless truths.

First, expect surprises. No one can predict every twist and turn, and last year proved that even the most confident forecasts can miss the mark. Second, diversification works. Leadership in markets changes—sometimes suddenly—and having exposure to different regions and sectors helps smooth out those shifts. And finally, volatility is normal. Even in a strong year, markets had their bumps along the way. Those who stayed disciplined came out ahead.

Looking to 2026, the big picture hasn’t changed. Markets reward patience and discipline over time. Instead of trying to guess what happens next, focus on staying diversified and aligned with your long-term goals. Last year was a great reminder that the best strategy is often the simplest one: stick to the plan.