2025 Year-End Newsletter

FOURTH QUARTER AND NEW YEAR NEWSLETTER 2025-2026

To the surprise of many, 2025 was a very good year for investment markets. Franklin Templeton reported in "What Happened Last Year," the S&P was up 17.9%, the DJIA 14.9%, and the NASO, 21.2%. Foreign Stocks (represented by the MSCI EAFE Index), were up 31.9%. Market Pundits had predicted a generally weak market at best going into 2025; and with 2025 January's S&P coming in at around +3% and tensions mounting on the Tariff front, it seemed they might be right.1 But as the 1st quarter came to close, the market was telling a different story. In the end more was accomplished through tariff negotiations than predicted, and the impact on domestic and foreign economies was much less onerous. While President Trump led the charge of many who doubted the U.S. Economy could avoid a recession with the Fed's ongoing reluctance to resume the short-term rate cuts they'd begun at the end of 2024, the economy continued to deliver. At the last 2 Fed meetings of the year, they voted for reductions. Pundits were concerned all year consumers would run out of confidence; but Griff Curtin of Franklin Templeton, reported in "What Happened Last Week" 12/9/25, that consumer spending "on the winter holidays is expected to reach a new record $902/person on average across gifts, food, decorations, and other seasonal items."2 Many predicted Bitcoin would be a big winner in 2025, but it was volatile all year and fell 30% from its peak by year end. It wasn't just the professional analysts who suffered. Forbes Magazine recently reported they'd interviewed 34 Billionaires late 2024 to learn how they predicted the S&P would fare in '25. Nearly 1/2 predicted a flat or negative. 35% predicted only single-digitated growth, and just 7 of the group came close to the actual performance.3

If you're a football fan, you may have noticed that Market Pundits are not the only ones who seemed to be gazing into snow globes instead of crystal balls last year. Sports analysts by the score saw their track records take a beating as they began picking winners in the NFL football season. As championship teams from the previous year started to fall apart, they began looking for underdogs who might carry the day. A humorous example of their lack of success is making the rounds on YouTube. The host of ESPN's Live Crew airing on Jan.16, ahead of the Houston/New England game that Sunday, was startled as she and the panel members realized all had picked Houston, the underdog, to win. Their horrified expressions and actions played out live as one member walked off video twice, and another demanded a redo.4

Thinking about struggles both financial and sports analysts had, we were curious if any had explanation for their poor records, and maybe some shared reasons at that. We looked at a frequently used resource in the investment world for insight on forecasting market performance. Economist Michael Lebowitz, wrote in "Tis the Season for Wild Guesses" 1/12/26 - Advisor Perspectives, "Like Wall Street, we could spitball a price estimate for the S&P 500, but why? It's a fruitless endeavor." He argues that no one has insight into "all the countless events that may occur in 2026." If they could, it would still be nearly impossible to determine the actual impact of those events on consumer sentiment and market actions. You can get an event right; but it is the reactions to the event that will determine how the market fairs. Still, the airwaves and print media are filled every Janua1ry with prognosticators who seem not to be chagrined by any lack of success they experienced the year before. Mr. Lebowitz notes there are more questions than answers about what 2026 will bring, and more importantly there surely will be events no one foresaw. Instead of trying to accurately predict actions and outcomes, he says, "we would rather take the market and the news as they come."5 And here is what Google Al gave as some reasons for the dismal performance of NFL Game Pickers this season: A larger than normal number of injuries, in season trades and coaching changes as teams struggled to fix their problems, unexpected outcomes (the impact or result of an event was not the one expected, the unique unpredictability of football, and human biases such as overvaluing recent performances. 6 It does indeed seem there was some commonality between the two.

We CAN identify some likely or already occurring events which could play a role in how the economy and the markets perform this year. One theme is the ongoing battle between the Fed and the administration. Jeromy Powell's term expires in May. In his response to the Jan 23rd subpoena from the Justice Dept., which is investigating the Fed headquarters renovation, Powell proclaims the action is tied to political pressure from the administration over the measured rate at which the Fed is cutting rates. Ben Vaska, commenting for Orion on 01/12/26 in "A Few Thoughts on Jerome Powell and The Federal Reserve," points out that the country has1a long history of separating Fed policy and politics. The Fed's dual mandate, which Powell has often discussed in the past several years, calls for them to conduct monetary policy independent of political influence. In addition, as Chair, Powell doesn't dictate interest rate changes, they are committee driven. A change of leadership doesn't necessarily mean much change at the committee level. Understandably consumers would be glad to see interest rates on consumer debt go down.Vaska comments "while many may applaud any effort to increase the pace of rate cuts," in the hope of reducing the cost of home mortgages and consumer debt, the Fed controls only short-term rates.7 In short, the battle between the Fed and the Administration may continue to get a lot of attention in 2026; but events related to it may not have much actual impact on the market.

Other things we are considering this year are Al and the Magnificent 7 Stocks. In T Rowe Price's, Dec. 2025 Monthly Market Playbook, Tim Murray, CFP, addresses the risk in "Has the Al Boom Turned Into a Bubble?" He agrees that "P/E ratios especially for large cap growth companies have risen to levels reminiscent of the late 1990s, and the 5 mega cap tech giants "have dramatically expanded their capital 13xpenditure plans." But he notes that profitability has expanded alongside valuation, and debt levels are modest, not the hallmarks of a Bubble.8 The Mag 7 have experienced a significant sell-off; and some analysts feel the story of 2026 may be stocks outside the Mag 7 catch up. Michael Lebowitz, our analyst, is loath to make predictions says rotations among sectors in the market sometimes last only weeks or months; it is too early to tell if this is a major trend. But if the economy reflates, "company earnings in non-mag 7 stocks may really pick up; and a longer-term rotation could occur.9

Our takeaway from all this is that many things may happen in the markets this year, anticipated and unexpected. There will be opportunities for investors and not one size fits them all. Goals, liquidity, and risk tolerance are the framework around deciding merits to add or eliminate a position in portfolios. We appreciate how difficult it is to successfully predict market performance (or NFL Football for that matter). So, we'll be watchful as events unfold. We'll continue being mindful of risk and manage it as best we can, sticking with a strategy that has served us well for many years.

We hope you will reach out and plan a visit or conference call with us as the weather improves and we look toward spring. Thank you for the trust you put in us and for your business. Know that we are watching events unfold in the markets and are prepared to play offense or defense as needed. And if you enjoy a good football game, grab some snacks and take in the Super Bowl.

Preston, Debbie, and Katie

1 Franklin Templeton, "What Happened Last Year,” 01/2025.

2 Curtin, Griff, Franklin Templeton, "What Happened Last Week," 2/9/25.

3 Melvin, Simone, Forbes Magazine, "Billionaires Predict the Stocki Markets Performance," 01/01/2026.

4 Lie Crew, ESP, www.Youtube.com, 01/16/2026.

5 Lebowitz, Michael, Advisor Perspectives, "Tis the Season for Wiid Guesses," 01/12/26.

6 Google Al Analysis, Difficulty to Predict the NFL Outcome, 01121312026.

7 Vaska, Ben, Orion, "A Few Thoughts on Jerome Powell and The Federal Reserve," 01/12/2026.

8 Murray, Tim, T Rowe Price Monthly Market Playbook, "Has the Al Boom Turned into a Bubble?" 12/2025.

9 Lebowitz, Michael, Advisor Perspectives, "Tis the Season for Wild Guesses," 01/12/26.