Market Views
Posted 01/08/2026
No man is so harmlessly occupied
as when he is making money.
- Samuel Johnson
Our National Passion…..Markets continued to set new records in 2025, and the combination of solid earnings growth, AI tailwinds, and further Fed easing should support global equities in the coming year. AI and big tech stocks once again drove the rally, on the back of robust demand for AI infrastructure and cloud services. The Nasdaq Composite rose 20.4%, the Dow gained 13.0%, and the S&P 500 advanced 16.4%.
Current valuations are high compared to long-term averages. The S&P 500 forward price-to-earnings ratio, is at 22.6x, and remains heavily concentrated, with the top 10 stocks by market cap making up 40% of the index weight. The bullish sentiment extended beyond equities as credit markets and commodities enjoyed strong gains Gold, historically a contrarian hedge, soared 64.5%.
Concerns about the U.S. economy’s growth prospects and a continuing trade war led more investors to look overseas for stocks at attractive prices. International stocks outperformed their U.S. counterparts by the widest margin in 16 years. The MSCI All Country World ex-USA Index, which tracks developed and emerging market stocks, was up around 35% in 2025 on a U.S.-dollar basis. That beat the S&P 500, which was up 16%. In contrast, South Korea’s Kospi was up 64%, Germany’s DAX increased 22%, Japan’s Nikkei 225 climbed 24% and the U.K.’s FTSE 100 rose 18%. Compared to the S&P 500’s 23x projected earnings over the next 12 months, Japan’s Nikkei 225 recently traded at 21x and Hong Kong’s Hang Seng multiple was about 12x.
Our sector preferences remain unchanged, with constructive views on financials, information technology, communication services, health care, and utilities. Investing in U.S. markets is tantamount to a concentrated bet on the development and proliferation of AI. The market faces a high-risk, high reward environment driven by AI disruption, weakening labor demand, and concentrated earnings in a few mega-cap tech stocks. Cyclical sectors and consumer stocks are in an earnings recession, while AI hyper-scalers and related sectors outperform, creating a top-heavy, fragile market.
The Fed and government is shifting from fighting inflation to stimulating cyclical growth, with potential balance sheet expansion and lower rates despite persistent inflation. Diversification is challenging, but unloved cyclicals may become embraced again, expecting a market-broadening trend as AI capital flows accelerate and policy support increases.
In fixed income, we expect the coming months to be shaped by slowing growth, the Fed’s pivot toward easier monetary policy, and fiscal pressures that could heighten volatility. While the yield curve steepened in 2025, the curve may flatten in the short term given a more dovish Fed outlook. With spreads at their tightest in recent years, yield is a key driver of returns. We continue to prefer high yield and investment grade bonds in the intermediate area of the yield curve, allowing investors to lock in yields at historically attractive levels.
In 2026, questions about AI-driven growth and affordability pressures are set to affect large parts of the economy, driving wider divergences across markets. The past year marked a coming-of-age moment for building AI value, alongside tariff shocks, a divided Federal Reserve, rising public and private debt burdens, and sharper economic polarization. Heading into the new year, our view is generally constructive, supported by cautious central-bank normalization, front-loaded fiscal support, and elevated cash on the sidelines, even as disparities across markets, consumers, and the economy widen.
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Technology and the Human Psyche..… Although we live in a digital world connected by undersea cables pulsating with bandwidth, wireless signals bouncing off satellites, and large portions of human knowledge encapsulated in silicon chips, what we need and want remains very basic and enduring. The power of the physical, the material and tactile qualities of human interaction maintain its hold over us and reaches deep into our hearts and minds. In crucial situations, the personal connection – direct contact with a human touch – remains the most compelling and reliable.
The technology revolution has profoundly transformed our society and economy; it also provides a catalyst for us to react to market information. In the current context, our infatuation with technology has altered the nature of human relationships, driving workers out of factories and office buildings, and dispersing them back into decentralized clusters and into their homes. However, digital communications leave much less opportunity for the kind of subtle, physical communications that we relied on in the past. Moreover, instant accessibility demands instant responses and thus alters mutual expectation in a fragmented, over-saturated and hyper-specialized world.
As in prior periods of great technological advancements, technology brings material progress, but it also threatens man’s psychic connection to each other and to nature. The many advantages of modern telecommunications and information innovations simultaneously create the disadvantage of disconnection. Such fundamental changes results in the uncomfortable adjustment of many economic, social, and psychological certainties.
Technological connectivity challenges our concepts of effective communications. In an era of fiber-optic networks and computerized transactions, we still nevertheless value physical and mental proximity. This quality is hard to quantify, much less replace. We are not robots with preconditioned responses and no amount of sophisticated technology will make us so. However, we do more than tune in and listen to the worldwide transmission and exchange of information; we interact with it. This worldwide electronic nexus informs, entices, and seduces us and we, in turn, respond to it.
For better or for worse, techno-consumerism now drives major sectors of global free market capitalism. Technology and the endless gadgetry that it brings offer a powerful narcotic to the masses. There is a sharp acceleration in the amount of discretionary time people are now connected to technology. The information age has made so much information available to consumers. So much information, but so little knowledge. The pace of our modern, technology-driven life compresses attention spans and creativity. As more and more megabytes of data are compressed onto microscopic bits of silicon, the more we realize that good answers demand even better questions. Information has replaced knowledge while data gathering supplants human understanding. The convergence of the silicon chip, digital transmission technology and the human brain has dictated that information, however excessive and irrelevant, must constantly be placed in front of us for processing. The ubiquity of technology in our lives sets up a constant tension between productivity and frenetic busyness.
In many ways, we are laboring under the shadow of a burnout society. Under the illusion that the more information we have, the better off we will be, most people are willing to browse the digital landscape for news, entertainment, gossip, and otherwise mindless excreta. We are compulsively drawn to the stimulation of ever-changing incoming data. The electronic apotheosis of our mass media culture persuades us that a constant flow of information leads to understanding and that frequent communications create a sense of community. The volatility of this information barrage has also changed our sense of time and priorities.
With limited time for each incoming bit of data, we react to data rather than reflect on what is important. But information, whether real or fictional, has a seductive power to engage its recipient. It has the power to inform and bemuse us, but also the capacity to deceive and distract. The more information we process, the more difficult it is to act thoughtfully on any part of it. Banality and superficiality are the predominant qualities for what passes as information these days. This becomes more widespread as we sink deeper into the age of technology and mass telecommunications.
