If I had told you at the start of this year what the headlines would look like, you probably would have guessed the market would struggle.

Trade tensions. Tariffs. Policy whiplash. Growth scares. Interest rates. Post-election political noise.

And yet, here we are near year-end with stocks having logged another record-setting year.

So, what happened? And more importantly, what should we take from it as we head into 2026 with your plan intact?

The Thread That Ran Through the Whole Year: Policy Didn’t Just Matter, It Moved Markets

Well, after the election and into the January inauguration, markets began pricing in a new policy direction. Early optimism around pro-growth expectations gave way to something more complicated and that’s uncertainty.

And the fact of the matter is that uncertainty does not just make headlines feel louder. It changes behavior as consumers hesitate spending, businesses delay investing and market participants reprice risk.

And that policy uncertainty became the steady drumbeat behind most of 2025’s major moves.

Q1: From Optimism to a Valuation Reset

Now, to understand where we’re going, we often need to understand where we came from.

Indeed, you’ll likely recall that the S&P 500 hit an all-time high in February before markets took a breather.

So, what changed?

Well, simply put, valuations reset. What this means is that many investors became less willing to pay top dollar for future earnings as plans out of Washington led to more uncertainty. And when the market’s mood shifts, prices can fall even if fundamentals are still solid.

At the same time, the mega-cap tech stocks that carried the market in 2024 became a drag in early 2025. In other words, yesterday’s winners stopped winning, at least for a season.

Then we got the Q1 GDP headline that the economy shrank, which got the market’s attention.
In fact, the data put a spotlight on why growth dipped, and a big part of the answer came from behavior around tariffs.

To be sure, what the data showed was that imports surged as businesses and consumers pulled forward purchases to get ahead of higher prices. Government spending also appeared to fall on a quarter-to-quarter basis, which mechanically dragged GDP lower.

In other words, the data was real, but the story underneath it was nuanced.

And that is why we kept coming back to the same point: the economy can slow without breaking, and markets can fall without it meaning that something is fundamentally wrong.

April: The Market Tantrum (and the Quick Recovery)

Now, if Q1 felt uneasy, then early April felt like panic.

That’s because a sweeping tariff announcement from the Trump administration escalated the trade war narrative, prompting the S&P 500 index to drop more than 10% in a week.

But where things got interesting is that shortly thereafter, the administration paused tariffs, and the market clawed back most of the decline by month-end.

This behavior was essentially a preview of what we saw repeatedly this year which included policy headlines creating short-term market drama that moved faster than the underlying economy.

So then, by mid-year, we had lived through two completely different quarters.

Q1 was caution. Q2 was rebound.

Indeed, markets found their footing as some tariff fears proved less disruptive than expected, headlines softened, and corporate earnings held up better than many feared.

But even then, things still did not feel settled. For many of us, it felt like there was still another shoe to drop. That’s because markets can recover faster than confidence does.

Nevertheless, the market snapped back near highs while sentiment stayed shaky, in part because tariffs were paused in 90-day windows and deadlines kept moving. While this approach didn’t lead to a concrete resolution to trade uncertainties, it did give markets breathing room.

In other words, the real story wasn’t “everything is fine.” The story was, “markets are pricing in a middle path, and they’re doing it before the human heart feels ready to believe it.”

Q3: New Highs, Softening Labor, and a Fed That Finally Moved

Either way, investors began looking past the uncertainty and in the third quarter, markets pushed to new highs again.

Earnings stayed resilient as AI continued to dominate headlines, trade tensions eased somewhat as tariff deadlines were repeatedly pushed out, and market breadth improved.

What this means is that more parts of the market contributed to the overall rally, including small caps which finally broke above their old 2021 highs.

These optimistic moves in the market happened even as incoming data showed that the US economy was in transition. That’s because by late summer, labor market data softened as unemployment rose to around 4.3% and job growth slowed meaningfully.

And that shift mattered because it changed the Federal Reserve policymakers’ position on interest rates.

Indeed, after a long pause, the Fed cut rates in September, framing it as a risk-management move to keep the expansion on track, not an emergency response.

And this distinction is important because a “panic cut” feels like trouble, while a “risk-management cut” feels like a central bank trying to extend the runway.

Q4 Into Year-End: Record Highs… With a Quieter Story Under the Surface

No matter how you cut it, it has not felt like a normal year. And yet the market has quietly spent a lot of time at record highs, with the S&P 500 setting dozens of new all-time highs.

But the more important detail is that even with breadth improving from earlier in the year, much of the strength has been narrow.

That’s because AI has remained the dominant theme, with enormous investment flowing into chips, cloud infrastructure, and data centers. Those moves have boosted major indexes because the biggest companies have the biggest weight.

So, you can have a market that looks strong in headlines while the “average” stock feels far less exciting.

And that disconnect is why the emotional experience of investing rarely matches the scoreboard.

Even so, this is why we keep emphasizing two principles at the same time throughout the course of the year: Stay invested and stay diversified.

The Planning Lesson of 2025: Don’t Waste a Good Rally, and Don’t Fear the Next Dip

To be sure, one of the most practical messages we repeated this year was that pullbacks are not unusual, and in fact, they are to be expected.

Dips of a few percent happen regularly, and 5% corrections happen multiple times in many years.

So, what do we do with that?

We prepare.

And that preparation is not pessimism. It’s how you participate in the upside without losing your footing when markets take a breather.

So then, as we look to the year ahead, we continue to home in on two key principles:

1. Cash reserves
   Working investors: typically 6–9 months.
   Retirees or near-retirees: often 12–18 months.
   Because the last thing you want in a downturn is to be forced to sell at the wrong time.
2. Tax-aware opportunities when markets dip
   Market weakness can create windows for strategies like Roth conversions and other planning moves that can improve long-term after-tax outcomes.

Remember, the goal is not to predict the next pullback. The goal is to know what you will do when it comes.

A Look Ahead to 2026: AI Optimism, Real Opportunity, and Real Risk

As we step into 2026, it helps to start with a simple expectation that the economy does not need to be great for your plan to work.

Right now, the most reasonable base case is continued expansion, just not a boom like parts of the post-pandemic expansion. Think steady but unspectacular growth that looks more like low two percent than the kind of upside that makes every risk feel justified.

Indeed, the first half of 2026 may also feel slower as a few of the same forces we wrestled with in 2025 keep showing up. Tariffs are still a drag at the margin, more folks are choosing to retire and the productivity boost everyone wants to see usually arrives later than the market hopes.

Inflation Concerns Linger

And while growth is one immediate concern, inflation is the second part of the equation where investors can get tripped up. That’s because inflation does not have to reaccelerate to create stress. It simply has to stay sticky enough that the Federal Reserve cannot pivot quickly and aggressively the moment markets get uncomfortable.

In that environment, rate cuts can still happen, but they are more likely to be measured than dramatic. And this matters because “easy money” is not the same tailwind it was in prior cycles, and it means returns tend to feel more earned.

So then, when you put those pieces together, you get a familiar setup historically that includes a normal economy, inflation that stays above 2%, and a Fed that has less room for deep cuts below what it considers neutral.

Market Outlook

And what does this mean for the markets?

Well, the key narrative is still likely to be AI, and the capital spending wave is real. We anticipate that this investment cycle can support growth and earnings. Nevertheless, the market has already built a lot of optimism into prices, especially in the biggest growth names.

And when expectations get stretched, the risk is not that the theme disappears. So then, the risk is that the timeline disappoints, competition shows up faster than expected, or leadership rotates while investors are still anchored to the last set of winners.

This is why I want to be careful about how we think about “upside” in 2026. Yes, there are scenarios where things run hotter than expected and risk assets do very well.

Nevertheless, our expectation is for a year where the economy keeps moving, inflation stays firm enough to keep the Fed cautious, and markets have less room to absorb surprises.

In that kind of year, concentration risk tends to show itself faster, and valuation matters more than it did when liquidity was abundant.

That brings me to what I think is the most practical takeaway heading into the new year.

Staying Disciplined for the Long-term

If 2025 reminded us how quickly narratives can change, 2026 looks like the year where discipline gets rewarded. Not by avoiding every bout of volatility, but by being positioned so you are not forced to make decisions on the market’s timetable.

This is also a moment where bonds deserve more respect than they have gotten in the past decade. When yields are meaningful, high-quality fixed income can do two jobs at once. It can provide real income, and it can add stability if stocks go through a period where expectations cool off.

That’s why the best forward-looking risk-return profiles are increasingly found in high-quality fixed income, and why a more balanced stock-bond mix has a stronger case than it did when yields were near zero.

On the equity side, I still expect the market to be pulled in two directions. In the near-term, earnings can remain supportive, even with modest growth. And in the longer-term, the market is wrestling with a more complex reality with high expectations, crowded leadership, and the simple truth that technology cycles tend to produce new winners over time.

That is one reason value-oriented stocks and international developed markets look more compelling on a forward-looking basis than simply doubling down on U.S. growth at any price.

The Big Takeaway

When it comes down to it, as we head into 2026, AI remains the central economic and market storyline likely to dominate attention. And while it may feel like this theme is growing tired, there is still a balanced way to hold the story.

AI can be a genuine economic tailwind through capital investment and productivity gains. At the same time, solid economic upside does not automatically guarantee strong stock returns from today’s market leaders, especially when expectations and valuations are already high.

That’s why, heading into next year, we continue to emphasize quality, diversification, and the discipline to avoid building a portfolio that is overly dependent on one theme.

Because even when a theme is real, leadership can change.

And history has a way of reminding us that tomorrow’s winners often look different than today’s.