2025 Markets Review and the Year Ahead

With 2026 underway, markets have faced a new set of geopolitical and policy headlines. In late January, Greenland and Venezuela became focal points for investors – introducing fresh uncertainty and renewed questions around broader dynamics.

Markets reacted abruptly to developments around the United States and Greenland, with a sharp decline pushing the Dow Jones Industrial Average lower by more than 800 points on January 20, 2026 before a partial recovery followed (Source: Yahoo! Finance). Sentiment improved on January 21, 2026 after remarks from President Trump at the World Economic Forum in Davos, where he indicated the United States did not intend to use military action and canceled the potential punitive tariffs, easing immediate concerns and helping stabilize risk appetite (Source: CNBC).

While early 2026 has already delivered its share of headline-driven volatility, understanding where markets have been can help frame expectations for the year ahead. 2025 was the third consecutive year of double-digit equity returns, a stretch not seen since the late 1990s, and it also featured meaningful drawdowns followed by swift recoveries (Source: MFS Beyond the News). Leadership was highly concentrated, with the top ten largest stocks in the S&P 500 driving index-level performance (Source: Forbes). Last year, roughly 31% of S&P 500 constituents outperformed the index, while early this year that figure has moved above 60%, a sign that performance may become less dependent on a small cohort of mega-cap names (Source: Sequoia Financial).

Additionally, international equities and emerging markets outperformed U.S. stocks in 2025, small caps advanced, and infrastructure exposure contributed (Source: Blackrock). Valuation differentials help frame the relative risk and return profile across those exposures. International and emerging markets traded at lower multiples than U.S. large caps, and a weakening dollar provided an additional tailwind (Source: Baird Asset Management).

Return expectations for 2026 may be more measured after three strong years. Historically, the second year of the presidential cycle has been more challenging, which can create meaningful drawdowns and potential entry points for disciplined rebalancing (Source: Nasdaq).

Turning to fixed income, bonds are offering income levels that are materially higher than the pre-2022 environment, which can provide a hedge to equity volatility, while contributing to total return (Source: Madison Investments). The yield curve has also shifted into a more normalized shape as of January 21, 2026, with longer maturities offering higher yields than shorter maturities, a configuration that has historically not aligned with elevated recession expectations (Source: NY Fed). Recent data has also supported a relatively constructive backdrop, with unemployment around 4.4% (Source: Bureau of Labor Statistics) and inflation readings coming in below expectations (Source: Bureau of Labor Statistics), as of January 21, 2026.

As this year progresses, we believe in remaining diversified and maintaining a disciplined approach.

Important Disclosures:

• This commentary is for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security.
• Forward-looking statements are based on current market conditions and are subject to risks and uncertainties. Actual results may differ materially.
• Past performance does not guarantee future results. All investments involve risk, including possible loss of principal.