We hope the New Year finds you and your families healthy, prosperous, and well positioned for the opportunities ahead. As we begin 2026, we sincerely appreciate the trust you place in us and we remain focused on delivering strategic investment management alongside intentional, anticipatory planning.
2025 – A Strong Year for Markets and Strategic Equity Management
2025 was an excellent year for markets and we are proud of the strategies that we implemented for clients. In the last days of 2024 (for retirement accounts) and early part of 2025 (for taxable accounts), we shifted our equity overweight to neutral. Following the correction driven by the tariff announcement in early April (for which we expect an imminent Supreme Court ruling on the application of tariffs), we added back to our equities during the opportunity window. We are happy to discuss your personalized 2025 returns at your convenience.
Market Outlook for 2026
Our 2026 Forecast: Looking ahead, we expect 2026 to continue the broader trends established in 2025, though with more muted overall returns. We anticipate new market highs, with the S&P 500 expected to eclipse 7,000 early in the year and we could see the S&P 500 climb above 7,500 throughout the course of the year. Market reference points matter (such as S&P 7,000), and global equity strength remains evident, as highlighted by the FTSE (UK) recently surpassing 10,000 and the Nikkei (Japan) near all-time highs.
While our intermediate-term outlook remains optimistic, we anticipate a market pullback/correction in the second quarter or third quarter of 2026 as the headlines change to the mid-term election in November. Importantly, we view this expected volatility as a buying opportunity, not a signal of deteriorating fundamentals, and one that aligns well with our strategic portfolio positioning. This view can be changed by sudden shocks to the market or unexpected events like a global pandemic, but these shocks are met with yet more stimulus and further overall upside.
Interest Rates and Leadership Changes at the Federal Reserve: We expect two (2) interest-rate cuts in 2026, with additional downward pressure on rates driven by an anticipated change in Federal Reserve leadership. A new Fed Chair is expected by June, and the new appointee is expected to usher in a more accommodative policy stance, reinforcing the shift toward lower rates. Corporate earnings are projected to rise as the business environment remains favorable for economic growth. Lower interest rates are likely to improve activity in the residential and commercial real estate markets which have been relatively frozen since interest rates spiked in 2022.
The 2026 Mid-Term Election: The November mid-term elections will generate consistent headlines from late summer through Election Day. Historically, however, the party in power has lost the mid-term elections in 18 of the last 20 cycles, and markets have generally navigated these transitions well, often responding favorably to reduced legislative uncertainty and political gridlock. We also believe market strength in 2026 is being reinforced by the Trump Administration’s desire to support positive economic and market outcomes heading into a contentious mid-term election to avoid the challenges faced after the 2018 mid-term election losses.
Our Active Portfolio Management and Rebalancing: We have been actively rebalancing the portfolios we manage to position clients for the next phase of the market cycle. Adjustments within retirement accounts were largely completed toward the end of 2025, allowing us to realign risk efficiently without immediate tax consequences. We reduced our equity overweight to +2% above the respective individual client allocation targets. As we move through early 2026, our focus has shifted to rebalancing taxable accounts, where changes are being implemented deliberately and, in a tax sensitive manner. This positioning provides flexibility and liquidity, allowing us to layer into buying opportunities as expected volatility and as market dislocations emerge. Tax harvesting is an important tool we monitor, but can be limited when a portfolio carries minimal losses.
Key Risks and Portfolio Oversight on the Radar for 2026
While our outlook for 2026 remains positive, we believe disciplined portfolio management requires acknowledging and actively monitoring the risks that could influence markets over the course of the year. While every outcome cannot be predicted, our approach is to remain prepared, flexible, and positioned to respond as conditions evolve.
Geopolitical and Global Risks: Geopolitical tensions remain a persistent backdrop to global markets. Current areas of concern include developments in Venezuela, Iran, and Yemen, each of which carries implications for energy markets, global trade routes, and regional stability. Individually each of these are more regionalized and absorbed by the strength in the global economy. Russia and China carry more global impact and closer align to these hotbeds of unrest, thus we watch the headlines closely as day by day a new cold war emerges. We have limited our investment in these markets and focus more on developed nations and other pro-capitalism emerging economies.
Policy, Political, and Election-Related Uncertainty: As we approach the November mid-term elections, political rhetoric and headline risk are expected to increase meaningfully from late summer through Election Day. We closely monitor policy developments, particularly those affecting taxes, regulation, and fiscal spending, but remain focused on fundamentals rather than political noise.
Monetary Policy and Interest Rate Sensitivity: Although we expect lower interest rates in 2026 - supported by anticipated rate cuts and a change in Federal Reserve leadership - markets may periodically react to shifting expectations around the timing or pace of policy adjustments. Interest-rate-sensitive sectors and assets may experience short-term volatility as investors recalibrate. Our portfolios are structured to manage this risk through diversification, duration awareness, and selective exposure rather than reliance on a single macro-outcome.
Economic Headwinds to Monitor: Several potential economic headwinds warrant attention if they arise:
● Slowing but Positive Growth: While GDP growth is expected to remain positive, it may moderate from prior levels, contributing to more muted market returns even as new highs are reached.
● Lagged Effects of Prior Rate Hikes: The impact of restrictive monetary policy over the last several years continues to work its way through the economy, particularly in interest-rate-sensitive areas such as housing, commercial real estate, and certain segments of consumer credit. Lower rates will help shift the real estate market to an economic positive as investment becomes more affordable and reaccelerates.
● Artificial Intelligence (“AI”): AI is revolutionary. We are still early in its adoption. AI will lead to job losses as some roles will be eliminated by AI efficiencies. The work force will need to retool and move to AI growth roles in the technology space or leverage manufacturing growth as we continue to onshore more production. AI linked companies will play a major role in swings in the S&P 500 as the “Magnificent Seven”, accordingly to a Bloomberg analysis of the S&P 500 weighting, comprises 35% of the index.
● Corporate Margin Pressure: Rising labor costs and input expenses could pressure margins for some companies, even as overall earnings growth remains positive.
● Liquidity Events and “Unknown Risks”: The next market-moving event is often unforeseen. We assume that unexpected developments will occur and manage portfolios accordingly, rather than attempting to forecast their exact source or timing.
OBBB Tax and Wealth Planning Considerations
The OBBB ushers in a new tax frontier – which looks familiar to the landscape since 2018 with several improvements and most importantly, more stability now that the impending sunset has passed. The OBBB introduces several provisions that are particularly relevant and noteworthy:
● Pro-Growth, Capital-Friendly Policy Environment: Continued support for investment activity, capital deployment, accelerated depreciation, and business expansion, which benefits corporate earnings and long-term equity valuations. The return of “bonus depreciation” is an accelerant for clients who own real estate and capital heavy businesses.
● Rate Stability and Planning Visibility: Relative stability in tax rates allows for more confident multi-year planning around income timing, Roth conversions, capital gains realization, and portfolio rebalancing decisions.
● Estate Planning Opportunities: Under current law, the IRS guideline for the federal estate tax exemption has increased to $15 million per individual and $30 million for a married couple. This expanded exemption creates meaningful opportunities for lifetime gifting, trust planning, and long-term wealth transfer strategies – with more certainly for the time being.
● New Charitable Giving Opportunity – Above-the-Line Deduction: A notable OBBB provision introduces an above-the-line charitable deduction, allowing eligible charitable contributions to provide a tax benefit even for clients who do not itemize deductions (there are no caps or thresholds). In 2026 and beyond, IRS guidelines permit single filers may receive a $1,000 deduction and married filing joint may receive a $2,000 deduction. We encourage all clients to consider this benefit and contemplate selecting a charity for the outright donation (donations to a DAF are not applicable).
Supportive Market Backdrop As We Enter 2026
While we expect turbulence in 2026, several powerful tailwinds remain in place. We believe the following will help to propel the markets in 2026;
● Oil prices under $60 would continue to support economic and market momentum.
● Inflation pressures are being addressed through lower interest rates and rising GDP, rather than economic contraction.
● Major bull-market themes include rising GDP, declining interest rates, a supportive Federal Reserve, a weaker dollar over this time last year, tight credit spreads signaling limited systemic risk, and as of late 2025, Business Insider estimates approximately $7 trillion remains on the sidelines in money market funds and short-term treasuries (which we believe will be fuel for the markets).
This remains a “Goldilocks” environment, and as always, we believe in the axiom: don’t fight the Fed.
Administrative Note – Goldman Sachs Remediation Fund Check
If you received a check from the “Goldman Sachs Remediation Fund” and have not spoken with us about it, please contact us. We will be coordinating with clients individually on this matter. In the interim, please do not cash the check until you have consulted with us.
We look forward to discussing your personal financial growth in the New Year and how we can design a customized approach for you and your family. As always, that you for being the best part of PB FAM Private Wealth! Please do not hesitate to reach out with any questions.
Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.
Past performance is no guarantee of future results.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.
Diversification and/or rebalancing does not protect against market risk.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.