Market Update January 15, 2026
2025 was a great year for stocks despite having been down nearly 20% in early April due to concerns about President Trump’s tariff plans. For the S&P 500, it marked the third straight year of double-digit returns. Over the past three years, this index has averaged a lofty 23% annualized rate of return. If there is a downside to this, it is that this index is now very richly valued. At these levels, price to earnings ratios are more likely to compress than expand, which increases the importance of continued earnings growth to drive future returns. The margin for error is slim.
For the year, the S&P 500 was up 17.9%. The primary foreign stock indexes did even better with the MSCI EAFE index of established foreign market stocks up 31.2% and the MSCI Emerging Markets index up 33.6% in U.S. Dollar terms. Approximately 10% of the return of the MSCI EAFE index was attributable to weakness in the USD. Despite the big run-up in foreign stocks, they still remain inexpensive compared to the S&P 500. It truly was an incredible year for the major global stock indexes.
The gains in precious metals in 2025 were mind-boggling with gold and silver up approximately 65% and 142%, respectively. Much of the gains have been attributed to a weakening USD and geopolitical concerns. In the case of silver, adding further fuel to the gains were increased industrial and investor demand combined with limited supply. Amazingly, an ounce of silver is now worth more than a barrel of oil, which is an extremely rare occurrence. Bonds had a good year as well with the Bloomberg US Aggregate index up 7.3%.
Of course, there are always areas of concern with regards to the outlook for the financial markets. 2026 is a mid-term election year. Historically, the second year of a President’s term is the weakest for stocks. With regards to the mega-cap technology stocks, the circular financing taking place between vendors to fund investment in artificial intelligence is starting to resemble a stack of cards.
If a bear market in stocks occur, bonds should provide some measure of protection – unlike 2022 when bond yields were paltry in the midst of rampant inflation. Bonds may not provide the protection investors desire if the cause of the financial market turbulence is a rise in long-term bond yields. One thing that could cause yields to rise would be concerns about the independence of the Federal Reserve Board. Jerome Powell’s term as Chairman ends in May, though he may stay on the Board of Governors until 2028. There are concerns that a more politically motivated chairman could result in more stimulative monetary policy than conditions warrant, leading to higher inflation and bond yields. These would weigh on bond prices due to the inverse relationship between yields and prices. Should the spread between short term bonds and the 10-year Treasury bond return to more normal levels, we could see a meaningful increase in the yield on the 10-year. This would likely weigh not only on bond prices but stock prices too. I believe shorter maturity bonds remain the better choice for now as they would be much less impacted by a rise in yields.
After a year such as this, investors may be tempted to take their chips off the table and seek cover out of concern of an imminent crash. I was recently reminded of the famous quote by Peter Lynch, the former mutual fund manager with the Fidelity Funds, who wisely stated: “Far more money has been lost by investors trying to anticipate corrections, or trying to time the market, than has been lost in the corrections themselves.” I couldn’t agree more. Regardless of any concerns you or I may have, stocks have been going up with many of the major stock indexes recently hitting new highs. This is a very positive backdrop for stocks.
We wish you a healthy and prosperous new year.
Sincerely,
Glenn S. Rank, CIMA®
Certified Investment Management Analyst®
President
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· The S&P 500 is an unmanaged capitalization-weighted index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The S&P 600 Index is a capitalization weighted index comprised of 600 stocks viewed as having a relatively small market capitalization, chosen for market size, liquidity, and industry group representation. The MSCI EAFE index and the MSCI Emerging Markets index are unmanaged indexes compiled by Morgan Stanley Capital International that are generally considered representative of the developed international stock market and emerging international stock market, respectively. International securities involve additional risks including currency fluctuations, differing financial accounting standards, and possible political and economic volatility, and may not be suitable for all investors. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The Bloomberg US Aggregate Bond index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the U.S. Inclusion of these indexes is for illustrative purposes only. Note that bond prices rise when yields fall, and vice versa, due to the inverse relationship between bond prices and yields. Keep in mind that individuals cannot invest directly in any index and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.
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