It’s hard to believe we’re already into 2026, but as we flip the calendar, the good news is that the year is starting much like the last one ended: on solid footing.
In December, the Federal Reserve lowered interest rates one more time by 0.25%. That move was widely expected, and it has helped reinforce the idea that inflation is largely under control and that the Fed feels comfortable enough with the economy to continue its easing policy gradually.
The U.S. economy continues to grow, although at a slightly slower pace than earlier in 2025.1 That slowdown was the story for much of the second half of last year, and most economists see it as a normal cooling rather than a warning sign. Consumer spending – one of the biggest drivers of economic growth – remains strong overall, though it is becoming more uneven.2
Higher-net-worth consumers are still spending freely, while lower- and middle-income households are feeling more pressure. Inflation over the past few years raised the cost of everyday goods and services, and while inflation has now settled below 3%, those higher prices are probably here to stay. A $100 expense from a few years ago might now be $120, and that difference adds up, especially for households on tighter budgets. Add higher credit card debt from post-pandemic spending, and it’s easy to see why some consumers are pulling back.
Still, taken as a whole, inflation appears to be under control, the economy remains resilient, and there’s no clear sign of a recession on the immediate horizon.
Markets Still Strong
From a market perspective, 2025 was a very good year. Stocks finished the year up nearly 17% despite a flat performance in December, and here in early January, major indexes are flirting with record highs. The S&P 500 is hovering near 7,000, and the Dow Jones Industrial Average is approaching 50,000, which are levels we’ve never seen before.3
It’s worth noting, however, that a large portion of last year’s gains once again came from just a handful of very large tech companies. The so-called Magnificent Seven tech stocks continued to have an outsized impact on the overall market. What’s encouraging, though, is that we’re now starting to see more participation from the rest of the market. In other words, market gains are widening out, with more of the other 493 companies in the S&P 500 beginning to contribute more. Historically, that kind of broader participation is a healthy sign.
Is it healthy enough to help ensure another strong year in 2026? Well, nothing is certain, and forecasting the markets has become more challenging than ever. With so much artificial manipulation from the government and global economic uncertainty, forecasting models based on historic trends just aren’t as reliable as they once were.
That said, the fundamentals right now remain reasonably strong: the economy is growing, inflation is under control, and the markets continue to show resilience, even in the face of ongoing and emerging geopolitical risks and other potential “black swan” events. As long as these trends and conditions hold, many economists believe markets can continue to do well in 2026.
Your Portfolios
As for your portfolios, it’s no surprise that clients with more stock market exposure generally saw higher overall returns thanks to Wall Street’s strong year. For those in our more conservative income portfolios of bonds and bond-like instruments, the average return for the year, depending on your individual holdings, was about 5.5%, which is right in line with our target goal.
Of course, for retirees, interest and dividend income are what matter most. Even if market values fluctuate, you know your income continues to be paid. Your strategy helps give you more reliable income regardless of market conditions and greater peace of mind, which is just as important. So, if you’re comfortably meeting your needs and goals at 5–6% while keeping ahead of inflation, then staying the course probably makes sense.
On the other hand, everyone’s situation is different. So, if you don’t need all your income right now and have a little “fear of missing out” as the markets remain strong, we can always talk about adjusting your portfolio to seek additional growth. On the flipside, if market conditions have you feeling like you’re taking more risk than you’re comfortable with, we can talk about dialing things back a bit.
Whether you’re happy where you are, interested in a bit more growth potential, or simply want to review your strategy, we’re here to help. Please don’t hesitate to reach out if you have any questions at all or would like to talk through your portfolio.
Here’s to a healthy and prosperous 2026!
Sources:
1 https://www.bea.gov/news/2025/gross-domestic-product-3rd-quarter-2025-initial-estimate-and-corporate-profits
2 https://www.bea.gov/data/consumer-spending/main
3 https://get.ycharts.com/resources/blog/monthly-market-wrap/#:~:text=Market%20Summary:%20Financial%20Sector%20Leads,%2C%20which%20was%20down%202.1%25.
January Recipe: 3-Ingredient Cranberry-Brie Bites
Ingredients:
- 1 (7 to 8 ounce) prepared pie crust (1/2 of a 14-ounce package)
- ½ cup prepared cranberry sauce or homemade
- 3 ounces Brie cheese, cut into 24 pieces, divided
- 1 tablespoon chopped fresh chives (Optional)
Directions:
- Preheat oven to 450°F. Lightly coat a mini muffin tin with cooking spray.
- Unroll pie crust onto a cutting board or clean surface. Flatten the dough to about 12 inches in diameter. Cut 24 2-inch circles out of the dough with a biscuit cutter, rerolling scraps if needed. Place the dough circles in the prepared muffin cups, gently pressing on the bottom and sides. Prick the dough with a fork. Bake until lightly browned, 5 to 7 minutes. Remove from the oven.
- Add 1 teaspoon cranberry sauce to each cup, then top with a piece of Brie. Return to the oven and bake until the sauce is hot and the cheese has melted, about 5 minutes more. Let cool for 10 minutes. Sprinkle with chives, if desired, and serve warm.
The 3-Ingredient Cranberry-Brie Bites recipe: