2026 Considerations: GDP Drivers, The S&P 7, Rates and Data, Int'l Markets

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Happy New Year!! We hope you enjoyed a festive and relaxing holiday season with family and friends. This is your annual reminder that New Year’s resolutions, on average, only realize a 10% success rate. Research suggests this is due to viewing resolutions as mere aspirations, rather than a process to be managed. However, we believe in you and your discipline to systematically achieve your goals! You got this!

2025 was another eventful year, full of twists and turns. Studying geopolitical, market, and economic events is one thing. We’ve all done it to a certain degree. Living the events is a different thing. What feels like a ‘black swan’ to some investors is not at all to others simply because they’ve taken more laps around the sun. Looking back to when we started our company and took our first client, we’ve experienced the 2018 trade war, COVID, War and Peace abroad, generational inflation, subsequent rate hikes, major bank failures, direct U.S. military intervention, record government shutdowns, and four U.S. bear market drops of -20% (2018, 2020, 2022, 2025). Each year, I try to go back and write down all the major events and ask myself “without hindsight, did we miss something?” The answer is always that none of these events could be predicted with the specificity and certainty required to beat a disciplined and diversified approach. As we embark on a new year, let’s not waste time predicting, let’s take time preparing.

Now, let’s review 2025 and go through key themes and considerations for 2026.

All major indices increased in 2025. International Developed and Emerging Markets led performance.

• Emerging Market Stocks (MSCI Emerging Index): +4.26% Q4, +34.36% YTD
• International Stocks (MSCI EAFE ): +4.30% Q4, +31.89% YTD
• U.S. Stocks (Russell 3000): +2.07% Q4, +17.15% YTD
• U.S. Small Cap Stocks (Russell 2000): +1.94% Q4, +12.81% YTD
• U.S. Bonds (Bloomberg Barclays Aggregate Index): +0.85% Q4, +7.30% YTD

Headline GDP numbers are set to finish strong with an annualized pace of 5.3%, and 2026 expectations are in the 2.5-3% range. As we discussed in our earlier commentaries, the trade-driven, negative GDP of Q1 was whipsawed back to positive territory, as imports normalized. Anticipating steep tariffs, companies frontloaded imports in early 2025, resulting in a significant decrease in imports in late 2025. Consumption remains strong, which is 68% of GDP, though tariff uncertainty caused business investment to slow in Q4. Expect the moving target of tariff policy to impact GDP again in 2026.

International markets closed the gap in 2025 (see first bullet point), and a repeat of Global GDP growth is expected at 3-3.5% in 2026. The U.S. dollar weakened relative to major currencies in 2025, which boosts international investors domiciled in the U.S. (like 994 Group clients!). Markets and economies outside the U.S. appear poised for another steady year in the face of geopolitical shifts. Capital flows and trade around U.S. policy, central banks’ accommodative stance, a weaker dollar, and improved earnings drive the expectation. Remember, we don’t know exactly who the winners will be in terms of company, sector, or location. For example, Denmark has led all stock markets since 2000! This doesn't mean we put all the chips in with Denmark, rather, it is a reminder that proper diversification is about owning the top performers over time.

Most U.S. investors are not actually diversified. The top seven companies (A.I.) of the S&P 500(r) represent 38-42% of the total index value. Talking 'bubbles' is cheap. The more important question is, what do you do about it if it is a 'bubble'? With the benefit of hindsight, what's most interesting about 'bubbles' is the initial winners are rarely the ultimate winners. Speculating early is what harmed the dot.com investors. However, diversifying and letting the internet take hold actually beat the U.S. market. So, again, what do you do?

• Create and execute a plan for your family, taking into account your personal headlines.
• Diversify across asset classes, companies, capitalizations, geographies, and issuers, recognizing that A.I. is not highly concentrated in other markets!
• Build runways with cash and relatively secure assets maintain lengthy time horizons for your stock allocation.
• Don’t speculate on the winner, let innovation take hold.

The Fed is in an accommodative stance and may not reduce the fed fund rate at all next year. And remember, the Fed sets the overnight lending rate. ALL other rates are market driven. The Fed has a dual mandate - position the US economy for full employment and stabilize prices. If employment remains in the 4-5% range and inflation remains 2-3%, there is likely not a catalyst for a rate change. Further, both the Fed funds rate and inflation rate are already below the historical average. The wild card in the Fed’s rate decision making is the data - due to the government shutdown, price data is unknown for a lengthy period of time, meaning the denominator of the year over year equation is an estimate. This adds a challenge to 2026 decision making. So, while inflation is still a pesky thorn in everyone’s budget, absent meaningful shifts in employment and consumer spending, rates may just stay steady.

Ukraine. Venezuela. Greenland. Gaza. Iran. Cuba. Taiwan….the geopolitical chess game continues. Threats of military action are always disconcerting. Throughout history, countries have always acted in their perceived best interest, resulting in conflicts, big and small. The current Russian invasion of Ukraine has burned on for nearly four years! The loss of life and humanity is irrefutable, yet from the perspective of an investor, the geopolitical event must be separated from a market event and impact. We subscribe to multiple think tanks, always striving to see the big picture, and we simply must acknowledge markets price in these events every moment of the day. Venezuela, for example, has essentially no stock market, and their current oil production is <0.1% of the global output. Markets increased to record highs the day after Maduro's capture. These moments are a reminder to stay the course rather than a catalyst to make large, speculative shifts.

Sifting through the abundance of new year outlooks is always interesting. Insight quickly devolves into prediction rather than preparation, when the reality is we don't know what is going to happen tomorrow, much less in the next year, with the specificity required to make it productive. It’s more productive to recognize reality and prepare for volatility. Looking back over the past century, stock markets experience a pull back of 10-20%, every year, on average, even when the full year has a positive return. So, as you maintain discipline in sticking to your plan in 2026, let’s also ask the often overlooked question: what could go right? Well, a lot could go right. People, markets, and economies are resilient.

Optimistically yours,

994 Team

Sources: Ycharts, dimensional.com, LSA Analytics, JPMorgan, Lord Abbett, First Trust Economics, Mitch Zacks on the Markets, Vanguard.com, Blackrock.com, Schwab Asset Management, Eurasia Group, Geopolitical Futures, Fred.com, ATL Fed GDPNow



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This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

Index Disclosures:

Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.

Index Definitions:

Gross Domestic Product Price (GDP) measures changes in the prices of goods and services produced in the United States, including those exported to other countries. Prices of imports are excluded.

The Consumer Price Index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies.

Barclays U.S. Aggregate Bond Index: The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of fixed rate debt securities rated investment grade or higher by Moody’s, Standard & Poor’s, or Fitch rating services. All issues in the index have at least one year to maturity and an outstanding par value of at least $25 million to $1 billion based on the type of security. Indices are not available for direct investment and do not reflect any fees that may be charged.

S&P 500®: The S&P 500® index is an unmanaged index of 500 companies used as a representative sample of the United States economy. The S&P 500® index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charged.

MSCI EAFE: The MSCI Ex-US index is an unmanaged index used as a representative sample of the global developed economy outside of the United States and Canada. The MSCI EAFE index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charged.

MSCI Emerging Markets: The MSCI Emerging Market index is an unmanaged index used as a representative sample of the global emerging market economy outside of the United States. The MSCI Emerging Market index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charged.

The Russell 2000 index is an unmanaged index of the 2000 smallest companies in the Russell 3000 index. The Russell 2000 Index is used as a representative sample of the small companies in the United States economy. The Russell 2000 index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charged.

The Russell 3000 index is an unmanaged index of 3000 companies in the United States. The Russell 3000 Index is used as a representative sample of the United States economy. The Russell 3000 index consists of only stock holdings. Indices are not available for direct investment and do not reflect any fees that may be charged.