After Another Good Year in 2025

What Might 2026 Bring?

Bull Markets don’t die of old age. Bull Markets are born on pessimism, grow on skepticism, mature on optimism, and die in euphoria – Sir John Templeton

Or as some say, Bull Markets don’t die of old age…the Fed kills them.

A year ago, the S&P had just completed back-to-back years with 20%+ returns (26% in 2023 and 23% in 2024). Skeptics felt certain that the market had to correct. They were right. The S&P was only up 16% in 2025.

In defense of skeptics everywhere they had good reason to be worried. Simple reversion to the mean would suggest we were due for more modest stock market returns. Few pundits went further out on the forecasting limb than to predict 4-7% gains on the S&P in 2025.

When April the 2^nd came along with the US tariff plans the bears seemed to be vindicated. Alas the market decline while deep and painful was short lived.

In the 38 years I have been managing money for myself, and others; one skill has proved very valuable. The ability to tune out the noise, Bullish or Bearish. Avoid “psychological expectations” such as believing the market just has to go down or up. The market does not have to do anything. In fact, if I allow myself one psychological expectation it would be that the market will do whatever fools most investors most of the time.

The only way to invest with above average success is to tone down your emotions and work with the facts.

Referring back to Sir John’s famous quote, I believe that at the present time the markets are growing on skepticism as they approach optimism and there is little data to suggest we are in a state of euphoria. Here are the facts that lead me to believe this.

According to a CNN Market Sentiment report dated January 5, 2026, their Index of Fear and Greed are at a neutral level of fifty-two. (One hundred being extreme optimism and zero being extreme pessimism). The index monitors net 52-week individual stock price highs and lows as well as the number of option contracts betting on a market decline (puts) compared to the number of option contracts betting on the market going up (calls).

I can hear you all saying to yourselves “yes but there are only 7 - 10 stocks responsible for the majority of the gains”. It cannot be ignored that a select group of Mega Tech companies have had outsized growth in the last few years. But it is not as though there are no other sectors of the markets experiencing strong gains.

Financials, health care stocks, pharmaceuticals and Small Cap companies are near their all-time highs. But ok, let us look at the big tech companies, are they in a “Bubble”?

A recent line of bearish reasoning says that large Semi-conductor companies engage in “Circular Financing,” the practice of loaning your customers the funds they need to buy your goods. This harkens back to the “Dot Com” bubble days when companies like Nortel and Cisco shipped goods to customers with less than stellar credit. It is true that this type of financing is occurring now but there are major differences in the customers buying the goods today. Microsoft, Alphabet, Amazon, and Meta are not the same as Pets.com or Napster. They expect to increase their capital spending by 34% to $440 billion in 2026. These companies are cash rich, using the enormous cash flow they generate to fund their purchases. (Henry Ren, Bloomberg in Fortune 01/04/26)

Another data point to consider is the massive stock price gain in anything AI related. I am not supposed to make individual stock recommendations in these market commentaries but there is a major chip manufacturer out there whose share price has risen twelve times in the last 5 years. If you look closer, you find that the same company’s share value is much cheaper now than it was 5 years ago. Its price /earnings multiple was 74 x times in 2021, and it is 47x today. You must consider the annual growth in earnings to the P/E ratio or the “PEG “ratio. Not just the current P/E. Contrast this with the market darling, Cisco, at the height of the Dot Com era. Its PE was over 200 and its earnings were declining.

In 2001 the tech leaders of the day saw earnings decline by 65%. Today’s Tech giants forecast earnings growth an average of 15% next year. Data Centres are being built for current demand and by companies with fortress like balance sheets. (Kristy Akullian- iShares Market Insights, 11/6/25)

Prof. Paul Marsh- London Business School studied 125 years of previous market bubbles. He finds that all previous society changing events like electricity, the radio or railways created stock market bubbles. Railway companies represented 63% of the stock market valuation in 1900. I agree that we are in an inflating bubble at present. AI is a society changing event and investors ignore fundamentals at their peril. I disagree, however, that the bubble is near bursting. What I am laser focused on these days is any sign that the big tech leaders are missing expectations for sales and revenue.

It would be irresponsible of me to ignore the soaring prices in today’s market. I have mentioned Tom Lee of Fundstrat in my previous market commentaries. He has a well documented history of accurate market opinions, and we have done well to follow his advice. He has been consistently bullish for the last 3 years in the face of much opposition. Even Tom feels that the market will have a decline of approximately 15% -20% at some point this year. Not because of any economic trouble but simply because there will be price adjustment (down) to some of the most popular companies out there. Tom’s S&P target for year-end 2026, however, is 7,700 or better than +10% higher than today. (CNBC Squawk Box, Mon. Jan 5/26) I am in agreement with Tom. A sharp correction is very possible but that is not the same as a 2008-like long, drawn-out bear market. Timing a correction is not only difficult it has proven to be a good way to reduce your long-term investment returns.

Stick with an asset allocation (growth stocks/ income stocks/ fixed income low risk securities/ cash) that is in keeping with your risk tolerance, your capacity for risk, investment objectives, time frames, and cash needs. This is not a disclaimer it is common sense. As always, my team and I are here to review your individual situation, and we welcome your calls.