Originally published for clients on January 15th, 2026.
Big Picture
“May you live in interesting times” – Old Chinese proverb that never truly gets old
The world is changing rapidly. Both domestically and abroad, the mood seems very different than any other time I’ve experienced. Foundational social, political, and economic structures everywhere are being challenged and changed – perhaps some for the better and some for the worse – and it feels like these changes are accelerating at a pace not seen since the last global power shifts of the 20th Century.
For investors, change is a very normal thing, and it can present tremendous opportunities. Change, though, is what humans fear the most. We derive our confidence from certainty, and more specifically, from what we can control. As we see the incredible shifts in power happening around the world, I think it’s interesting that Americans seem to find tremendous certainty in the one thing that may as well be the definition of “change”: the U.S. stock market.
Americans have reached a new record in stock market participation. This high participation paired with extraordinary returns has delivered a powerful wealth effect on the U.S. economy. It has helped older Americans maintain their quality of life in retirement, parents pay for their children’s educations, charities achieve their missions, and businesses to raise critical capital. While all this is undoubtedly positive, I fear that if certainty in the market wains and participation falls, the negative consequences on the stock market and economy could be much longer lasting than anything we’ve seen this century.
To be clear, we are by no means a sleuth of market bears. Current economic conditions favor rising asset prices. However, as evidenced by the many wild events of recent years, things can change very, very quickly. We continue to stress to our investors that risk management through proper diversification is critical. Good times are good while they last, and they never last forever.
Equities
As Good as it Gets
The term ‘Goldilocks’ refers to the economic state of high growth and low inflation. Though it may not feel like a thriving economy to the average American worker, the United States is clearly experiencing accelerating growth and falling inflation. Stocks, industrial and monetary commodities, and credit (high yield, low credit quality debt) tend to do very well in this environment. With major equity indexes at all-time highs, many commodities soaring, and credit spreads tightening, asset owners are doing phenomenally well.
The past several successive years of extraordinary gains have collectively dwarfed nearly all the earlier years in this epically long secular bull run that began in 2009. Earnings growth from American companies has been the strongest in the world, but price multiple expansion has been the primary driver of American equity returns. On nearly all major measures of valuation, the S&P 500, dominated by just a handful of super-mega tech companies, is among the most expensive it has ever been.
Arguments against owning stocks in the current economic environment ought to stop there.Earnings among the major U.S. market leaders remain robust, and for the first time in a long time, the undervalued parts of the market are quietly beginning to outperform. Small and mid-cap companies have delivered big performance spreads over their larger peers this quarter. Price multiple expansion could still push the biggest companies in the U.S. to higher prices, but a far more deregulated and stimulated economy has the potential to maintain out performance of the ignored parts of the market.
Looking around the rest of the world, both developed and emerging markets have absolutely walloped the U.S. large-cap market since the beginning of 2025. Lower valuations and a weaker dollar have helped, as well as strong earnings growth from a large basket of foreign-domiciled businesses. For long-term investors, we believe emerging markets are the most exciting opportunity. With huge and growing populations, loads of natural resources, and rising access to the internet and other extremely useful technologies, these economies could experience much more rapid growth, and thus higher market returns, for decades to come.
Fixed Income
No News is Good News
Bonds, especially short maturities, have performed reasonably well over the last year. With inflation expectations declining and the Fed’s sizable rate cuts, bondholders have been rewarded with a positive pricing environment, solid coupons, and excellent credit quality. As one of our institutional partners described it, “rates are high, the [yield] curve is steep, and bonds are cheap.” Bond volatility has been low as medium to long-term interest rates remained in a narrow channel, possibly because the dire warnings of trade-related inflation have not come to fruition.
Our expectation is that bonds in general will perform just fine in this Goldilocks environment. Some components of the bond market, however, may lag other assets due to their lower perceived value. For example, longer-maturity treasuries could be deemed unnecessary by investors, since solid economic conditions don’t warrant owning safe havens. Still, Treasuries offer an attractive yield over other low-risk assets, such as bank CDs or money markets. Risk-averse investors looking for alternatives to falling short-term bank rates would be well served to consider treasuries for their (theoretical) lack of credit risk and attractive long-term real yields.
The greatest opportunity in the bond market, in our opinion, lies within the high yield space. Sub-investment grade bonds, often referred to as “junk bonds,” may offer similar upside to the broad equity markets with less price risk and a high income stream. If the economy sours, however, investors holding junk debt should expect to see significant volatility.
Precious Metals
“Labour was the first price, the original purchase, money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.” –Adam Smith
Gold and silver have stolen headlines in recent months due to their explosive price appreciation. More subtlety, platinum and palladium have also joined the rally, and both metals have seen historic price increases in a very short period of time.
The most common thesis behind owning precious metals is that they serve as a monetary hedge, or in other words, protection against currency devaluation. In the case of gold specifically, this has definitely been the case. Gold has maintained its purchasing power very well over many decades. Additionally, large movements in the price of gold has sometimes preceded economic and geopolitical crisis, giving it a reputation as a sort of “doomsday predictor”. Silver, Platinum, and Palladium, on the other hand, don’t seem to have as much success as a monetary hedge and are far more economically vulnerable given their multitude of industrial applications.
Curiously, gold has actually outperformed the S&P 500 on a total return basis since the start of the millennium. There is much debate as to why this is the case, but perhaps the most sensible explanation is that money supply has increased at a pace that exceeds the earnings growth of the stock market over the last two decades. Each financial market trauma, be it the NASDAQ bubble in 2000, the Great Financial Crisis, or COVID, was met with significant monetary and/or fiscal stimulus.
The argument against owning gold for investment purposes, is that it doesn’t do anything. As Adam Smith noted in The Wealth of Nations, labor is the fundamental instrument of value in an economy, not gold or silver. No one becomes wealthy in real terms (absolute growth of purchasing power) simply by buying an inanimate object that maintains purchasing power. Wealth is generated through the ownership of businesses that make or do productive things.
Precious metals also have a storied history of booms and busts. The last famous silver price spike occurred in 1980 when Nelson and William Hunt, supposedly for religious purposes, attempted to corner the silver market which resulted in silver rising above $50/oz. The subsequent crash financially ruined the hunts and many other investors.
My belief is that owning gold, and perhaps silver as well, is a good way of preserving purchasing power in a world of inflating fiat currencies, and they can serve as a form of “crisis hedge” in portfolios. However, aggressively allocating to these metals with the objective of growing your wealth over a long period of time may not be the best strategy, and thus investors looking for positive real rates of return should generally look to buy or lend to businesses that can grow and compound their earnings.
- Jason D. Smith, CFP®