2026 Market Commentary – Find the Balance Danielsan!

Written by: Aaron Simpson | February 10th, 2026

As I sit and type in my office, it’s 4 degrees Fahrenheit outside! Since we’ve been limited to more indoor activities of late, I’ve been able to slow down and reflect on both last year and the year ahead. I wanted to kick this off with a direct quote from last year’s commentary:

“History tells us that the 1st year of a new presidential cycle is often a good one for market returns. Given all the factors at play, I am cautiously optimistic about 2025 market outcomes, but that will come with a lot of volatility. As I sit here and ponder that very sentence, when do people ever say there isn’t going to be volatility? That’s why it’s the stock market! If we can control what’s in our control – our financial plan, our investment and tax strategies, and our mindset, I don’t have a lot of concern for all the “mess” that may come from politics. Certainly, politics will influence markets maybe now more than ever before, but I’m confident in our forward-looking planning with each of you and the methodologies we practice together.”

Well, the S&P 500 Price index officially ended 2025 up +16.39% in 2025. With that said, if I take out my microscope and zero in on April 8 th, 2025, the year-to-date return was sitting at negative -15.28%. It speaks exactly to the message delivered a year ago: there will be a lot of volatility in the market.

Upon my personal reflection on the year, I am thankful and appreciative for each of you, your trust and confidence in our team, and the fact that every one of you were resilient through the “tariffs” news cycle and remained committed to your plan through those challenging conditions. It’s safe to say that everyone reaped the rewards of a longer-term mindset last year on the more aggressive pieces of the portfolio.

As we turn the page into 2026, I think there are a few ideas to be mindful of going forward that can influence financial markets. My theme for 2026 comes from one of my favorite all-time classic movies, “The Karate Kid” and Mr. Miyagi’s advice: “you must find the balance!”

When the market is ripping along as it has, investors are less inclined to want to hear about being diversified and balanced. Diversification is the maximization of regret, after all! You hate it when you don’t need it, but you regret it when you don’t have it – by the time you realize you need it, it’s too late. (Does this concept ring a bell about your “risk score” profile?)

According to Blackrock, 2025 was one of only eight times since 1926 that the market has posted three consecutive years of gains over 15%.

It’s safe to say that it’s been a pretty incredible ride from a market standpoint. Now, while there are a lot of reasons to be optimistic it will continue into year four, there are some topics I want to address to keep you mindful of what we are keeping our eyes on internally this year.

AI

As I speak to each of you throughout the months of the year, it’s interesting to hear the differing opinions and feelings about “the future of the markets.”

At least twice a week I get asked, “Aaron, what do you think the markets are going to do over the next 12 months?”

You also know that I rarely (if ever!) give an exact number because like you, I don’t have a crystal ball. What I do like to talk about are the factors that can influence the outcomes. When it comes to US Domestic markets, corporate earnings are the main story in 2026.

With regard to tech company dominance, will the expectations for growth finally outweigh the reality of corporate profitability or will we continue to hit all-time highs for gains?

A very well-informed friend of mine in the industry who happens to be the Chief Investment Officer for a $40B RIA firm as well as a Chartered Financial Analyst (CFA), shared that AI could very well become the fourth great industrial revolution. It is driving enhancement in human productivity, innovating robotics and healthcare, not to mention wealth creation. Regardless of personal feelings on AI, it’s hard to ignore these advancements as being anything other than incredibly bullish for long-term market projections.

With that said, the debate is how soon and how much. When will all the spending that is going on translate into above-expectation earnings on the corporate level? If perception starts to wane in this area, markets could get choppy, especially in the tech sector.

40% of the S&P 500 is now comprised of the top ten holdings. That is a historic concentration level at the top of the index. On the flip side, folks that talk about us being in an AI bubble will

Most of the growth focused companies are placed strategically inside your “later buckets” in the portfolio, with insulation built in via private investments, buffered ETF’s, and structured notes in your “soon” bucket, with safe haven alternatives for income in the now bucket.

We need to be able to simultaneously answer the following questions to successfully “find the balance” in your portfolios:
a) What if this incredible growth continues for another year?
b) What if this trajectory changes going forward?

I’m not a rocket scientist by any means, but those are two very conflicting thoughts! Balancing those ideas can be tricky and each of you will have a different thought relative to your risk score and time horizon for income.

Last year, our primary portfolio adjustment was adding more international pieces to the portfolio. This was to help add another dimension to reduce concentration risk as well as take advantage of the outperformance occurring in non-US opportunities. Continuing to take a global approach to investing will make sense as we look at a more traditional “nationalistic” style of policy across the world with less US reliance being a political theme to continue to monitor.

Affordability

According to the AP, 40 of the 54 elections in western democracies saw the incumbent lose since the pandemic. On a global scale, people have been unhappy and looking for changes in leadership almost across the board. To me, this political turmoil centers around affordability.

In my view, both sides of the political aisle domestically are trying to “win” this word going into mid-terms. Currently, we are in a “K-shaped” economy. Those who have investible assets and stock market portfolios are witnessing significant growth and prosperity with those assets. In the meantime, those who are living paycheck-to-paycheck are feeling the pinch of grocery prices, utility bill spikes, etc. The question becomes – how can and will this prosperity continue for markets while also solving the challenge for those struggling on the other end of the spectrum? Whoever successfully rallies and “solves” that puzzle for their constituents likely wins the midterms in my opinion.

There are a lot of levers being pulled to attempt to tackle this affordability concept currently:

• Increased tax refunds under the ‘Big Beautiful Bill’
• Extension of lower tax rates
• Capping credit card interest rates
• The discussions around tariff dividend checks (it’s not happening officially yet)

At the same time, we have utility and grocery prices remaining higher than normal and the elevated real estate market that discourages younger homebuyers are headwinds to this issue.

Regardless of the diverse political views and opinions across all clients, politics (left and right) does play a factor in the outcomes of market performance. Tax legislation, geopolitical factors, the appointment of a new Fed Chair in May, etc. will all have a role in the outcome for stock market returns in 2026.

Up Capture vs. Down Capture

To take a bigger picture view than just last year, the S&P Price index has averaged close to 12% annual returns over the past 5 years now. The S&P over the past 30-years has averaged a little north of 8% annually. That illustration is worth noting just how much higher than the average we have been in recent past.

Everyone tends to be a lot more comfortable having a risk discussion when the market is ripping along like it has. However, sometimes the thought can form: “the market is up X and I’m only up Y.” As stated above, the S&P is increasingly reliant on the tech sector to dictate returns. The explanation for this statement is the diversification and risk reduction strategies we’ve implemented to efficiently capture an appropriate amount of risk-adjusted return.

On the contrary, if you are in the camp that you’ve been thrilled with the gains you’ve received, yet fearful for the inevitable pullback, my advice to all would be this:

If the asset allocation of your portfolio is appropriate in calm times, then it will still be appropriate during volatile times.

Allow me to repeat our portfolio strategy – we want to have some “soon” bucket investments that aren’t fully exposed to the swings of the market and some “now” bucket income that isn’t exposed to market downturns. How do we properly align defense into the portfolio to help you navigate distributions that you have to take out of the portfolio annually?

To provide an example, there is an investment manager (Veta) we use in the majority of your accounts. To keep it simple, one of their “funds” target is to get 70-75% of the gain of the market, with only “risking” 60% of the downturn of the market. While you aren’t getting all the upside, the efficiency of risk management is ideal for funds that have a nearer term time horizon or for more conservative clients in general.

Nobel Laureate Harry Markowitz described diversification as the “only free lunch” in investing since it is the most efficient way to reduce risk without necessarily sacrificing long-term expected returns. You’ll always have some “underperforming” assets while others are protecting you. It’s a strategy for long-term success.

In Summary:

How will all of these themes ultimately impact inflation? Here’s what’s worth noting – inflation wears away both ends of the growth equation. It affects future cash flows and earnings of larger companies that can impact their growth, which we’ve all benefitted from holding in our portfolios the past three years. As a result, inflation can stunt wealth accumulation and purchasing power for US households that can continue the snowball affect surrounding the affordability issue.

Interest rate projections are currently at one or two cuts by year-end, but this could be up in the air after Fed Chair Powell’s term comes to a close in May. Additional cuts could create an extra explosion of growth, but bring red-hot inflation into the mix alongside of it with more money and lower rates. The variables are vast and outcomes will be influenced by how these scenarios play out over the coming year.

To provide some comfort like I shared last year, there are always variables affecting markets. Ultimately, we can control our behavior, our risk profile and our reactions to these factors.

Our team will be monitoring how the diversification opportunities continue to shift as the year plays out. I encourage each of you to leverage our team to help you navigate the news cycle this year. If you ever get to the point you feel like your risk score is out of tolerance or you need to move money from your later bucket to soon bucket strategies, that’s a great time to give us a call.

Confidence in your plan is just as important as the technical metrics of your portfolio – we must find the balance Danielsan!