GLOBAL MARKETS EDGE HIGHER AMID UNCERTAINTY
OUR INVESTMENT COMMITTEE’S TOP PREDICTIONS FOR 2026 AND KEY TAKEAWAYS FROM 2025 THE ECONOMY IN 2026: WILL THE GAP BETWEEN CONSUMER SENTIMENT AND MARKET OUTCOMES CONTINUE TO GROW? WHEN TRADE SWINGS OVERWHELM ECONOMIC GROWTH
OUTLOOK JANUARY 2026
LETTER FROM OUR CHIEF INVESTMENT OFFICER
IN REVIEW
FOURTH-QUARTER KEY TAKEAWAYS SPECIAL REPORT: INTERNATIONAL EQUITIES
SPECIAL REPORT: THE CART BEFORE THE HORSE
At the end of 2024, my economic forecast for 2025 was similar to what it had been for the previous year. The year would start off a little slower than anyone would like and would accelerate as the year progressed.
Talk about nailing a prediction.
For the first quarter of 2025, the Bureau of Economic Analysis (BEA) estimates the U.S. economy grew at an annualized rate of 0.3 percent, which isn’t actually growth. However, during the second and third quarters, Gross Domestic Product (GDP) surged to, at the time of this writing, 3.8 percent and 4.3 percent, respectively.1
Wild swings in the trade deficit throughout the year greatly skewed the official GDP data. If you were to strip out all of the noise from international trade, you could conclude that the economy grew at a reasonable, but not quite feverish, pace.
But why was it so difficult to predict trading patterns in 2025?
On April 2, 2025, President Trump announced a so-called “Liberation Day” of economic independence by placing some form of tariff on nearly all countries in the world, some of these quite substantial.2 Fearing this, and the worst, the data suggests American businesses frontloaded their international purchases for the year.
As a result, our trade deficit mushroomed during the first quarter, and shrank for much of the remainder of the year.
Voilà. That Is How 2025 Started Off Slower Than Anyone Would Like, And Then Growth Accelerated As The Year Progressed.
In the meantime, artificial intelligence (AI) became the topic of household conversation, at least at my house. The U.S. bombed Iran’s nuclear facilities. The Federal Reserve resumed cutting the target overnight lending rate. Pope Francis died.
Wildfires consumed much of Los Angeles.
Further, the Dow Jones industrial average (Dow) closed above 45,000 for the first time.3 The Department of Government Efficiency (DOGE) made waves and gave headaches. Riots erupted over ICE arrests and deportations. Conservative Charlie Kirk was killed in Utah. The federal government shut down for 42 days, and the U.S. minted its last penny.
And I saw Coldplay in concert. Again. In spite of all of the turmoil and confusing economic data, investors didn’t appear too concerned, as global stock markets crept higher. In the United States, the S&P 500 posted a total return of 17.86 percent, the Dow climbed 14.92 percent and the Nasdaq increased an impressive 21.17 percent.
All told, by the time the dust settled, the smoke cleared and the cows came home, it was pretty clear, at least in many of the investment markets.
While it would be hard to predict another year of similar returns, it might be even harder to predict another crazy year of headlines similar to those we had in 2025. My experience, however, has been that people are okay with a little craziness and even a little uncertainty, when their balances are going in the right direction.
In a lot of ways, that sums up 2025 well. Thank you for your continued support.
John Norris Chief Economist and Chief Investment Officer
Sources:
Started over 20 years ago, Common Cents is a weekly blog written by Chief Economist John Norris detailing and explaining the events that impact our economy. John distills the latest information, making it easy to understand how these events affect daily life.
READ OUR BLOG: LISTEN TO OUR PODCAST:
In this weekly podcast, Chief Economist John Norris and Portfolio Manager Sam Clement exchange perspectives on the driving factors influencing our economy. Trading Perspectives can be found on Apple Podcasts, Spotify, Google Play, YouTube, and all other major podcast outlets.
SCAN TO LISTEN TO TRADING PERSPECTIVES
1. CBS News – U.S. GDP Grew at a Blistering 4.3% Pace in the Third Quarter (Dec. 23, 2025)
2. Whitehouse.Gov – “My Fellow Americans, This is Liberation Day. April 2, 2025.” (April 3, 2025).
3. Nasdaq – “Dow Closes Above 45,000 for First Time, Nasdaq and S&P Also Set Record Highs” (Dec. 4, 2024)
The views expressed herein reflect the opinions of the author as of the date of publication and are subject to change without notice. This material is for informational purposes only and should not be construed as investment advice or a recommendation regarding any security, strategy or market sector. Past performance is not indicative of future results. All market and economic data are obtained from sources believed to be reliable, but accuracy cannot be guaranteed.
As we look back on 2025, one theme stands out clearly: markets once again appeared more resilient than the prevailing mood. Global conflict, elevated interest rates and persistent questions about economic durability continued to dominate headlines. Yet, much like the years preceding it, the gap between sentiment and market outcomes remained wide.
For many households, progress still felt hard to come by. Confidence wavered, costs stayed top of mind and uncertainty persisted. At the same time, financial markets continued to respond less to speculation and more to fundamentals, particularly within the U.S. economy, where corporate earnings and revenue growth remained highly concentrated.
Against this backdrop, Oakworth’s Investment Committee remained focused on what matters most: separating signal from noise.
As highlighted below, multiple market-changing events throughout the year required thoughtful evaluation of asset allocation considerations as conditions evolved across markets and sectors.
The timeline that follows illustrates how 2025 required discipline, flexibility and a willingness to act without overreacting.
This Year in Review is not about headlines or hindsight. It is about process, how we use data, research and experience to form decisions when clarity is scarce. Our purpose hasn’t changed: to provide steady guidance, manage risk thoughtfully and help clients move forward with greater clarity, even when the path isn’t always clear.
If you would like to discuss how these themes influenced positioning within your portfolio, we invite you to contact your Oakworth wealth client advisor or investment portfolio manager.
7th
Destructive wildfires in Los Angeles begin.
20th Trump is inaugurated as the 47th president of the United States.
27th Chinese tech company DeepSeek roils the artificial intelligence sector.
9th
The Philadelphia Eagles win Super Bowl LIX over the Kansas City Chiefs.
18th
Egypt announces the discovery of the tomb of Pharaoh Thutmose II.
28th
Ukrainian President Volodymyr Zelensky has a contentious meeting with President Trump on air.
2nd
Anora wins the Oscar for Best Picture.
2nd
Firefly Aerospace’s “Blue Ghost” makes a successful landing on the moon.
14th
President Trump issues wide-ranging tariffs on so-called “Liberation Day.”
4th
South Korea impeaches its president, Yoon Suk Yeol.
21st
Mark Carney is sworn in as the prime minister of Canada. 2nd
Pope Francis dies at the age of 88.
6th
Friedrich Merz is elected chancellor of Germany.
8th
Robert Francis Prevost becomes the first American pope. He takes the name Leo XIV.
9th
The FDA approves the first “at-home” test for cervical cancer.
6th
Riots erupt in Los Angeles over ICE arrests and deportations of undocumented immigrants.
16th to 17th
The 51st G7 Summit is held in Kananaskis, Canada, and President Trump exits early.
22nd
The U.S. conducts airstrikes on Iran’s primary nuclear sites.
The views and opinions expressed reflect the judgment of Oakworth’s Investment Committee as of the date indicated and are subject to change without notice based on market conditions or other factors. Statements contained herein that are not historical facts may be considered forward-looking statements and are based on current expectations, estimates and assumptions. Actual results may differ materially.
This commentary is provided for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Economic and market conditions are subject to change. Past performance is not indicative of future results. Indices are unmanaged and cannot be invested in directly.
1st
The Department of Government Efficiency (DOGE) shuts down USAID.
4th to 7th
Floods ravage Central Texas.
16th
The Coldplay “Kiss-Cam Scandal” occurs in Foxborough, Massachusetts.
7th OpenAI releases GPT-5.
15th
President Trump and Vladimir Putin meet in Alaska to try to end the Ukrainian conflict.
22nd
Dow Jones industrial average closes above 45,000 for the first time.
8th
Violent protests in Nepal lead to ouster of the prime minister.
10th
Conservative commentator Charlie Kirk is killed in Utah.
27th
The U.K., Canada and Australia recognize Palestine as a sovereign state.
1st
U.S. government begins a 42-day shutdown.
3rd
Dame Sarah Mullally becomes the first female archbishop of Canterbury.
21st
Sanae Takaichi becomes the first female prime minister of Japan.
1st
Los Angeles Dodgers win the 121st World Series over the Toronto Blue Jays.
12th
The last U.S. penny is minted.
20th
President Trump signs legislation to release the socalled Epstein Files.
10th
The Federal Reserve makes a third rate cut to a 3.5 percent–3.75 percent target range.
13th to 14th
Fatal back-to-back shootings occur at Brown University and Bondi Beach.
19th
EU approves a $105 billion loan for Ukraine.
References to market conditions, economic trends or portfolio positioning are general in nature and may not reflect the experience of any individual client. Portfolio construction, asset allocation and investment decisions are made on an individual basis, taking into account each client’s objectives, risk tolerance, time horizon and financial circumstances. Not all clients will hold the same investments or strategies.
Despite a temporary federal government shutdown during the fourth quarter of 2025, markets (much like the 2025 World Series) played extra innings and held firm, even as confidence lagged and hiring slowed. Investors showed continued interest in artificial intelligence (AI), precious metals and stability over fear.
The U.S. government officially “shut down” during the fourth quarter of 2025, and the U.S. economy didn’t fall apart. While plenty of people across the country felt impacts from the government impasse, it seems Washington D.C. might have been hurt worst of all.1 That isn’t terribly surprising.
As measured by the S&P 500 index, U.S. stocks crept higher during the fourth quarter. This was the case, despite numerous public opinion polls suggesting Americans were scared about the economy and the markets. 2 So, are investors wrong? Are pollsters wrong? Or is consumer sentiment just doing one thing and saying another?
According to the Bureau of Labor Statistics (BLS), beef prices were up 15.8 percent over the 12 months ending in November 2025. The reduced domestic supply of cattle, combined with continued strong demand, has led to higher prices and hit wallets hard. So, should we now consider cheeseburgers inelastic goods?
The unemployment rate rose to a four-year high of 4.6 percent in November 2025. While most of the weakness seems to have come from the lack of federal government hiring, the private sector created jobs at a slower pace during the fourth quarter. The labor market remains historically strong, but the recent slowdown in overall conditions raises questions about consumer spending going forward. 3
Although hiring has somewhat cooled, corporate America layoffs remained limited, creating what some are calling a “low hire and low fire” economy. 4 The downside is that we are not creating many new consumers. The upside is that workers apparently feel secure enough in their jobs to keep spending. Combined, it points to stable, if unremarkable, consumer growth ahead.
Everybody loves a good story, and this includes U.S. stock investors. The story in artificial intelligence (AI) continues to propel the tech sector higher. Many people appear to feel that AI will fundamentally change our lives and how we conduct business. In short, AI appears to be here to stay.
Despite more games than ever, college football’s bowl season seems to have lost a lot of its luster. Including the playoffs, there were more than 40 postseason games, many including teams with losing records. Further, some teams with winning records, most notably Notre Dame, opted out entirely. So, has what was once a lot of fun and a reward for having a good season reached a saturation point for both fans and players alike?
The 2025 World Series was what some media outlets called “a series for the ages.” It featured a thrilling 18-inning game, and the deciding Game 7 went into extra innings. According to the television ratings, people who haven’t watched an MLB game in years tuned in to watch. Despite complaints about the LA Dodgers’ payroll and talent advantage, this year’s final contest was, indeed, a classic.
Precious metal prices, notably silver and gold, had an amazing run during the fourth quarter of 2025. According to Bloomberg, on Sept. 30, 2025, the spot price for silver was $46.65 per ounce. On Dec. 22, 2025, it closed at $69.04 per ounce. During that same time frame, gold climbed from $3,858.96 per ounce to $4,443.61 per ounce. This move may suggest that global investors like hard assets when geopolitical conditions are tense, among other things.
The Federal Reserve cut the target overnight lending rate twice during the fourth quarter. The final 25-basis-point cut (0.25 percent) on Dec. 10, 2025, was the result of a 9-3 vote, the first time three members dissented since September 2019. Does this mean the Fed is as confused by the economic data as the rest of us?
During the fourth quarter, the European Union (EU) appeared to be at something of a crossroads. The debate among investors became readily apparent that it needed deeper integration in order to compete with China and the United States, or risk growing more irrelevant. However, would any reform at this point be too little and too late?
According to Bloomberg, at the end of the third quarter of 2025, the U.S. 10-year Treasury note had a yield to maturity of 4.152 percent. On Dec. 22, 2025, it was 4.167 percent. Essentially, with everything that happened in the country and the world during the quarter, not much changed.
SOURCES:
1. Washington Business Journal, Shutdown Took Toll on D.C.-Area Economy, Dec. 15, 2025.
2. Gallup, U.S. Economic Confidence Index, latest available data.
3. Federal Reserve Bank of Dallas, Consumption Concentration May Be Up, Adding to Economic Fragility, Nov. 25, 2025.
4. U.S. Bank, U.S. Labor Market: Low-Hire, Low-Fire Economy, Oct. 22, 2025.
This commentary is provided for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Economic and market conditions are subject to change. Past performance is not indicative of future results. Indexes are unmanaged and cannot be invested in directly.
Year-end data told a fragmented story, from incomplete government data and uneven analyst forecasts to strong corporate earnings and fading consumer confidence. Are we overwhelmed? Underwhelmed? Or just … whelmed?
John Norris
Due to the federal government shutdown from Oct. 1, through Nov. 12, 2025, the investing public didn’t have access to a significant amount of pertinent economic data. After all, if the workers who compile things like the Consumer Price Index (CPI) and the Employment Situation Report aren’t actually working, we don’t get the information they normally compile.
To be sure, private sector firms like the Institute of Supply Management (ISM), ADP, the Conference Board, the National Federation of Independent Business (NFIB) and others released their data on schedule. However, in a lot of ways, investors were somewhat in the proverbial dark about the true health of the U.S. economy.
While the information from private sources is certainly helpful, the various federal agencies issue the official data, for all intents and purposes. If the Bureau of Labor Statistics (BLS), the Bureau of Economic Analysis or the Census Bureau doesn’t report it, it effectively didn’t occur for statistical purposes. At least as far as their data sets are concerned.1
In fact, the BEA now estimates the U.S. economy shrank 0.6% during the first quarter of 2025. However, pretty much all the decline was due to businesses stocking up on their inventories and otherwise front-end loading purchases to stay ahead of the administration’s tariffs. Obviously, this caused our already-bloated trade deficit to balloon.
So, the markets didn’t know how many jobs the economy was officially adding.
• Inflation? We could only make a stab at it from some of the private sector sources.
• The unemployment rate? Your guess was as good as anyone’s.
• The Consumer Price Index or the PCE price index? Who knew for sure?
That made near-term forecasting particularly challenging. To that end, I found myself qualifying most of my comments with something along the lines of: “Due to the government shutdown,
we don’t know when we will get the actual data IF we ever get it. However, it appears the economy is…”
I suspect I was not alone in being necessarily vague last quarter. While that is usually a best practice, it was an imperative one during much of the fourth quarter of 2025.
But what was the Fed going to do? Would it have enough information to make changes to monetary policy without official data from the BLS, BEA and other federal sources? After all, investors wanted one, or perhaps two to three, rate cuts in 2025.
Folks just simply had to make do with incomplete information. While you might think that could have been a recipe for disaster, it really wasn’t. Analysts and pundits of all stripes did a pretty good job of deciphering what was happening through a combination of private sector data, proprietary research and corporate earnings reports.
2
And the consensus? Well, it seems many folks who do what I do for a living felt the economy was still in expansion, but cooling off from a pretty robust third quarter of 2025.3 The labor market appeared to be cooling, and inflation seemed mostly under control. By that, I mean it wasn’t going through the roof, nor was it falling through the floor.
While the data was far from perfect, it was apparently good enough for the Fed to cut the overnight rate by another 50 basis points (0.50 percent) during the third quarter. To be sure, it compiles a lot of its own information. Even so, the question I have is:
“If The Fed Can Make Major Changes To Monetary Policy Without Having The Official Economic Data From The Bls, Bea, Et Al., Just How Important, Or Accurate, Is The Official Economic Data?”
That might have to be a topic of discussion for a future missive.
Now, interestingly and conversely, or so I thought, many business owners here in central Alabama were very positive on the economy. In the Nov. 14, 2025, edition of Common Cents, I wrote the following:
Last Thursday, I spoke at a presentation on the economy during a conference for business leaders here in town. After more than 500 public speaking engagements in the past two decades, I suspect I am something of a dependable go-to for organizers looking to fill 30 to 45 minutes on an agenda.
Regardless, I had fun, as I typically do at such functions. After all, I get to have an opinion in public, which isn’t always the case in private.
Now, one of the things I found particularly fascinating about the event was the overall level of “bullishness” of those in attendance. My co-presenter, the head of the local Federal Reserve branch, was also surprised by it. And for the record, he is a great guy.
Make no bones about it. It seems that business owners and executives in central Alabama are pretty positive about the health of their companies and overall economic conditions. With each glowing survey result the conference leaders put on the screen, the more I wondered what was in the coffee.
Don’t get me wrong. I am not forecasting doom and gloom. No. To me, the future looks like a pretty standard ham and cheese on white bread. To the group, it looks like a “croque monsieur,” maybe even a “croque madame.”
A
In Essence, There Seemed To Be A Bit Of A Disconnect Between, Well, Just About Everything. From The Lack Of Government Data To The Relatively Mediocre Forecasts Of Professional Analysts To Strong Corporate Earnings Reports To Weaker Consumer Confidence, It Was One Of The Weirder Quarters In Recent Memory For Making Predictions.3,4,5
Once the government reopened, it took a little while for the various agencies to get back into a rhythm, if you want to call it that. However, when the data finally arrived, the picture was a little confusing. After all, the Employment Situation reports, in my mind the most important data series, showed a decidedly softer labor market at the end of the year than at the start. 6 In fact, one could sensibly argue that such weak job creation might ultimately be a problem in a consumer-driven economy.
The Consumer Price Index (CPI) showed some improvement to end the year in aggregate, even if a lot of household necessities were higher than most would like.7 Still, there is no way I was the only person who found the last CPI report for 2025 to be a very confusing read. In fact, one of my first reactions after reading the report was: “If you say so.”
Then, the BEA released the Gross Domestic Product (GDP) report for the third quarter of 2025. 8 It was stronger than analysts had forecasted, by roughly a full percentage point. While there was still some noise in the equation due to our improving trade deficit, consumer, business and government demand appeared relatively solid. To be sure, it is highly doubtful folks will still be discussing this particular report in 100 years. However, suffice it to say, it was better than most people thought it would be.
So, where does that leave us?
Is the economy falling apart like some end-of-year Gallup polls would suggest? Or is it as vibrant as the third-quarter GDP report and the bullishness of businesspeople in central Alabama? Are we standing at the precipice? Or are we sitting in the proverbial catbird seat?
If history serves as a guide, and I am supposed to tell you “past performance is not indicative of future results,” the final result is usually in between the two extremes.
If the extremes are continued surprising economic strength and economic collapse, the most likely scenario would be somewhat unremarkable economic growth.
Put simply, as we move into 2026, my opinion is that the U.S. economy is neither overwhelming nor underwhelming. It is just whelming, and that is going to have to be good enough for us for now.
SOURCES:
1. Brookings, Is the Credibility of US Government Data at Risk? Why it Matters to Everyone, September 2025.
2. RSM, The Rise of Private Label Economic Data, Oct. 7, 2025.
3. Northmarq, Economic Commentary: Interpreting the Economy without Government Data, Oct. 7, 2025.
4. LPL Financial, Corporate America Cleared a High Bar This Earnings Season, Nov. 24, 2025.
In the end, the fourth quarter of 2025 was a confusing one due to the lack of official economic data for much of it, and the wild differences in what ultimately came in. Let’s just hope the fourth quarter of 2026 is a little more normal than this past one.
However, it seems we have been waiting for a “new normal” since the pandemic, and it still hasn’t arrived. Or is the most recent government shutdown proof that it unfortunately has?
5. The Conference Board, U.S. Consumer Confidence Fell Again in December, Dec. 23, 2025.
6. The Bureau of Labor Statistics Employment Situation, November 2025.
7. The Bureau of Labor Statistics, Consumer Price Index, Dec. 18, 2025.
8. The Bureau of Economic Analysis, Gross Domestic Product, Third Quarter 2025, Corporate Profits, Dec. 23, 2025.
Sources are believed to be reliable but are not guaranteed as to accuracy or completeness. This material is provided for informational and educational purposes only and reflects the opinions of the investment committee as of the date indicated. Statements contained herein that are not historical facts are forward-looking statements and are based on current expectations, estimates and assumptions. Actual results may differ materially and views expressed are subject to change without notice. This commentary is not intended as investment advice, does not constitute a recommendation to buy or sell any security and should not be relied upon as a basis for investment decisions. Past performance is not indicative of future results.
Dollar weakness, fiscal shifts and geopolitics: why international markets outperformed in 2025 and what it may mean for U.S. leadership.
Ryan Bernal
For over a decade, international markets have been viewed as the slower-growing “little brother” to the United States, constrained by legislature, financially cautious and lagging in innovation.
But in early 2025, that narrative began to change. A combination of fiscal spending, increased defense investment and improved global sentiment toward valuations of international equities has begun to reshape investor perception of international markets.
The United States now stands at a pivotal moment. As its involvement in global affairs continues to evolve with a foreign policy shaped by an “America First” approach, it remains to be seen whether U.S. markets can sustain their longstanding leadership or whether recent performance reflects a broader, more durable shift toward international equities as market conditions evolve.
Global equities significantly outperformed domestic equities over the last year. There has been no shortage of headlines about this, with many commentators linking this to a shift away from U.S. dominance. But as is often the case with sensational headlines, there is always more to the story, and outcomes remain uncertain.
To lay the scene, we must first discuss international equity performance versus domestic equity performance in 2025. While there was no shortage of drama in domestic markets, it appeared to have little effect on the equity performance of U.S. companies over the course of the year.
The S&P 500 index finished the year with a return of 17.88 percent.1 This was driven in part by continued outperformance of the largest U.S. companies (the Magnificent 7), more specifically AI-related stocks that have continued to see strong growth (e.g., NVDA) during the period.
Additionally, Fed rate cuts began to materialize in the second half of 2025, and the labor market showed relative resilience, with unemployment remaining historically low as we closed out the year.
At year-end, the Morgan Stanley Capital International All Country World Index ex U.S. (or “MSCI ACWI ex U.S.” for short) gained approximately 33.11 percent in 2025, exceeding the S&P 500’s return over the same period. (YCharts)
So, what happened? Did the Europeans suddenly create that much more value for shareholders in 2025 than the Americans? Not necessarily. Instead, there was a fundamental shift in the ideology of fiscal policy, and broader geopolitical events may have driven some of the outperformance.
One major contributor that affected both Americans and Europeans was the weakness of the U.S. dollar. According to the ICE U.S. Dollar Index (DXY), in 2025, the dollar fell by over 9 percent.2
One historical effect of the Fed rate cuts is a change in the relative value of currency. Historically, when rates go up, currency values strengthen, and when rates come down, so does the value of the currency. Though the relationship is not guaranteed, this dynamic appeared to play out in 2025 as the Fed cut rates at three different meetings throughout 2025 (FRED.gov - SOFR).3 Additionally, periods of policy uncertainty can affect investor confidence, and 2025 was volatile. This is especially true with monetary and fiscal policy, as unclear guidance can reduce the confidence of investors and demand for dollar-denominated assets, such as an historically long government shutdown.
This environment seemed to go hand in hand with trade imbalances, especially with the introduction of global tariffs in 2025. Importing more than we export can slowly increase the supply of dollars globally over time, putting downward pressure on dollar values. (npr.org)
Another major contributor to the relative outperformance of internationals was the changing geopolitical situation in Europe (and other regions), which spurred shifts in fiscal policy. A clear example is the ongoing war in Eastern Europe, which has prompted German policymakers to reassess and expand the country's defense budget.
German officials announced an approval in mid2025 of a plan aimed to spend $761 billion on their military and infrastructure over the next five years.
Source: Bloomberg
The plan will allow German officials to conform to the updated NATO guidelines by 2029, which states that member countries should allocate at least 3.5 percent of their total GDP to a defense budget.
Germany will finance the spending with $469 billion in new debt. This was only possible due to fundamental changes in their constitution, which normally limits borrowing to 0.35 percent. This, again, displays the tone shift in Europe.4
Investors responded by reallocating capital toward some of the largest defense companies in anticipation of the potential government defense contracts. Companies such as Rheinmetall (RHM.DE), Germany’s largest arms manufacturer, delivered significant returns over the past year.
Russia's share of EU Imports of gas dropped from more than 45 percent in 2021 to about 19 percent in 2024.
Volume of gas imported in billion cubic metres
Source: Al-Jazeera.com
The stock gained 232 percent over the period, substantially outperforming most U.S. companies (YCharts). Time will tell if these valuations are justified, but speculative investors have not been deterred.
Investors are also closely watching geopolitical events, theorizing about market moves likely stemming from the most recent news. Time will tell whether these valuations are justified, and speculative investor interest has played a role in recent performance.
The ongoing conflict in Ukraine has also likely contributed to market volatility. Commodities produced by Russia have been severely restricted due to sanctions from most western countries, which has dwindled supply. Oil and natural gas are the most immediate commodities affected, mainly due to Europe’s reliance on imports pre-conflict.
• In 2021, Russia supplied Europe with 45 percent of its natural gas consumed and 27 percent of oil consumed.
• These numbers have changed drastically, with Europe only receiving 19 percent and 3 percent of natural gas and oil from Russia by the end of 2024.5
The current U.S. administration appears to prioritize bringing an end to the conflict, as de-escalation could reduce geopolitical risk, stabilize global markets and alleviate persistent supply chain and commodity disruptions that have weighed on economic growth.
This isn’t the only region where the current administration is seeking to influence foreign politics. In the Middle East, Washington continues to play a leading role in negotiation efforts amid ongoing disputes, while in the Western Hemisphere the U.S. has significantly
SOURCES:
1. YCharts, S&P 500 Annual Total Return for 2025
2. NPR, “Why the dollar fell over 9 percent in 2025, and what to expect in 2026,” Jan. 4, 2026, https://www.npr.org/2026/01/04/nx-s1-5662540/whythe-dollar-fell-over-9-in-2025-and-what-to-expect-in-2026
3. “U.S. tariffs are expected to weaken the dollar as GDP growth slows,” Goldman Sachs, Apr. 15, 2025, https://www.goldmansachs.com/insights/ articles/us-tariffs-are-expected-to-weaken-the-dollar-as-gdp-growth-slows
4. Federal Reserve Bank of New York, Secured Overnight Financing Rate (SOFR). FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed. org/series/SOFR
escalated its involvement in Venezuela — seemingly daily — as part of a broader strategic push to further key economic interests.
Altogether, these geopolitical events have reshaped the current global market dynamics, especially in Europe. The recent changes to European fiscal policy and investment into their defense sector have seen short-term positive effects on economic activity, however, these actions largely reflect responses to geopolitical pressures rather than a true growth initiative.5 While there is momentum building in these once-sleepy markets, it’s important to look beyond the current situation and analyze the overall economic drivers of the region, such as innovation, physical and human capital investment, government regulation and natural resource exploitation.
Taking these economic drivers into consideration, the Oakworth Investment Committee currently views U.S. domestic markets as offering structural characteristics supportive of long-term growth going forward, subject to change as conditions evolve. The United States continues to exhibit structural advantages over international markets. From the committee’s perspective, the U.S. retains key advantages, including deep and complex capital markets, a strong focus on innovation and technological leadership and a more pronounced entrepreneurial spirit.
Europe’s recent outperformance appears primarily cyclical, supported by responses to geopolitical stress rather than sincere growth drivers. In contrast, the U.S. economy may be positioned to generate sustained earnings growth, if past performance gives us any insight into future results. As a result, the committee believes domestic equities are well positioned and could regain leadership over international markets as the global economy moves forward. But only time will tell – and future market leadership remains uncertain.
5. Defense News, “Germany plans to double its defense spending within five years,” June 26, 2025, https://www.defensenews.com/global/ europe/2025/06/26/germany-plans-to-double-its-defense-spending-withinfive-years/
6. Al Jazeera, “How much of Europe’s oil and gas still comes from Russia?” Oct. 3, 2025, https://www.aljazeera.com/news/2025/10/3/how-much-ofeuropes-oil-and-gas-still-comes-from-russia
Past performance is not indicative of future results. This material is for informational purposes only and does not constitute investment advice or a recommendation. References to specific securities are for illustrative purposes only and should not be construed as investment recommendations. Indexes are unmanaged and not investable. Forward-looking statements are subject to uncertainty and change. Index performance is unmanaged and does not reflect the deduction of fees or expenses.
Predicting the end of a market run can be inherently difficult, but that doesn’t mean fundamentals can be ignored. Corporate earnings trends and Federal Reserve policy will be key factors shaping market conditions as we move into 2026.
David McGrath, CFA®
Both 2023 and 2024 were very kind to equity investors, with very strong returns for both years. With high valuations, and even higher levels of political uncertainty as we entered 2025, there was some concern from investors that a third consecutive year of strong market returns may be difficult to sustain. Nevertheless, 2025 equity markets ultimately delivered another year of positive returns.
The 2.4 percent return the S&P 500 posted in the fourth quarter of 2025 did not show the same sizeable gains seen in both the second (7.8 percent) and third quarters (10.6 percent) but it did absorb quite a bit of volatility and end the quarter with a positive return. And like 2023 and 2024, the Magnificent 7 stocks (for the most part) led the way. This past year was a bit more of a broad rally than the previous two years, but the continued buildout of artificial intelligence (AI) infrastructure played a major part of the move higher over the past 12 months.
Looking at the performance of the economic sectors last year, it is not a surprise to see both technology (+23.3 percent in 2025) and communication services (+32.4 percent), the home of many of the largest growth stocks, show the best returns of the year.
The third best performing sector may come as a surprise, and that is the industrial sector, posting a return of 17.7 percent last year. All of those new data centers supported demand for companies such as Caterpillar (CAT, +60.3 percent) and electric power provider GE Vernova (GEV, +99 percent).1, 2
It was also a turnaround year for aerospace giant Boeing (BA, +22.7 percent), which provided significant opportunity for General Electric (GE, +85.7 percent), which makes engines for Boeing. The other eight economic sectors underperformed the S&P 500, with the worst returns from the consumer discretionary (+1.3 percent),
real estate (+3.2 percent) and energy sectors (5.0 percent).
The second half of 2025 delivered rising unemployment rates and falling consumer confidence — however, the last six months of the year gave us very consistent consumer spending and solid corporate earnings growth.
How did that happen? And more importantly, can it continue into 2026 and beyond?
One potential rationale is that the labor market from the beginning of the COVID pandemic has been heavily in favor of the workers. Many companies seemed to have over-hired, with fear that employee turnover would continue to be high.
Source: YCharts
Back in 2022 and 2023, with consumers full of excess cash and spending freely as the economy reopened, management was far less concerned with labor efficiency than with being fully staffed. Profit margins were somewhat compressed, but top-line sales growth was so strong that the efficiency losses were not impactful to earnings. This led to the lowest unemployment rate since the 1950s, alongside a surge in consumer confidence and spending.
By the start of 2025, the vast majority of that excess cash had been burned through, and companies were able to focus on the efficiency of their labor. With a slowing economy, worker turnover slowed and companies found themselves overstaffed. In the second half of 2025, they simply stopped hiring.
As employees left for a different opportunity, or retired, their positions were not replaced. The unemployment rate, which reached a low of 3.4 percent in April 2023 and started 2025 at 4.1 percent, drifted up to 4.6 percent as we finished the year.
That easing labor pressure allowed corporate profit margins to increase in 2025, allowing for strong earnings reports.
The key part of this story is that consumer spending remained solid, even with unemployment rising and consumer
One potential answer is the stock market itself. Recent Federal Reserve data shows the top 10 percent of households own somewhere between 87 percent to 93 percent of all stocks.3 With very large stock market returns in six of the past seven years, that group has seen trillions of dollars added to their balance sheets since the start of the COVID pandemic. This is the same group of consumers that represents a significant share of current spending.
The S&P 500 has seen an increase of $36 trillion in market value since the start of 2019.4 That is roughly $32 trillion in net worth added to the top 10 percent of consumers over the past seven years.
In an odd way, both the stock market and the economy have the same dilemma, both being very “increased in concentration.” The largest 10 stocks in the S&P 500 account for more than 40 percent of the weight in the index, and (according to Moody’s Analytics) the top 10 percent of consumers account for 49.2 percent of all consumer spending.
Rising unemployment rates, coupled with inflation reports that failed to increase from tariffs, allowed the Federal Reserve to lower the federal funds rate at their last three meetings of the year.
They did the exact same thing in 2024.
Historically, a lower federal funds rate has been positive for stock prices, and that appeared to be the case in 2025. In the end, several key components were in place that supported higher stock prices:
• The Fed lowering interest rates
• Corporate profits moving higher
• Continued growth in consumer spending
This combination has historically been a winning hand for equity owners, and that was the case again last year.
This leads to the most important question: can the stock market keep moving higher given a weakening labor market and a consumer running low on confidence?
At some point, new jobs will start to emerge with the new AI economy, and that could potentially counter some of the jobs that AI will eliminate. Could the massive AI infrastructure buildout continue to grow at the torrid pace seen over the past few years?
The mix of strong corporate profit growth and an accommodative Federal Reserve would be a welcome sight in 2026, though outcomes are yet to be realized. According to FactSet, S&P 500 earnings estimates for 2026 are currently expected to be roughly 15 percent higher than 2025.
That is an optimistic outlook given the state of the labor market. We would need to see a repeat of 2025 — with corporate profit margins continuing to increase amid softening labor markets, without a corresponding slowdown in consumer spending.
That was a cool trick the market was able to pull off in 2025, but can it do it again in 2026? For now, achieving those expectations would likely require continued margin expansion without a significant slowdown in consumer spending.
This leads to the most important question: can the stock market keep moving higher given a weakening labor market and a consumer running low on confidence?
AI investments made over the past few years may begin to materialize, potentially contributing to a gradual rise in unemployment and improving corporate profit margins.
Sound familiar?
Concerns over resource demands (e.g. electricity and water) could start to slow the growth rates moving forward. This issue has been raised in the past few years, with very little impact on the growth rate. Don’t be surprised if rising costs for residential electricity and water start to make this a political issue in 2026.
In the last few months of 2025, we began to see increased volatility as questions emerged about whether AI stocks were in a bubble. Early in my career, I remember a speech that Alan Greenspan, former chairman of the Federal Reserve, gave to the American Enterprise Institute. That day is remembered for a question he answered about stock prices becoming inflated beyond their fundamental value.
That is when he used the phrase “irrational exuberance” for the first time.
That phrase has been in the vocabulary of investors ever since. Many tie his answer to the end of the dot-com bubble. Greenspan first used that term to describe stock valuations on December 5, 1996 — but the dot-com bubble didn’t burst until March 2000, almost 40 months later. During those 40 months, the Nasdaq composite index moved up 288 percent (from Dec. 5, 1996, to March 10, 2000, according to YCharts).
Predicting the end of a market run or a turning point remains difficult. That does not mean investors should ignore fundamentals or valuation, and our Investment Committee continues to emphasize positioning portfolios to balance potential returns while managing risks.
The longer we move into this phase of the AI infrastructure buildout, the more challenging that balancing act becomes.
The Federal Reserve will see a new chairman in 2026, and the markets are anticipating a more “dovish” stance. One issue that may pose a problem for the next chairman of the Fed in 2026 is pesky inflation numbers. Consistent consumer spending has kept core inflation well above the 2 percent target of the Fed. The weakness in the labor market allowed the Fed to bring rates down in 2025, but how much lower can the federal funds rate move without some help from lower inflation numbers?
There are two main drivers of higher stock prices:
1) Earnings growth
2) Valuations move higher.
The market usually gives a higher valuation to the stock market with falling interest rates, so more moves from the Fed could help. Already trading near a historically high P/E ratio, future returns may rely more heavily on earnings growth to push us higher.
If we are able to get 7 percent to 9 percent earnings growth in 2026, and valuations remain stable, we could potentially have another positive year for equity markets, though outcomes depend on multiple factors and are not assured. Add on the just-over 1 percent yield of the S&P 500, and a total return of 8 percent to 10 percent for equity holders in 2026 would be a welcome sight.
How markets may be front-running policy as expectations build into 2026.
Chris Cooper
The S&P 500 posted three consecutive calendar years of double-digit percentage gains, recording its seventh best three-year stretch on record (The Wall Street Journal).1 The U.S. economy, as bifurcated between economic classes as it has been, has held up better than many expected, even with the Federal Reserve’s tight posture from 2022 through most of 2024. 2 However, beginning in September 2024, the Fed began loosening its stance by cutting the overnight lending rate and, more recently in December 2025, announcing an end to its quantitative tightening program. Some expect this shift toward net Treasury bill purchases could increase the Fed’s balance sheet by $35 billion to $40 billion per month in 2026, potentially contributing to lower yields on the front end of the curve.
The stock market is a leading indicator of the U.S. economy but it’s not a perfectly clear crystal ball. Plenty of optimism has been reflected in asset prices, particularly that, by 2025’s yearend, the S&P 500 was trading at nearly 22 times the forward price-to-earnings ratio, which is elevated relative to historical norms.3 Recent performance
has largely coincided with expectations around tax reform, a policy pivot that leans pro-growth in the private sector, easier financial conditions and expectations of a new wave of efficiencies brought on by artificial intelligence (AI). These factors have kept forward valuations elevated relative to long-term norms.
So, what’s next for the stock market, for the U.S. economy and for the U.S. consumer?
This raises important questions about the sustainability of current market expectations as we move into 2026, given recent changes to both monetary and fiscal policy.
The Trump 2.0 economic playbook has been chronologically the opposite of Trump 1.0. In his second term, the president came out of the gate with what many refer to as the “sour” parts of policy, tariffs and tougher trade rhetoric, along with a willingness to lean into uncertainty in hopes of generating a more level footing with international trade.4 Markets responded with extreme volatility at first, but after negotiations proceeded, the market appeared to look past trade uncertainty and continued to advance despite ongoing uncertainty. As of today, financial markets have largely moved on from the tariff uncertainty and are instead pricing into the "sweet"
P/E Ratios: Large-Cap vs Mid-Cap
portion of the agenda expectations: lower effective tax rates, looser financial conditions and a friendlier environment for capital formation in 2026, potentially prompted by the One Big Beautiful Bill (OBBB).5
The risk, of course, is that most of the “sweet” news is already priced into equity markets, meaning outcomes in 2026 will need to hit on all cylinders to meet the optimism already baked into the markets.
One of the major developments moving into 2026 is that tax reform provisions passed in 2025 will begin to materially show up on household and corporate balance sheets.
The extension of the lower individual income tax brackets established under the Tax Cuts and Jobs Act (TCJA) provides a material increase in consumer tax refunds. Without congressional action, those brackets would have snapped back to higher, pre-2017 levels. With post-TCJA levels now made permanent, most middle-income households will continue to pay less in federal income tax than they otherwise would have. 6 Add to that inflation-adjusted thresholds for credits like the Child Tax Credit and Earned Income Tax Credit, and the average American family could experience an increase in aftertax income.
U.S. Treasury estimates and private-sector analysis suggest the average tax refund in early 2026 could increase materially – around 25 percent from roughly $3,000 per family in years’ past. That’s not life-changing money, but it’s not trivial either. It makes up a portion of the projected 0.9 percent boost to U.S. GDP that the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) estimate could materialize in 2026 via the OBBB. 7
Now, let’s be honest. Not every dollar of that refund turns into discretionary spending. Some of it goes to paying down credit card balances, some into savings, and some into rent checks or grocery bills that feel permanently inflated. But even if only a portion gets spent, the macro impact is still noticeable. Some estimates suggest total refunds in 2026 could be 20 percent to 25 percent higher than recent norms, potentially returning $400 billion to $425 billion in aggregate cash back into consumers’ pockets. 8
Components of U.S. GDP in 2024 and their contributions to real GDP growth
Source: U.S. Bureau of Economic Analysis
With consumers spending roughly $21.15 trillion each year, an additional $200 billion to $400 billion injected into the U.S. economy would only account for an additional 1 percent to 2 percent boost relative to previous norms. 9 That doesn’t sound like a substantial amount, but, again, considering much of the recent success in equity markets can be attributed to a surprisingly resilient consumer, we will likely require a healthy consumer to support continued economic and market momentum. When people feel like taxes aren’t quietly eating their hard-earned money away, they tend to become more flexible with their spending.
While it may not be stimulus in the 2020, COVID-style sense, it’s enough to keep demand strong and the consumer afloat. Anything helps, given current valuations in equity markets.
If the consumer gets a bump, corporate America could reap benefits that give it leverage.
Arguably, one of the most important aspects of the OBBB for businesses is the return of full expensing. Allowing companies to immediately deduct the cost of equipment, software and R&D changes the math on investment decisions by pulling projects forward.10 This financial strategy encourages corporate executives to “go for it” and build an additional storefront, purchase new machinery, or—most relevant these days—build out AI-driven efficiencies. According to estimates from major investment banks and industry researchers, AIrelated investment could top $500 billion in 2026. While tax policy doesn’t create that demand, it can help “green light” it.11
Goldman Sachs estimates that businesses could receive around $100 billion in tax-related cash flow benefits in early 2026 alone, much of which may be allocated to capital expenditures.
Equity markets have continued to ascend, even with expensive valuations. However, there are still plenty of ways things can go sideways. Deficits could push yields higher if economic growth can’t lessen the burden on our $38 trillion national debt.12 The Federal Reserve could challenge balancing persistent inflation against a weakening (or even AI-disrupted) job market. None of these are base cases, but they aren’t off
the table, either. Optimism and expectations are high, and any disappointment – whether it be underwhelming effects from policy changes, stubborn inflation, or global shocks –could lead to volatility. The consumer will need to realize the anticipated benefits from fiscal policy, while AI will need to deliver expected efficiencies, if equity markets are to align with current expectations. The U.S. economy has shown resilience, but resiliency isn’t invincibility from risk.
In many ways, 2026 feels like a familiar cycle.
• Policy tightens, then loosens.
• Markets front-run reality.
• Consumers adapt.
• Businesses invest when incentives align.
Nothing is perfect, but things keep moving forward.
Tax reform most likely won’t pull the U.S. out of its record debt, nor will it miraculously restore affordability. But it does shift the odds modestly in favor of growth, and in an economy this large, even modest shifts can at least maintain an expansionary phase. Equity markets appear to have gotten a head start over “sweet” fiscal policy that is expected in 2026. Whether the fundamentals ultimately justify the current valuations will depend on earnings growth, execution on policy and the broader economic conditions.
SOURCES:
1. Wall Street Journal, “U.S. stocks defy ‘sell America’ warnings and are ending 2025 near record highs,” Dec. 30, 2025.
2. Federal Reserve Board, FOMC statements and historical federal funds rates, Federal Reserve press releases.
3. FactSet, S&P 500 forward P/E ratios, Yardeni Research, S&P 500 valuation metrics
4. CNBC, Trump tariffs inject more uncertainty into global economy, Aug. 1, 2025.
5. Tax Foundation, “FAQ: The One Big Beautiful Bill, explained,” July 23, 2025
6. IRS, One Big Beautiful Bill provisions, July 4, 2025.
7. CNBC News, “Your tax refund could be $1,000 higher in 2026. Here’s why,” Nov. 25, 2025.
8. Tax Foundation, “Tax refunds and the One Big Beautiful Bill Act,” Dec. 17, 2025.
9. Federal Reserve Bank of St. Louis, Personal consumption expenditures, Dec. 29, 2025.
10. Cornell Law School, Accelerated cost recovery system.
11. Goldman Sachs, “Why AI companies may invest more than $500 billion in 2026,” Dec. 18, 2025.
12. Treasury.gov, Debt to the penny, Jan. 6, 2026.
This commentary is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Investing involves risk, including loss of principal. Forward-looking statements are subject to uncertainty, and actual outcomes may differ materially.
The fourth quarter didn’t bring fireworks, but it did reveal a quieter, healthier shift beneath the surface, broader participation, steady international strength and fixed income doing its job.
Sam Clement
The fourth quarter of the year unfolded with a noticeably different character from much of what investors experienced in the third quarter. While volatility never fully returned in a sustained way, markets displayed more complexity beneath the surface, with broader participation across sectors, styles and geographies.
Equities generally continued to trend higher, but the advance became less concentrated, suggesting to investors a market that is slowly becoming more balanced and potentially more resilient.
Unlike the narrow leadership that dominated earlier quarters, where a small group of large-cap technology and AI-adjacent companies accounted for a disproportionate share of returns, the fourth quarter saw a broadening out in the names and sectors that performed well. Participation expanded across cyclicals, industrials, financials, energy and select areas of value, while smalland mid-cap stocks showed more consistent engagement. This broadening is an encouraging development, as markets with wider participation tend to be driven by multiple engines rather than a single dominant theme.
International equities were another area of continued strength during the quarter. After leading U.S. markets for much of the year, both developed and emerging-market stocks delivered solid performance during the fourth quarter.
Shifting economic sentiment, more attractive relative valuations and, in some cases, supportive currency moves all contributed. While international markets continue to face structural and geopolitical challenges, the renewed performance reinforces the importance of broader diversification, particularly during periods when U.S. equity leadership begins to broaden.
Volatility, while still muted by historical standards, was more visible than in prior quarters. Both realized and implied volatility experienced intermittent increases around key macroeconomic data releases, central bank communications and geopolitical headlines. However, as has been the case for much of the year, these volatility spikes were largely contained and short-lived. Markets demonstrated a continued ability to absorb uncertainty and move forward, though not without reminders that, historically speaking, calm conditions rarely persist indefinitely.
After Several Years Of Historically Low Yields And Limited Income Generation, Fixed Income Has Reasserted Its Role As A Meaningful Contributor Within Diversified Portfolios Through Income, Stability And Diversification.
Against this backdrop, portfolios remained broadly balanced across asset classes, both between equities and fixed income and across styles within equities. While the improvement in market breadth has expanded the opportunity set, overall valuations, particularly in certain growth sectors, remain elevated. The result is a more balanced but less decisive, riskreward profile for equities as a whole. As a result, discipline and selectivity remain essential.
Within equities, our perspective is not negative toward growth; however, like last quarter, expectations remain high and the margin for error has narrowed. As leadership broadens, opportunities arise in areas that have been overlooked or underappreciated for seemingly quite some time. A broader market also reduces dependence on any single theme, which we believe can be constructive over a full market cycle.
Fixed income, however, remains a central focus of our overall allocation and risk management process, particularly in the current environment.
Throughout the fourth quarter, we continued to view fixed income primarily as a ballast rather than an area to take outsized risks or “swing for the fences.” Our duration exposure remains relatively low, reflecting ongoing uncertainty around the path of inflation, monetary policy and economic growth. While inflation has moderated meaningfully from its peak, progress has not been linear, and the economy continues to navigate the transition from restrictive monetary policy toward a more normalized environment, made muddier by an administration that is making its desire for lower rates quite clear.
The long end of the yield curve remains sensitive to shifts in inflation expectations, fiscal dynamics and economic data, and yields have moved back and forth as markets attempt to reconcile softening growth indicators with resilient consumer activity and labor market conditions. In this environment, we believe excessive interest-rate risk remains less attractive, especially when the compensation for doing so remains limited.
Credit spreads remain extremely tight in our opinion, suggesting a high degree of optimism and limited compensation for taking additional credit risk. While default rates remain manageable and corporate balance sheets are generally healthy, tight spreads reduce the margin for error should economic conditions deteriorate more meaningfully. Given our view that fixed income is primarily intended to smooth portfolio returns and provide diversification during periods of equity stress, we do not believe this is the appropriate time to materially increase exposure to lowerquality credit. Or rather, the incremental compensation appears limited.
Instead, our fixed income positioning emphasizes quality, liquidity and flexibility. We continue to favor higher-quality segments of the market that can fulfill their role during periods of volatility while still generating reasonable income. The improved yield environment compared to recent years allows fixed income to contribute more meaningfully to total return without requiring disproportionate risk-taking.
Importantly, fixed income also plays a key role in maintaining optionality. By preserving capital and generating income, it adds to the “dry powder” necessary to act decisively when opportunities arise in other areas of the market. In a world where volatility tends to normalize over time, having this flexibility can be beneficial over time.
Like last quarter, we remain mindful that volatility is inherently mean-reverting. Periods of unusually calm markets are often followed by more normal levels of fluctuation, even if the catalyst is unclear in advance. While it is impossible to predict the timing or source of future volatility, dry powder is only helpful if you have it before you need it. Our neutral positioning across asset classes reflects this belief.
This approach is not about making binary calls on market direction or attempting short-term movements. Rather, it is rooted in the understanding that market dynamics evolve and that prudent portfolio management requires readiness for a range of potential outcomes. Our allocation allows us to increase risk when opportunities become more compelling or shift more defensively if conditions worsen, without being forced into reactive decisions.
Looking ahead, our allocation for the upcoming quarters will continue to focus on inflation trends, economic and labor market conditions and corporate earnings. In our view, corporate earnings will remain a key lens through which we can assess the durability of growth, while consumer health will continue to play an outsized role in shaping economic outcomes.
In putting it all together, the fourth quarter represented a constructive step in market dynamics rather than a dramatic shift. Broader equity participation and continued international performance were encouraging signs, while fixed income continued to play its intended role as a stabilizing force within portfolios. While we welcome these developments, we remain disciplined in our positioning and realistic about the challenges that lie ahead.
A new year, a clear view, a strategic reset. Take this time as an opportunity to step back, assess and position yourself for the year ahead.
Mac Frasier, CFP ®
The start of a new year often brings a renewed focus on personal and professional goals. January is more than a time for resolutions, it’s an opportunity to step back, assess your financial landscape and proactively position yourself for the year ahead.
For high-income earners, the financial decisions you make early in the year can have a measurable influence on longterm outcomes. Aligning your tax strategy, investments, cash flow and estate plan now before the year gains momentum can help support a more intentional start to the year rather than a reactive one.
Below is a checklist of key planning moves to consider as you begin the new year.
1Set clear goals and build accountability around them
Every successful financial plan starts with clarity. Begin by asking:
• What do I want to accomplish financially in 2026?
• How do these goals support my broader five- or 10-year plan?
• What specific actions need to happen this year to stay on track?
Whether your goals involve accelerating wealth accumulation, preparing for a liquidity event, optimizing tax efficiency or enhancing lifestyle flexibility, articulating them clearly is critical. Sharing these goals with a wealth advisor may help create accountability and ensure your planning remains aligned as circumstances evolve throughout the year.
2Strengthen and optimize cash flow
The beginning of the year often coincides with salary adjustments, bonuses or changes in spending priorities, making it an ideal time to revisit cash flow.
Refresh your spending plan.
New priorities such as travel, home projects, education expenses or charitable commitments can emerge quickly. Updating your spending plan early in the year provides flexibility and helps prevent reactive decisions later.
Rebuild or reinforce emergency reserves. If year-end spending depleted cash reserves, establish a plan to rebuild them. Adequate liquidity can help protect long-term investments and provide peace of mind during periods of uncertainty or opportunity.
Volatile markets, shifting interest rates and evolving economic conditions underscore the importance of regular investment reviews. January offers a natural reset.
Rebalance your portfolio.
Market movements may have caused your asset allocation to drift from intended targets. Rebalancing helps realign risk with objectives and creates a framework for managing volatility. This is also an opportune time to evaluate concentrated positions and explore diversification or taxefficient strategies.
Reassess risk tolerance. How did you respond to market volatility last year? If market drawdowns caused stress or prompted secondguessing, it may be time to recalibrate risk exposure.
Confirm retirement contribution strategies. Review planned contributions to retirement accounts, HSAs and FSAs to ensure you are maximizing opportunities:
• 2026 401(k), 403(b), and 457 contribution limit: $24,500
• Catch-up (age 50 and older): $8,000*
• Catch-up (ages 60 to 63): $11,250*
*Beginning in 2026, individuals who earned more than $150,000 in the prior year must make catch-up contributions on a Roth basis in employer-sponsored plans.1
3 4
Review risk management & insurance coverage
Insurance may not be a favorite topic, but it plays a critical role in protecting wealth.
life and disability insurance.
Promotions, compensation increases, family changes or new financial obligations may warrant updated coverage. This is also a good time to confirm beneficiary designations.
Assess property and casualty coverage.
With rising premiums and tighter underwriting, annual reviews help identify coverage gaps—particularly if property values have increased or significant renovations have been completed.
5
Estate planning is not limited to retirees or ultra-high-net-worth families. Anyone with assets, family responsibilities, or charitable intent benefits from an up-to-date plan.
Review estate documents.
If it has been more than two years, or if your financial or family situation has changed, consider revisiting your estate plan. Pay particular attention to executors, trustees, guardians and powers of attorney.
Confirm titling and beneficiary designations.
Beneficiary designations override wills and are often overlooked. Reviewing account titling and beneficiary forms helps ensure assets transfer as intended and may help avoid unnecessary complications.
Making these planning moves early in the year allows you to be intentional rather than reactive with your finances. If reviewing this checklist feels overwhelming, you don’t have to navigate it alone.
An Oakworth wealth advisor can help you prioritize these decisions, coordinate strategies across disciplines, and build a personalized plan aligned with your long-term goals. If you would like to discuss how these considerations may apply to your situation, we encourage you to reach out to schedule a conversation. SOURCES:
Given the political theater, Federal Reserve crosscurrents, market fundamentals, AI enthusiasm, geopolitical tensions and housing market realities, these are our investment committee’s predictions for the beginning of 2026, with a few twists.
• At some point in the near future, the American public will likely get to enjoy the political theater of yet another government shutdown.
• If recent history serves as a guide, the U.S. may continue to use a scattershot approach to foreign policy. The proverbial $64,000 question could be whether the potential successes outweigh any losses.
• Due to its sheer size and complexity, the U.S. economy doesn’t usually turn on a dime. As a result, if you liked the overall economic conditions in the second half of 2025, there is a decent chance you could like them at the start of 2026.
• Conflicting economic data at the end of 2025 may likely put the Federal Reserve in a somewhat difficult situation to begin 2026. While the markets, and the administration, would love the Fed to continue cutting the overnight rate, it will likely need to see either greater improvement in the inflation data or more severe deterioration in labor market conditions. It might need to see both.
• If the Fed doesn’t continue to cut the overnight rate, the stock markets will probably need to see stronger growth in corporate profitability to justify another strong leg up in the recent rally.
• At the end of 2025, the Federal Reserve resumed purchases of short-term U.S. Treasury debt in order to provide liquidity in the domestic financial system.1 In 2026, if the yield to maturity on the 10-year U.S. Treasury Note approaches 5 percent, many people believe it is possible the Fed might buy longer-
term Treasury debt in order to keep interest rates in check.
• While the long-term conditions remain constructive for precious metals and other hard assets, it is decidedly uncertain if silver and gold can repeat their unusually strong 2025 performance. Let’s just say almost doubling in a single calendar year is very unique for any asset or asset class. 2
• In May 2026, there will be another chair of the Federal Reserve. Most market participants are speculating that it is relatively safe to assume the new chair, whoever it is, will likely be prone to adopt a more “dovish” approach to monetary policy. Market commentary leads us to think it is unlikely President Trump would appoint them for the position if they weren’t.
• In New York, the new Mamdani administration will likely frustrate both the far-left and the far-right sides of the political spectrum for either being not enough or too much. However, that is the case with most politicians.
• At some point, the investment growth rates in artificial intelligence (AI) technology will slow. While the timing of any slowdown is uncertain, it would be incredibly difficult for this growth to continue at its current feverish pace. After all, in absolute terms, it is much easier to grow, say, 25 percent off a base of $1 million than it is to grow off a base of $100 billion.
• At the end of 2025, Russia and Ukraine appeared to be too far in their demands/conditions to forge a lasting peace. As the war drags into its fourth year, it remains to be seen which side of the Russo-Ukrainian War will either blink first or run out of money, let alone soldiers. Much will depend on Europe’s continued willingness and ability to heavily subsidize Kyiv’s war effort.
• The domestic real estate market may show some signs of improvement. More than likely, the decrease in immigration the U.S. experienced in 2025 could lead to a decrease in demand for housing in aggregate. After all, fewer people coming into the country will need fewer housing units. Further, at some point, the market will just have to accept that 2 percent to 3 percent mortgage rates are simply a thing of the past. When that happens, the markets should get back to some sense of normalcy.3
• The United States men’s soccer team will not win their first World Cup.
SOURCES:
1. Board of Governors of the Federal Reserve System (FederalReserve.gov) – Decisions Regarding Monetary Policy Implementation, (Dec. 10, 2025).
2. Bloomberg, Gold and Silver Hit All-Time Highs as Geopolitical Tensions Rise, (Dec. 22, 2025).
3. Pew Research Center, Striking Findings from 2025, (Dec. 9, 2025).
This material is provided for informational and educational purposes only and reflects the opinions of the Investment Committee as of the date indicated. Statements contained herein that are not historical facts are forward-looking statements and are based on current expectations, estimates and assumptions. Actual results may differ materially, and views expressed are subject to change without notice. This commentary is not intended as investment advice, does not constitute a recommendation to buy or sell any security and should not be relied upon as a basis for investment decisions. Past performance is not indicative of future results.
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Advisory Services, including investment management and financial planning, are offered through Oakworth Asset Management LLC a registered investment advisor and is owned by Oakworth Capital Bank, Member FDIC. Investment products and services offered via Oakworth Asset Management LLC are independent of the products and services offered by Oakworth Capital Bank, and are not FDIC insured, may lose value, have no bank guarantee, and are not insured by any federal or state government agency. Because of the ownership relationship and involvement by Oakworth Asset Management LLC associates with Oakworth Capital Bank, there exists a conflict of interest to the extent that either party recommends the services of the other. Oakworth Asset Management LLC does not provide tax or legal advice. You should consult your tax advisor, accountant, and/or attorney before making any decisions with tax or legal implications. For additional information about Oakworth Asset Management LLC, including its services and fees, send for the firm’s disclosure brochure using the contact information contained herein or visit advisorinfo.sec.gov
This communication contains general information that is not suitable for everyone and was prepared for informational purposes only. Nothing contained herein should be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. The information contained herein is based upon certain assumptions, theories and principles that do not completely or accurately reflect any one client situation. This communication contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ. As such, there is no guarantee that any views and opinions expressed herein will come to pass. Investing involves risk of loss including loss of principal. Past investment performance is not a guarantee or predictor of future investment performance.
Any reference to a market index is included for illustrative purposes only as it is not possible to directly invest in an index. The figures for each index reflect the reinvestment of dividends, as applicable, but do not reflect the deduction of any fees or expenses, the incurrence of which would reduce returns. It should not be assumed that your account performance or the volatility of any securities held in your account will correspond directly to any comparative benchmark index. This communication contains information derived from third party sources. Although we believe these sources to be reliable, we make no representations as to their accuracy or completeness.
All opinions and/or views reflect the judgment of the authors as of the publication date and are subject to change without notice.