2025 began with markets walking a tightrope between optimism and anxiety. Investors were asked to believe in rapid technological progress while navigating geopolitical flashpoints, stubborn inflation, and historically high government debt. Against that backdrop, our investment themes leaned toward quality and earnings growth. As the year unfolded, markets delivered a clear verdict on our ideas, rewarding assets tied to real value, earnings power, and structural change rather than speculation or valuation excess.
One of our strongest convictions entering 2025 was owning gold. The rationale was straightforward: gold’s low correlation to traditional assets, its role as a hedge during geopolitical stress, accelerating de-dollarization, sustained central-bank purchases, and the backdrop of historically high government debt.
Our thesis played out forcefully. Central banks in emerging and developed markets continued to add to gold reserves, reinforcing gold’s role as a neutral store of value. Heightened geopolitical tensions and persistent concerns about fiscal sustainability in major economies further fueled demand. The result was a surge in investment flows, with physical gold ETFs rising roughly 60% over the year, while gold mining equities climbed about 165%, reflecting both higher bullion prices and operating leverage. Gold was not just a hedge; it was one of the defining winners of the year.
The Evolution of AI Leadership
Later in 2025, we suggested that leadership in artificial intelligence would begin to shift away from companies building large language models toward corporations effectively using AI to enhance productivity, margins, and competitive positioning.
That transition began, but more slowly than expected. While early signs emerged in industries such as logistics, manufacturing, and healthcare, markets continued to reward the infrastructure layer of AI. Semiconductor companies once again outperformed software firms, benefiting from relentless demand for compute, memory, and networking capacity. The broader adoption story remains intact, but 2025 showed that monetization still favors those selling the tools rather than those deploying them at scale.
Rethinking Bonds as a Hedge
We argued that bonds would no longer serve as the most reliable hedge against falling stock prices in an inflation-prone world. Instead, real assets such as gold and energy equities were positioned to offer better protection.
Our view was reinforced during the year. While bonds delivered modest returns, they failed to consistently offset equity drawdowns during tariff tantrums, inflation scares or increased supply of treasuries. In contrast, gold and energy stocks respond more effectively to inflationary pressures, benefiting from pricing power and tangible asset backing. Portfolio diversification increasingly means looking beyond traditional stock-bond frameworks.
China Becomes Investable Again
China was a controversial call. After years of regulatory crackdowns, weak consumer confidence, and capital outflows, valuations had reached levels that priced in prolonged stagnation. Entering 2025, incremental policy support, stabilization in the property sector, and a less confrontational regulatory tone suggested downside risks were diminishing.
Over the course of the year, those improvements translated into better market performance. Chinese equities rebounded, helped by targeted stimulus, improving earnings visibility, and renewed interest from global investors seeking diversification away from U.S. assets. While structural challenges remain, China re-entered the conversation as an investible market rather than a permanent ‘avoid’.
U.S. Stocks Driven by Earnings, Not Valuations
Finally, we expected U.S. equities to rise primarily through earnings growth rather than multiple expansion, given already elevated valuations at the start of the year.
That expectation proved accurate. Corporate profits grew steadily, supported by productivity gains, cost discipline, and selective revenue growth. Valuation multiples expanded only marginally, as higher-for-longer rate assumptions capped enthusiasm. The market advanced, but it did so on fundamentals rather than optimism alone.
Outlook for 2026
The year 2026 opened with a familiar sense of unease. Tariff threats resurfaced, geopolitical tensions remained elevated, and markets were again forced to weigh political risk against economic resilience. Yet beneath the surface, the market setup looks different from prior years. As earnings growth from the Magnificent Seven begins to slow, leadership is likely to broaden, making stock selection more critical than simple index exposure. In that environment, regional and sector choices matter more than ever.
International Markets: Opportunities with Limits
International equities may continue to outperform U.S. markets, but leadership is unlikely to come from Europe. Instead, we see stronger prospects in Asia‑Pacific and select emerging markets. Eurozone equities appear particularly vulnerable to renewed trade uncertainty. Economic momentum in Europe is already fragile, earnings growth is weak, and domestic demand offers little offset. European exporters are steadily losing global market share to Chinese competitors, especially in industrials and consumer goods. These cyclical pressures are compounded by structural challenges, including declining populations, tight labor markets, and heavy regulatory burdens which constrain productivity and profitability. We prefer to allocate elsewhere.
Industrial Materials over Precious Metals
Expectations of persistent shortages in industrial materials will remain a powerful market driver in 2026. Years of underinvestment, long project lead times, and rising demand from electrification, infrastructure, and defense spending continue to tighten supply in key commodities. As a result, industrial materials stocks appear well positioned, offering exposure to real assets with cash flows tied directly to physical demand. Compared with precious metals, which performed exceptionally well in 2025, industrial materials may represent a safer and potentially higher‑return opportunity this year, benefiting from both pricing power and volume growth rather than purely defensive demand.
Energy’s Quiet Message
Energy stocks have begun to recover, despite widespread expectations of ample supply relative to demand. This divergence is notable. Historically, energy stocks tend to move ahead of macro data, and their recent strength may be signaling rising inflation expectations rather than a tightening supply‑demand imbalance.
Ongoing capital discipline, geopolitical risks, and the strategic importance of energy security all limit the downside for prices. If inflation remains sticky or re‑accelerates, energy stocks could once again play a dual role, offering both return potential and protection against rising costs.
Bonds: A More Challenging Landscape
Unlike 2025, we expect long‑term bond yields to end 2026 higher, creating headwinds for longer‑duration bond investments. When yields rise, bond prices fall, and that relationship becomes more painful the longer the maturity.
That pressure is being amplified by extraordinary U.S. government debt issuance. Persistent fiscal deficits and rising interest expenses are driving a steady increase in Treasury supply, particularly at the long end of the curve. At the same time, international buyers appear increasingly reluctant to absorb incremental long‑dated issuance at current yield levels. This reduced foreign demand has pushed term premiums higher, placing upward pressure on long‑term yields independent of near‑term growth or inflation data.
Adding to these forces is elevated corporate bond issuance, especially from large technology firms financing massive data‑center buildouts to support AI and cloud infrastructure. Together, heavy sovereign and corporate supply increase overall credit availability and raises the level of risk the market must absorb. In this environment, bonds may struggle to deliver either strong returns or effective diversification, reinforcing the case for caution in long‑duration fixed income as structural supply dynamics continue to weigh on prices.
2026 is shaping up to be another year where thoughtful positioning, rather than passive exposure, makes the difference.
The artificial intelligence boom is reaching a critical juncture. After years of explosive growth, the economics of AI are shifting in ways that could upend who actually profits from the technology. While investors have poured billions into building the infrastructure behind AI, history suggests that the biggest winners may once again be the users—not the makers—of this new form of intelligence. Please see our initial blog on AI entitled, AI: The Intelligence Revolution
The coming AI revolution is going to be 100 times bigger than the industrial revolution – 10 times bigger and maybe 10 times faster, says Demis Hassabis, the CEO of DeepMind, the artificial intelligence arm of Google, and Noble Prize winner. We’ve received many questions from our clients about the impact of AI and how best to invest in it. Our first attempt at tackling this important topic follows.
Traditionally, the answer for most investors has been a resounding yes. For decades, many benefited from the positive performance of the standard 60/40 portfolio (60% equities/40% bonds). But times change, and bonds may not provide the security they used to. We review the primary benefits of bonds, discuss which types are the best portfolio diversifiers, and when bonds can be most effective.
There is no ‘one-size fits all’ answer to this question. Every recession or bear market is driven by a unique set of events, and the portfolio strategies that work best depend on the specific causes and the prevailing political and economic circumstances leading to the downturn.
Markets around the world are down today due to Trump’s unexpectedly punitive tariffs. These tariffs are feared to be inflationary and may cause a recession in the U.S. and abroad.
As Lenin famously said,” there are decades where nothing happens and weeks where decades happen.” We find ourselves in the thick of chaos, with daily political announcements and stock market gyrations. We anticipated volatility, but we got more than we bargained for.We work hard at fighting confirmation bias. In this blog, we attempt to understand different points of view and explain the steps we have taken in the current environment.
Deep Thoughts and DeepSeek
In 2024, much of the 25% equity market return came from multiple expansion. Earnings for S&P 500 companies only grew about 10%, but the amount investors were willing to pay for those earnings (P/E multiple) expanded by about 16%. Thus, about two thirds of 2024 equity performance came from multiple expansion.
In memory of famous investor Byron Wien, who was known for his list of 10 surprises each year, we provide our own list of potential economic, financial, and political surprises for 2025.
Is the Recent Runup in Chinese Stocks a Durable Rally or a Flash in the Pan?
In August of 2021, we decided China was un-investable and reduced our exposure to Chinese equities. In our blog “From Beijing to Wall Street” (here), we detailed our rationale.
Halloween Came Early
Ouch. Since August 1, the S&P 500 has fallen over 7%, a dramatic move, but not yet a correction from the July highs. However, the NASDAQ is down over 10% and firmly in correction territory.
What’s Happening Under the Covers
Why the U.S. Economy Has Remained Resilient in Spite of the Fed Raising Interest Rates and Reducing Their Balance Sheet
In memory of famous investor Byron Wien, who was known for his list of 10 surprises each year, we provide our own list of potential economic, financial, and political surprises for 2024.
If you just landed from Mars and we told you that three good sized U.S. banks had failed, the Federal Reserve had raised rates 5% in 13 months, the yield curve had been inverted since last year, the latest Senior Loan Officer’s Survey showed banks less willing to lend while already at recessionary lending levels, and according to Treasury Secretary Janet Yellen, we are within two weeks of the government running out of money to pay its obligations, would you believe the S&P 500 is up about 9% thus far this year?
How Banks Work
What Causes Banks to Fail
How the Government is Responding
How Bank and Brokerage Accounts May Be Protected
Dilemma for the Federal Reserve
We suspect most people think getting inebriated is more fun than sobering up.
We hate to sound like a broken record and ruin the party, but inflation presents a problem which won’t be easily fixed.
The four most dangerous words in investing are “this time is different”.
A Tongue in Cheek Guide to the Latest Investment Concepts
Mine your reward coins as you read our blog!
Who doesn’t love the story of David’s triumph over Goliath? This past week a group of “small” investors made tremendous amounts of money (on paper at least) by buying stocks that were heavily shorted by large, sophisticated hedge funds.
Markets hate uncertainty, and we can’t remember an election with such potential disparate outcomes. As we speak, the presidential race looks closer than ever, and the Senate majority is in question. Meanwhile the pandemic rages, and the President and Congress can’t agree on a stimulus plan. It’s no surprise stock market volatility has risen.
Fires are burning. The presidential election has never been more heated, and our whole election process is repeatedly questioned. The cold war with China continues to brew regardless of the political party in power. A global pandemic has taken hundreds of thousands of lives and jobs, created loneliness for our seniors, and caused those entering hospitals for medical procedures to endure alone.
He woke up today and asked us for an update. We explained there was a global pandemic that had claimed almost 400,000 lives worldwide and more than 100,000 in the United States.
How can we treat our ailing financial markets?
Medical experts say widespread lockdowns and social distancing must happen to contain the coronavirus and avoid overwhelming our hospital system.
the Coronavirus
Bombs and tweets couldn’t sink the S&P 500, but Covid-19 did.
While there is a role for gold in a diversified portfolio, gold is not universally liked or owned by investors and wealth managers.
The rates on overnight repurchase agreements, known as repos, suddenly rose above 9% last week.
We never really know where markets and the economy are headed, but market participants constantly look for clues.
Why does the current market tone feel different from the February and March stock market selloffs?
When do they protect you? When do they hurt you?
Worst Day Ever for the Dow Jones Industrial Average!
Perspective As the current bull market ages (from the bear market end in March 2009) investors are increasingly worried about buying at the peak.
The basic difference between a mutual fund and an exchange traded fund (ETF) is that an ETF trades like a common stock as its price changes throughout the trading day.
Brexit is spurring a flight to quality move into US Treasuries.
The short answer is yes.
