“Anyone that disagrees with me will never be my Fed Chairman!”
Donald Trump 2025
As we turn the page from 2025 to 2026, we reflect on the last 12 months. During 2025, we witnessed every norm of economic, monetary, and fiscal policy challenged. We witnessed and lived through a black swan event in the equities markets as well as fixed income markets that nearly broke the financial system. A black swan event that was caused by a misstep or miscalculation on how tariffs would be perceived in the financial markets and how those markets would interpret the negative consequences of those policies. At the same time, we witnessed an unprecedented amount of capital expenditure spending by companies that are rushing to get a slice of the AI revolution. The Fourth Industrial Revolution is a transformation in technology, happening at a pace that we have never seen before. The amount of disruption is of massive size and the potential effects on the US economy have the potential to become the great economic revolution. We need to be careful though; we do not want to ignore sound monetary policy that has served our country well for decades and that we do not make decisions for short-term gain, but instead focus on the long-term health and prosperity of our great nation.
As we enter 2026, we anticipate volatility may pick up over the near term, the economy continuing to grow throughout the year while we place a very low probability of a recession in 2026. Below we will discuss some of the pros and cons that we see over the next 12 months:
- Trump’s upcoming “Making America Affordable” tour will focus on the frustrations of American consumers with the high cost of consumer goods. Trump also floated the idea of a $2,000 rebate check for Americans funded by tariff revenues.
- The “One Big Beautiful Bill Act” passed in July of 2025 will create stimulus to the economy as a result of massive tax refunds, renewed business incentives and an additional three trillion dollars added to the US deficit. Many of the tax cuts are retroactive to January 1st, 2025.
- The Federal Reserve has cut interest rates by 150bps since September 2024 which should continue to be stimulative to the economy.
- The Federal Reserve terminated its Quantitative Tightening on December 1st and has restarted Quantitative Easing (QE) purchasing $40 billion of Treasury Bills a month.
- Legendary Investor Marty Zweig’s important rule “DON’T FIGHT THE FED.”
- Baby Boomers are continuing to spend. Collectively Baby Boomers have $85 trillion in net worth.
- AI Revolution.
Some of the cons are as follows:
- A potential loss of Federal Reserve Independence and a potential policy mistake.
- $36 trillion in US debt and aggressive stimulus and spending triggering a rapid rise in bond yields. Debt Crisis?
- The Supreme Court overturns Trump’s tariffs.
- High valuations in the technology space and the fear of an AI bubble, The Buffett Indicator is at significantly overvalued levels.
- Massive capex spending is no longer being funded by cash flow but instead through debt financing. Complex and opaque debt funding.
- Geopolitical Risk. China/Taiwan, Russia/Europe and other uncertainties.
In closing, as we begin the new year, we want our clients to know that we will be making some changes to the models in your portfolios to better position our investments for 2026. As we reach out to all our clients, we will be discussing your financial plans, investment portfolios, and our outlook for 2026. And as always, I want to stress that having a strong plan is an important part of your financial and retirement planning. Thank you and have a blessed 2026.