Economic & Market Outlook: What We’re Watching as Growth Continues

Over the past few years, investors have been rewarded with strong equity market returns. U.S. stocks in particular have delivered impressive performance, supported by resilient economic growth, steady corporate earnings, and rapid innovation in the technology sector. While these gains have been welcome, they also mean that market valuations today appear somewhat stretched compared to long-term historical averages.

That said, valuation measures on their own are not very good timing tools. Markets can remain expensive, or inexpensive, for extended periods, and attempting to reposition portfolios based solely on valuations has historically been difficult and often counterproductive. Instead, valuations are best viewed as one of many inputs when assessing long-term return expectations and portfolio positioning, rather than as a signal to make short-term changes.

Economic Growth & the U.S. Consumer

Looking ahead, we see solid economic growth continuing into 2026. The U.S. economy has shown a remarkable ability to adapt through higher interest rates, inflationary pressures, and geopolitical uncertainty. Employment levels remain healthy, wages have continued to grow, and many households still maintain relatively strong financial positions.

The U.S. consumer plays an outsized role in driving economic activity, and we are closely monitoring trends in consumer confidence and spending. While spending has remained resilient, higher borrowing costs and the gradual drawdown of excess savings built up in prior years could weigh on future consumption. Business confidence and corporate investment decisions will also be important to watch, as they influence hiring and capital spending. Outside of the massive infrastructure build funded largely by big technology companies, it is challenging to quantify the impact of AI on business outside of the tech sector.  Survey data is mixed but generally points to plans for more widespread adoption of AI tools in 2026, though many firms will likely still be in the experimentation phase, rather than a full scale implementation

Market Concentration in the U.S.

One area we continue to monitor carefully is the increasing concentration within the U.S. equity markets. A relatively small number of very large companies have driven a significant portion of the overall market returns in recent years. As these companies have grown, they now represent a substantial share of the publicly traded US market.

This concentration creates both opportunity and risk. On one hand, these companies are often leaders in innovation and growth. On the other hand, heavy reliance on a narrow group of stocks means that market performance can become more vulnerable if these companies don’t meet or exceed the very high expectations investors have for these companies.

From a portfolio perspective, this reinforces the importance of diversification, both across sectors and various asset classes. While U.S. equities remain the core component of our portfolios, we believe it is prudent to avoid overreliance on any single group of companies, no matter how successful they have been recently. This dynamic underscores why we intentionally diversify across multiple sectors and asset classes, to help manage risk and pursue more consistent long-term performance outcomes.

The Case for International Equities

Another area where we continue to maintain exposure is international equity. After several years of lagging U.S. markets, international stocks outperformed last year. This was driven in part by a large valuation gap between U.S. and non-U.S. markets, as well as a weaker U.S. dollar, which provided a tailwind for international returns when translated back into U.S. dollars.

International markets offer exposure to different economic cycles, industries, and policy environments. While they may not always lead performance, they can play an important role in reducing portfolio volatility and enhancing long-term return potential. Valuations outside of the U.S. remain generally more attractive than domestic counterparts, which can provide a margin of safety during periods of market uncertainty.

Staying Focused on the Long Term

Markets will inevitably experience periods of volatility, but while these fluctuations can be uncomfortable, they are a normal and expected part of investing.

Our focus remains on building well-diversified portfolios aligned with long-term goals, risk profiles and time horizons.

As always, we will continue to monitor economic conditions, market developments, and risks closely, and adjust when warranted, while keeping our primary focus on helping clients stay on track toward their long-term financial objectives.