As we begin 2026, it’s worth reflecting on what drove markets over the past twelve months and exploring the themes that could shape the year ahead.
In our latest annual market review, Instrumental Wealth's CEO David S. Silver, CFP®, CEPA® and Chief Investment Officer Matthew Harbert, CFA® examined these developments and their implications for portfolios heading into 2026. Below, we break down the key insights to help you navigate the current economic and market environment. Play the video or see the transcript summary organized by sections.
Table of Contents:
At the beginning of 2025, it appeared we might finally see the long-awaited broadening out of the market. Early in the year, the biggest tech names significantly underperformed the rest of the S&P 500. By the end of the first quarter, the Mag Seven companies* had underperformed the remaining 493 companies by over 16%.
A couple of things drove that shift:
For a while, it looked like leadership was finally changing. But as we moved into the second quarter and beyond, that story reversed. As investors had time to digest the AI and tariff headlines, fears moderated. Earnings remained strong, balance sheets stayed healthy, and by the end of November, the Magnificent Seven had clearly reasserted their dominance, outperforming the remaining S&P 500 companies by almost 10%.
Another major theme in 2025 was the strong outperformance of international equities relative to the US. This wasn't just a short-term trade. It marked a meaningful shift.
After years of US dominance, both developed international markets and emerging markets outperformed US equities due to several forces working together:
This shift highlights the importance of global diversification and was an important lesson after many years the US markets seemed to be the only game in town.
2025 was a year of pauses and restarts for the Federal Reserve. Early in the year, the Fed paused rate cuts amid concerns that inflation might re-accelerate. But as employment data significantly cooled over the year, the Fed shifted course again.
Rate cuts resumed in September, with total cuts for the year coming to 75 basis points. That said, policy makers remained cautious. Large fiscal deficits and tariff-related inflation risks kept the Fed from moving too aggressively.
While rate cuts were a tailwind for markets, we did not see a return to ultra-easy monetary policy.
The big question going forward isn't how fast rates will fall, but where they will ultimately settle. We expect continued easing, but at a slow and more deliberate pace. The Fed will remain very data dependent, balancing cooling inflation, a gradually slowing labor market, and ongoing fiscal and trade uncertainties.
For markets, this likely means:
Our base case for 2026 is slower growth, but not a recession. Consumer spending should cool but remains supported by relatively healthy household balance sheets and continued income growth, even if that growth is slower.
Business investment is a key swing factor. Areas like technology, infrastructure, energy, and reshoring will be especially important.
Bottom line: We expect the economy to slow, and growth may feel bumpier than what investors have become used to in prior cycles.
The consensus view heading into 2026 is for more modest depreciation. Key drivers include:
That said, dollar weakness is unlikely to be linear. Rebounds are still likely during periods of market stress.
A softer dollar is generally supportive of commodities and emerging markets and does reinforce the case for global diversification.
One of the central questions for 2026: Does US leadership reassert itself, or does the global rotation continue?
US equities still often benefit from innovation and strong corporate profitability. At the same time, international markets look attractive due to lower valuations, more accommodative policy in many regions, and potential benefits from a weaker dollar.
Stepping back, we believe the big picture for 2026 includes:
We believe 2026 increasingly favors diversification rather than heavy concentration in a single market or theme.
Looking ahead, investors should maintain disciplined, diversified portfolios while remaining attentive to evolving economic crosscurrents.
*The "Magnificent Seven" (or M7) refers to seven dominant U.S. technology companies—Apple, Microsoft, Amazon, Alphabet (Google), Nvidia, Meta Platforms (Facebook), and Tesla—that heavily influence the stock market.
This market commentary is based on our 2025 Year in Review featuring CEO David Silver and CIO Matthew Harbert, CFA®.For personalized guidance on how these developments may impact your investment strategy, please contact us.
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This article is for informational purposes only and should not be construed as legal or tax advice. Please consult with qualified professionals regarding your specific situation.
Instrumental Wealth is an investment adviser in Tampa, Florida. Instrumental Wealth is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. A copy of Instrumental Wealth's current written disclosure brochure is available through the SEC's website.
Not an offer: This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has knowledge and experience to understand and make an evaluation of the information, the risks associated therewith, and any related legal, tax, or other material considerations. To the extent that the reader has any questions regarding the applicability of this information to their specific situation, they are encouraged to contact David Silver or consult with the professional advisor of their choosing.