Market Expectations for 2026 and the Cost of Christmas

Market Outlook for 2026

• 📈 2025 saw significant market gains driven by earnings growth (10-11%), with expectations for continued 13% growth in 2026.
• 💡 Volatility in 2025 was linked to policy uncertainty, particularly around tariffs and Federal Reserve actions, with markets performing well in the aftermath of clarity.
• 📉 Expectations for 2026 include lower interest rates from the Fed and a potential emergence from a global mid-cycle slowdown, supporting broader market participation beyond big tech.
• ⚠️ Risks include potential policy uncertainty around future tariff regimes and, more significantly, the Fed's independence, which could impact the bond market.
• 🏦 Investors are anticipating at least two Fed rate cuts in 2026, with some analysts suggesting cuts could come sooner if labor market data continues to weaken.

Global Central Bank Dynamics

• 🇺🇸 The US is expected to lower rates more than other developed central banks, potentially leading to a sideways or moderating dollar, which could benefit international and emerging markets.
• 🌍 Capital may flow to other regions with more compelling valuations, as seen with the MSCI EAFE outperforming the S&P 500 in 2025.
• 🇨🇳 China's need to combat deflationary impulses and the European Central Bank's rate cuts contribute to a backdrop of improving global economic activity.

Sector Rotation and Cyclical Trends

• 🏥 Sectors like healthcare are showing signs of recovery, moving from a lagger to a leader, driven by valuation and earnings recovery.
• 🏭 Cyclical sectors, including industrials, commodities, energy, and materials, are showing signs of turning up, potentially benefiting from a global economic trend.
• 💡 Within growth, biotech is mentioned as a potential area for rotation.

The Cost of Christmas

• 🎄 The total cost of the 12 Days of Christmas in 2025 is estimated at $51,476, an increase of 4.5% year-over-year.
• 🏡 The cost of the pear tree is a significant driver, tied to proxy housing costs which continue to increase despite falling mortgage rates.
• 💰 The five gold rings saw the largest year-over-year increase at 32.5%, reflecting record gold commodity prices driven by macro uncertainty, geopolitical concerns, and lower opportunity costs of holding gold.
• 🎤 Services and experiences, such as the