Summary and Implications - Q4 2025
The U.S. economy has remained strong, though emerging signs of moderation support the case for additional Federal Reserve rate cuts extending into 2026. The risk of an enduring recession remains at low probability levels. Global markets are enjoying a continued surge in risk appetite, especially for AI-fueled technology plays, and for hard assets that serve as the basis for a surge in infrastructure spending.
The current environment speaks to less attractive valuations across risk-based assets, namely U.S. large caps and corporate credit fixed income, despite more muted market volatility and expected lower interest rates heading into 2026.
Equities: we remain diversified across regions and styles and favor tilting away from the U.S. Mag7. We seek opportunities in small and mid-caps that demonstrate resilient growth and profitability as well as growth opportunities in defensive sectors that have largely lagged the broader market advance.
Fixed income: take advantage of high real rates and a steep yield curve for roll down premiums. We remain defensive on overall credit risk, preferring to allocate risk assets to equities and real/hard assets.
Investment Summary and Outlook
2025 proved a robust year for risk assets, with global equities, fixed income (particularly high-yield), and commodities—especially precious and industrial metals—delivering strong returns. This resilience persisted despite the ongoing shift from the post-WWII globalization era, marked by heightened trade tensions. Investors initially recoiled from President Trump's early-April "Liberation Day" announcement of reciprocal tariffs, but quickly regained confidence, pouring capital into risk assets and pushing valuations across equities and credit to multi-decade highs. The year closed strongly, buoyed by international stocks, which outperformed their U.S. counterparts for the first time in over a decade—a reversal driven in part by a sharp U.S. dollar decline (Figure 1).
Click here to read the full Year-End Commentary and Year-Ahead Outlook
860-291-1998
Schedule Demo
