2025 had something for everyone…
Tariffs on, Tariffs off; a 19% pullback…and yet, true to form, the market exhibited resiliency and our portfolios finished the year significantly up across the board. Here is our outlook for first quarter 2026.
Current Positioning:
Asset allocation and security selection remains mostly unchanged heading into 2026 relative to our allocations in 2025. We are still meaningfully overweight technology [specifically semiconductors and cloud computing], as we expect artificial intelligence cap-ex and the necessary infrastructure buildout to continue commanding capital and investor attention. We have also increased our baseline cash allocations to a range of 5% – 9% up from 2%, in anticipation of adding to existing investments in publicly traded asset management firms through GPZ.
Future Investments:
GPZ:
We expect to add to our existing allocation in GPZ [Van Eck Alternative Asset Managers ETF], throughout the first quarter. Rate cuts and a more lenient regulatory environment should bode well for private equity to finally start turning larger deals. We expect private credit and real assets funds to also continue gathering their fair share of assets, all of which should drive share prices and management fees higher. The forecasted WA P/E ratio for GPZ is currently 17x, which we think is substantially discounted relative to major averages – especially with EBITDA margins averaging north of 40%.
JEEIX:
We are evaluating a handful of infrastructure funds that can play off the energy and construction themes of the global data center build out. Right now, our leading candidate for this trade is through John Hancock’s infrastructure and real assets investment arm. [JEEIX] is comprised of roughly 35 companies – both public and private – and is heavily concentrated in utilities, energy, and industrials. Exposure to utilities and energy is extremely limited [ ~ 5% / 2%] in the major indexes [SPX & NDX], so carving out a chunk for a concentrated allocation is necessary to gain meaningful exposure. We expect to make this allocation in the first quarter as well.
Slow Grind Higher:
There will always be plenty of things to point to that could potentially derail an epic bull run. In this case, we have heard a little bit of everything. “Valuations are too high”, “The Fed is too hawkish”, “The labor market is in trouble”, “The dollar is breaking down”, “The S&P 500 is propped up by seven companies”, etc. While there is some truth in all of these statements, I would like to point out that valuations alone aren’t a reason for markets to break down, you need a catalyst to devalue them in the first place. For good businesses with stretched valuations, what is more likely than a massive devaluation is that they eventually grow into their valuations through a series of solid earnings reports and guidance raises. They stop surprising analysts, the beat and raise margins taper off, and a support level is established barring any major changes. Case in point, Nvidia has gone nowhere in six months. Did the bubble burst? No, it just grew into its valuation.
On that note, only two of the “mag seven” companies actually outperformed the S&P 500 in 2025. 33% of S&P 500 companies outperformed the index, while 65% have posted positive returns. Market breadth is growing and that is exactly what we need to sustain a healthy bull market. Moreover, one of the hallmarks of a healthy bull market is that is takes out its own trash. In my view, investors have done a nice job of maintaining a healthy amount of skepticism to balance out their justified long-term optimism. Oracle’s chart since they released their FY 2026 2Q earnings report and long-range guidance is probably the best example of this. Investors ate up the great news, and self-governed it back down to earth after they did the math.
In short, we think the best way for this bull market to continue is through a slow, methodical grind higher, supported by fundamentals and breadth. Earnings expectations for 2026 are generally reasonable and should support further gains in stocks and investors should hold steady through periodic selloffs. As long as expectations remain reasonable, markets like this should pass most gut checks.
Thank you again for your trust, we wish you and your family all the best during this holiday season.