7 Key Themes to Watch in 2026
From an economic perspective, the 2020s have been remarkable in many ways thus far. Over the past six years, the global economy has weathered a series of significant challenges, including the pandemic, shifting monetary policy, the advent of artificial intelligence, geopolitical volatility, and changing U.S. trade policies.
Amid these developments, the S&P 500 produced double-digit returns in five of the last six years. The lone down year during this stretch was 2022. With this context in mind, we look ahead to the remainder of 2026 with seven key themes shaping our portfolio strategy:
Theme #1 – Diversification is risk management
For the first time since 2017, both developed international stocks and emerging markets outpaced the S&P 500 in 2025. U.S. bonds have reemerged as a source of stability and income after the worst annual return on record in 2022. Diversification may not always appear to be working in the short term, but it is an important tool for managing risk and return over time.
Theme #2 – Stock valuations are elevated
Strong returns over the last six years have stretched equity valuations. Current levels suggest returns have the potential to be more modest moving forward. High expectations around artificial intelligent increases sensitivity to negative surprises and the possibility of market volatility. Our portfolio diversification strategy is designed to help manage these risks.
Theme #3 – AI presents both upside and downside risk
Technology companies continue to lead markets higher, driven by infrastructure investments and growing adoption of AI tools. However, concentration creates vulnerability as these companies represent about one-third of the S&P 500. Our portfolios maintain exposure to artificial intelligence while also tilting toward smaller, cheaper stocks with an emphasis on profitability, as part of our overall risk-management approach.
Theme #4 – Economic growth is unexpectedly strong
While real GDP growth exceeded expectations in the second and third quarters, economic growth has been uneven across sectors. We continue to track economic growth and its potential impact on portfolio positioning.
Theme #5 – The impact of tariffs
Tariffs were a major driver of market volatility last year, but they have not derailed the economy or triggered inflation as many expected. It remains uncertain whether tariffs represent a lasting shift in the global order or simply another policy tool.
Theme #6 – Midterm Elections
The election cycle continues and we expect more political fireworks centered around tariffs, regulation, government spending, tax policy and the direction of the country.
Theme #7 – The Federal Reserve
With Federal Reserve Chair Jerome Powell’s term scheduled to end in mid-2026, a potential leadership transition at the Fed remains a consideration.
Stay tuned for additional insights as the year progresses.
If you would like additional insights or guidance, schedule a call.
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