| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
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| - | - | - |
Markets delivered strong returns in 2025 despite elevated valuations, with the S&P 500 up 17.9% driven by AI-led technology earnings and international markets meaningfully outperforming for the first time in years. The core thesis centers on a transition where future returns will depend more on earnings durability and cash-flow generation rather than further multiple expansion, as the S&P 500 trades at 23x forward earnings well above its long-term average. Key return drivers include sustained capital investment in AI, infrastructure, and energy supported by demographic pressures and labor scarcity, along with continued low-double-digit earnings growth. Primary risks include elevated valuations increasing market sensitivity to disappointments, potential Fed policy uncertainty with Chair Powell's term ending, and compressed spreads across fixed income leaving less room for error. Current positioning emphasizes selectivity, diversification, and focusing on companies with durable earnings power and strong balance sheets. The outlook remains constructive for 2026 with GDP growth expected between 2-3%, though the environment requires flexibility over adherence to historical frameworks given demographic constraints and sustained capital investment patterns.
Markets delivered strong returns in 2025 despite elevated valuations, driven by AI-led technology earnings and international outperformance, but future returns will depend more on earnings durability than multiple expansion in an environment that requires selectivity and focus on companies with strong fundamentals.
Outlook remains constructive for 2026 with real GDP growth expected between 2.0% and 3.0%, supported by steady consumer spending and continued investment in infrastructure, energy, and productivity-enhancing technologies. The macro environment appears neither strong enough to force monetary tightening nor weak enough to meaningfully undermine corporate earnings. Flexibility, diversification, and focus on underlying fundamentals remain more valuable than adhering to historical rules of thumb.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 27 2026 | 2025 Q4 | - | AI, earnings, growth, international, rates, technology, Valuations | - | Markets delivered strong 2025 returns driven by AI-led technology earnings and international outperformance, but elevated valuations at 23x forward earnings mean future returns depend on earnings durability rather than multiple expansion. Sustained capital investment in AI, infrastructure, and energy supports growth, though selectivity and focus on strong fundamentals become increasingly important in this environment. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI investment has been a major contributor to recent growth and technology-led earnings, supported by long-term capital investment. However, the pace of AI-related investment is expected to slow from exceptionally fast levels seen over the past two years. |
Artificial Intelligence Technology Investment Growth |
ValuationsEquity valuations remain elevated with the S&P 500 trading near 23x forward earnings, well above its long-term average of 15.6x. Elevated valuations may constrain longer-term returns and increase market sensitivity to earnings disappointments. |
Valuations Multiples Risk Returns | |
RatesThe Federal Reserve cut rates three times in 2025 and currently expects one more cut in 2026. Higher yields have improved income potential with the 10-year Treasury ending at 4.18%, offering reasonable income and diversification benefits. |
Federal Reserve Interest Rates Monetary Policy Bonds | |
DollarA weaker U.S. dollar, down 9.4% in 2025, provided a notable tailwind for foreign assets and contributed significantly to international equity outperformance. |
Currency International Foreign Assets |
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