Stephen M. Mills, CIMA® Partner
Chief Investment Strategist
Partner, Chief Investment Strategist
Charles Dickens’ 1859 novel, “A Tale of Two Cities,” is renowned for its opening line, “It was the best of times, it was the worst of times.” In 2025, that phrase seems to capture the global geopolitical and economic landscape. Over the past year, we’ve seen trade wars and supply chain disruptions driven by the Trump administration’s sweeping new tariffs; regional conflicts in the Middle East and Ukraine; devastating wildfires in Southern California; severe flooding in South Texas; water shortages in Brazil and Iran; the longest U.S. government shutdown on record; and continued political dysfunction in Washington.
Despite geopolitical and economic challenges and setbacks, global economic activity continued to grow slowly, and stock markets experienced significant gains. This recalls the Wall Street adage, “climbing the wall of worry,” which describes markets that rise despite negative news or economic fears. In 2025, this proved true, as many stock markets worldwide experienced strong gains. Now that 2025 is over, what can we expect for the economic and investment landscape in 2026? Please keep reading to learn our insights.
Economic Overview
The U.S. economy shrugged off the impact of higher tariffs, a sluggish housing market, a slowdown in manufacturing activity, and political dysfunction in Washington, posting annualized GDP (Gross Domestic Product) growth of approximately 2.0% in the first three quarters of the year. Third-quarter GDP was exceptionally strong, with an annualized growth rate of 4.3%, the strongest in two years.1 In our view, key growth drivers include investment in artificial intelligence (AI), lower interest rates, resilient consumer spending, and higher exports of goods and services. Many economists estimate that inflation-adjusted GDP growth for 2025 could be approximately 2.1% and could accelerate as we move into 2026.
We forecast continued strong growth for the U.S. economy in 2026 as trade uncertainty fades, business and household incomes benefit from tax cuts, and AI-related capital spending accelerates. Inflation continues to normalize in the U.S. and most major economies. The employment picture in the U.S. has softened from previous years, as the unemployment rate recently rose to a four-year high of 4.6%.2 However, traditional market-driven data may not capture labor statistics as accurately as in the past. Gig workers (individuals who earn income from short-term, flexible jobs, often referred to as gigs), whether independent contractors, part-time, or full-time, are not readily accounted for in standard government labor-tracking systems. In addition, millions of illegal aliens are working on an “informal” basis that goes unreported.
We anticipate a reacceleration in job growth this year as manufacturing activity picks up. We expect small businesses to drive job creation this year. We believe the tax-reduction provisions of the One Big Beautiful Bill (OBBB), signed into law in July 2025, will spur greater capital investment in business expansion and modernization. In addition, we believe government deregulation in health care, energy, and financial services will support business expansion and job creation.
In our view, the economy should also receive a significant boost in the second half of the year from tax refunds. Because the OBBB applied its tax cuts retroactively to January 1, most Americans withheld too much from their paychecks in 2025. The Tax Foundation estimates that the OBBB reduced individual taxes by $144 billion in 2025.3 Some financial analysts estimate tax refunds could reach as high as $300 billion. That could drive a meaningful increase in consumer spending, which accounts for nearly 70% of U.S. GDP. Windfall gains in household wealth from 2025 stock market gains and other financial assets could also support upper-income spending and drive economic growth this year. Consumer finances are as healthy as they have been in many years.
As illustrated in the chart below, total consumer assets rose to $197.3 trillion by the 2nd quarter of 2025, while total liabilities were $21 trillion, leaving a consumer
net worth of $176 trillion.4 The household debt service ratio increased slightly in recent years but remains very low at 11.6% of disposable income. We believe this is favorable for GDP growth in the first half of 2026, as changes in consumer net worth typically lead real GDP growth by two quarters.5
Additionally, the economic impact of the Trump administration's tariff policy was less than expected in the second half of 2025. Higher tariffs appear to have been borne by exporters, importers, retailers, and consumers, thereby spreading the economic burden. The Trump administration has employed “carve-outs” for many industries to mitigate the impact of the higher tariffs. For example, President Trump recently delayed a tariff increase on imported wood furniture, kitchen cabinets, and vanities, keeping the current 25% duty in place until January 1, 2027, rather than allowing rates to rise to as high as 50%.
Although we see continued growth for the U.S. economy in 2026, there will inevitably be a few setbacks throughout the year. One of those might be inflation. The latest Consumer Price Index reading for November was 2.7% year-over-year.2 Many economists expect inflation to rise next year to the mid-3% range, as higher tariffs affect consumer goods. A rise in the inflation rate could preclude the Federal Reserve from further interest rate cuts. The Fed implemented three 25-basis-point rate cuts in 2025, following a 1% reduction in the Federal funds rate in 2024.
The Federal funds rate is currently at a target range of 3.5% to 3.75%. Forecasts of the federal funds rate for 2026 anticipate further gradual cuts from the current range. The Federal Reserve’s “dot plot” as of January 2026 signals only one additional quarter-point cut for 2026. However, Federal Reserve Chairman Jerome Powell’s four-year term as Chair ends in May of this year, and President Trump has already indicated he will replace Powell. President Trump has publicly advocated for lower interest rates since January to boost economic activity. We believe a new Trump-appointed chair will be receptive to this idea and may press the 12-member committee to reduce rates further than the dot plot indicates.
At this stage, forecasting the Federal Reserve’s policy rate for 2026 involves too many variables. Estimates vary widely, with rate cuts potentially ranging from none to four. The outcome will depend on the Fed's leadership and factors like economic growth, tariffs, employment, and inflation. Nevertheless, we believe rates will not surpass the current level, which we see as beneficial for economic growth in 2026.
Equity Markets Overview
We are optimistic that the bull market in stocks that began in October 2022 remains intact and will continue to move higher in 2026. 2025 was the third full year of this bull market, with stocks posting a total return, including dividends, of 17.9%, as measured by the industry benchmark S&P 500 Index.6 That gain was despite a 19% drop in stocks in April after President Trump announced so-called “reciprocal” tariffs on most U.S. trading partners. Tech stocks once again led the way, with the technology-heavy NASDAQ Index rising 21.1% in 2025.6 The Dow Jones Industrial Average recorded a very respectable rate of return of 14.9%, including dividends.6
This past year’s strong stock market performance followed robust returns for U.S. equities in 2023 and 2024. Using the S&P 500 Index as our benchmark, U.S. equity market returns have exceeded 15% in four of the last five years, with 2022 the only exception, when stocks lost 18.1%.6 Non-U.S. markets outpaced their U.S. counterparts for the first time in many years, delivering returns of 31.9% for the MSCI EAFE Index of developed markets and 34.4% for the MSCI Emerging Markets Index.6 Overall, it was an excellent year for most equity investors.
Outlook for Equities
Stocks opened the new year on a strong note following U.S. military strikes in Venezuela and the capture of President Nicolas Maduro. In our view, the bold and decisive action reduces geopolitical uncertainty in our region and further strengthens the U.S. position on the global stage. The U.S. action may also open Venezuela’s oil market to U.S. companies. Two major U.S. oil companies left Venezuela in 2007 after then-President Hugo Chavez nationalized their assets. President Trump signaled that U.S. companies would be involved in restoring Venezuela’s crude oil production. Estimates indicate that Venezuela holds the world's largest known oil reserves, surpassing those of Saudi Arabia. Although many political and legal obstacles lie ahead, equity markets are currently celebrating the potential economic benefits of opening Venezuela’s oil market and a possible shift toward a more democratic government in an important neighboring country.
We see steady U.S. economic
growth, lower interest rates, moderating inflation, an improving geopolitical environment, and strong corporate earnings fueling the stock market higher this year. We believe corporate earnings growth was the primary driver of higher stock prices in 2025 and will again support stock performance in 2026. According to a recent FactSet Research System earnings estimate, S&P 500 earnings growth is projected at approximately 12.3% in 2025.7 FactSet estimates a 15% earnings growth rate for 2026, which is significantly above the 10-year average earnings growth rate of 8.6%. If achieved, it will be the 3rd consecutive year of double-digit earnings growth for the S&P 500. In terms of revenue, FactSet projects 7.2% growth in 2026, exceeding the trailing 10-year growth rate of 5.3%.
FactSet estimates that the technology sector will continue to lead earnings growth, with approximately 30% growth in 2026. The so-called “Magnificent 7” companies, which have been major contributors to the performance of the S&P 500 over the past year, are estimated to grow earnings by 22% in 2026, while analysts predict that the other 493 companies will report earnings growth of 12.5%.
As noted in our January 2025 TCM Investment Outlook & Strategy letter, we believe a new bull market in stocks began in the fall of 2022, when the S&P 500 Index bottomed at 3500.8 We also noted that there was more upside in the current equity bull market that could propel the major averages higher. 2025 turned out even better than we expected, with mid- to high-teens gains for the major stock market averages. Since October 2022, the S&P 500 has nearly doubled in value, reaching the 6900 mark in early January of this year for a 97% gain.9
We are now in the fourth year of this bull market, and we still anticipate further gains before it runs out of steam. According to various studies, the average equity bull market lasts 4-6 years and delivers cumulative gains of 180-200%. If this bull market is only average, there may be more gains ahead. Of course, past performance is no guarantee of future results. However, from our perspective, history and current fundamentals support the continuation of this bull market.
Bull markets often include frequent corrections or drawdowns in stock prices. Historical data indicate that 5%-10% corrections are typical in bull markets. In our experience, the S&P 500 Index has, on average, experienced a 10% correction at least once per year, and 3%-5% corrections are even more frequent. Occasionally, we see corrections in the 15%-20% range, as in 2025, when the S&P 500 fell 19% from mid-February to April 8 amid tariff fears. The S&P 500 fully recovered its losses by the end of June 9.9
We see a few risk factors that could trigger a stock market correction in the first half of the year. The imminent Supreme Court decision on the legality of the Trump tariffs could cause market volatility. Negative inflation reports could dampen prospects for further Fed rate cuts and unsettle investors. Additionally, if employment data continues to weaken, it could raise concerns about economic growth and heighten fears of a recession. We could also see volatility around U.S. government budget negotiations. Most of the government is operating under the Continuing Resolution (CR) passed in November. The CR expires January 30, at which point Congress either passes a bipartisan budget bill or the government shuts down again. We anticipate that the two political parties will reach a compromise and pass a budget. However, if they fail to do so and the government shuts down again, we believe this would have a negative impact on the stock market.
Despite these risk factors, we are optimistic about the prospects for further stock market gains. We continue to favor high-quality growth stocks and companies with a history of consistently raising dividends. (Dividends are not guaranteed and are subject to change or elimination.) We particularly like companies involved in cloud computing, computer hardware and software development, and artificial intelligence (AI) technologies. We expect widespread adoption of AI across all industry sectors over the next several years, which could have positive implications for both businesses and consumers as more applications are developed. This could increase demand for data centers and for hardware and software applications to meet the massive computing requirements. The adjacent chart illustrates various sectors of the economy that use AI across business functions. We believe that the adoption of AI will accelerate as both hardware and software capabilities develop.
We also favor allocating to smaller companies. Small-cap stocks performed well in 2025, with the Russell 2000 Index returning 12.8%.6 Although small-cap stocks have underperformed their large-cap counterparts during this bull market, we believe they look attractive on a valuation basis. Lower interest rates and U.S. economic growth could positively impact smaller companies this year and perhaps over the next few years. At some point in this bull market, we believe small-cap stocks could begin to outperform.
International stocks had a strong year in 2025, as discussed earlier. While some gains were attributable to a weaker dollar against most major currencies, it appears that investors are beginning to allocate more assets to international stocks to capitalize on their lower valuations. Although we are less optimistic about the opportunity in non-U.S. markets, we continue to recommend a modest allocation to international stocks for investors seeking greater portfolio diversification.
Fixed Income
Fixed income delivered positive returns in
2025, as shown in the chart below. Attractive yields and falling interest rates combined to deliver solid performance across fixed-income asset classes. The 10-Year U.S. Treasury note fell from a 4.6% yield at the beginning of 2025 to 4.2% on December 31.9. Generally, when bond yields fall, prices rise, potentially yielding a total return exceeding the yield to maturity. We expect fixed-income yields to remain range-bound and may end the year slightly above current levels. We continue to see good value for investors in the fixed-income markets. For investors seeking income and diversification, we continue to favor U.S. Treasuries, high-grade corporate bonds, mortgage-backed securities, prime money market funds, and tax-free municipal bonds. Although current interest rates for money funds, short-term CDs, and shorter-term securities fell during 2025 as the Federal Reserve reduced the federal funds rate, we believe they remain attractive, with yields in the 3.5%-4% range for taxable instruments.9 We view tax-free municipal bonds, with current yields ranging from 3%-3.5% for intermediate and longer-term maturities, as attractive for investors in higher tax brackets. Those tax-free yields translate to taxable-equivalent yields for investors in a 40% tax bracket of 5%-5.8%. As a note of caution, if inflation rises in the first half of the year, bond yields could move higher, and prices could weaken. For that reason, we continue to recommend keeping bond maturities under 10 years, with an emphasis on high-grade corporate, mortgage, and municipal bonds.
Commodities
While global stock markets rewarded investors with solid returns, precious metals substantially outperformed stocks in 2025. Gold prices rose 64% as central bank and speculative demand for gold bullion pushed prices higher.9 Silver and platinum prices surged 150% and 125%, respectively, due to supply shortages and increased demand.9 Industrial demand for silver rose significantly in 2025, driven by its use in solar panels, electric vehicles, semiconductors, and electronics. Platinum demand also rose in 2025. Platinum is primarily used in automotive catalytic converters; however, it has recently become essential for producing green hydrogen for clean electricity generation and for fuel cells in electric vehicles.
Overall, the commodity market rose 15.8%, as measured by the Bloomberg Commodity Index.6 In addition to the performance of precious metals, global copper prices recently hit an all-time high as investors scrambled to secure supplies amid surging expected demand and uncertainty tied to tariffs and geopolitical risks. Copper prices have risen more than 20% over the past two months, topping $13,000 a ton, or $6.5 per pound, on the London Metal Exchange for the first time earlier this week, as supply disruptions have increased the value of the key industrial metal amid the threat of new tariffs from the Trump administration later this year.9
Energy commodities were among the segments of the commodity complex that fared poorly in 2025, with both crude oil and natural gas prices dropping by 15%. Most energy experts attribute this decline to supply surpluses and weak demand. Although we maintain a positive outlook on the energy market, prices might keep weakening in the short term until supply and demand balance out.
We favor allocating assets to precious metals, industrial metals (particularly copper), and agricultural products. We expect demand for copper and silver to remain strong as the adoption of solar and wind power to meet rising energy demand expands, and as electric vehicles continue to gain market share. These technologies require substantial quantities of both copper and silver. According to our research, both copper and silver face significant supply constraints over the next few years, which could put upward pressure on their prices.
We see long-term upside in crude oil and natural gas as demand for energy resources rises with population growth, industrial expansion, and the growing use of data centers to support cloud computing and AI applications. We favor energy equities, particularly companies engaged in refining, oil and gas services, and the transportation of oil and gas products. Lastly, we believe agricultural commodities appear attractive given positive demographic and industrialization trends in emerging economies, which are driving higher food demand, especially for protein-based foods.
The Bottom Line
Overall, we remain optimistic about the U.S. economy and financial markets as the new year begins. We believe the U.S. has once again become a key destination for capital investments. Continued low interest rates and an accommodative federal policy, which in 2025 reduced the tax burden on businesses and eased government regulations, are expected to sustain growth this year. Additionally, both U.S. and international companies are likely to keep investing in U.S.-based manufacturing, data centers for AI applications, energy transmission, and real estate infrastructure in the coming years.
For most investors, we believe a portfolio balanced among stocks, bonds, and money funds is appropriate. We expect greater volatility in financial markets in 2026, so exposure to fixed income and cash could help reduce overall portfolio volatility. Stock market corrections after three strong years of gains are possible in 2026, as we discussed. We would use any corrections to add to stocks, where appropriate. We believe the beginning of the new year is a good time to review your long-term investment goals, evaluate your current asset allocation strategy, and ensure your portfolio is aligned with your goals and objectives.
As we start the new year, we sincerely thank all our clients for their trust and confidence in us. We're also excited about our partnership with Thurston Springer after a successful transition to their platform in October last year. We look forward to leveraging their extensive resources to better serve our clients and expand our business. We are grateful and privileged to serve you and your families, and we look forward to our ongoing relationship.
Wishing you and your families a very Happy and Prosperous New Year!
Your Trinity Capital Management Team
TCM Tyler, TX Location
821 ESE Loop 323, Suite 200
Tyler, Texas 75701
903-747-3960
Webite:www.tcmtx.com
Footnotes
1 U.S. Bureau of Economic Analysis https://www.bea.gov/
2 U.S. Bureau of Labor Statistics https://www.bea.gov/
3 https://taxfoundation.org/blog/tax-refunds-one-big-beautiful-bill-act/
4 JP Morgan Guide to the Markets as of December 31, 2025
5 Evercore ISI Weekly Economic Report, January 5, 2025
6 Wells Fargo Investment Institute Capital Market Summary
7 FactSet Earnings Insight, December 20, 2025. https://www.factset.com/earningsinsight
8 https://www.tcmtx.com/blog
9 Thompson One quote system.
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Investment products and services are offered through Thurston Springer Financial, Member SIPC, a registered broker-dealer. Trinity Capital Management, LLC is a separate entity from Thurston Springer Financial.
Past performance is no guarantee of future results, and there is no guarantee that any forward-looking statements made in this communication will be attained.
Stocks offer long-term growth potential but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations. Investing in foreign securities entails risks not associated with domestic investments, such as currency fluctuations, political and economic instability, and differing accounting standards. This may result in greater share price volatility.
The opinions expressed in this report are those of the author(s) and are not necessarily those of Thurston Springer Financial or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.
Investing in fixed-income securities entails risks, including market risk if held to maturity and credit risk, particularly for high-yield bonds, which have lower ratings and greater volatility. All fixed-income securities may be worth less than the original cost upon redemption or maturity. Yields and market value will fluctuate so that your investment, if sold prior to maturity, may be worth more or less than its original cost. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment. Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).
The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity.
Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns, nor can diversification guarantee profits in a declining market.
The Consumer Price Index (CPI) is a measure of the cost of goods purchased by the average U.S. household. It is calculated by the U.S. government's Bureau of Labor Statistics.
S&P 500 Index: The S&P 500 Index comprises 500 stocks selected for market capitalization, liquidity, and industry group representation. It is a market-value-weighted index, with each stock's weight in the Index proportional to its market value.
Russell 2000 Index measures the performance of the 2000 smallest companies in the Russell 3000 Index.
The Bloomberg Commodity Index is a composite index of commodity-sector returns representing an unleveraged, long-only investment in commodity futures, broadly diversified across the spectrum of commodities. It is calculated on an excess return basis and reflects commodity futures price movements.
Index return information is provided for illustrative purposes only. Index returns do not represent investment performance or the results of actual trading. Index returns reflect general market results, assume the reinvestment of dividends and other distributions, and do not reflect deductions for fees, expenses, or taxes applicable to an actual investment. An index is unmanaged and not available for direct investment.
