Current Outlook & Portfolio Strategy
Posted on January 7, 2026
By the time 2025 drew toward its final weeks, investors found themselves reflecting on a year that refused to conform to expectations. Wall Street had entered the year still exhausted from the volatility of late 2024, staring down what many believed would be an inevitable deceleration. After all, valuations were stretched, policymakers were still restrictive, and the AI investment wave that had propelled markets for two years appeared at risk of overheating. 2025 was anything but that, as U.S. equities posted a whopping +17% year as measured by the S&P 500.
This rise to all-time highs didn’t come without volatility. Significant uncertainty arose in the first half of the year as investors scrambled to calculate how an escalating trade war would impact corporate earnings, inflation and U.S. GDP. Equities plunged 21% peak-to-trough in March/April, only to come roaring back rallying an unprecedented 42% from April 7th through year-end. The jury is still out on the longer-term macro effects of tariffs as we remain in the early stages of evaluating the economic impacts. However, corporate earnings have been meaningfully better than expected since “Liberation Day”, with S&P earnings approaching ~$300/share (the highest ever, and up over 100% since 2020). Inflation has remained in check with the most recent year-over-year CPI and PCE at 2.7% and 2.8% respectively. And lastly, U.S. GDP has been stronger than expected, driven in part by the massive capital expenditures of the “hyperscalers.”
On that note, massive capital expenditures (capex) became a defining theme of 2025. The big five hyperscalers, (Amazon, Alphabet [Google], Meta [Facebook], Microsoft, and Oracle), spent an estimated $420 billion on capital expenditures in 2025. Outside of those five, companies across all sectors worldwide are racing to implement AI in their own businesses to increase efficiency, productivity and profit margins. Optimism related to the potential return on these investments has been one of the primary drivers of this bull market to date.
The Federal Reserve has added fuel to this rally by reducing interest rates by 0.75% in 2025. Continued easing is expected in the first half of 2026. This backdrop is expansionary. However, monetary easing into a roaring market when valuations remain historically high has led to fears of resurging inflation – which could quickly derail the bull market. This sets the stage for the question every investor asked at year-end: What comes next in 2026?
One certainty is that narratives will shift quicky in ’26 much like they did in ‘25. Inflation spikes aren’t common during periods of cheap oil. However, inflation is hardly the only barrier to growth, we face a slew of headwinds not dissimilar to 2025. Power constraints could bottleneck AI growth. Labor markets will likely continue to tighten as tech-driven industries expand. Commercial real estate distress could linger. And a market priced for perfection always faces the danger of disappointment. However, relative to most late-cycle expansions, 2026 begins with stronger structural momentum than the consensus view.
The story is not merely about higher stocks or lower rates—it’s about the rebuilding of America’s productive foundation, the modernization of corporate models, and the dawning realization that the combination of massive capex, structural productivity gains, and supportive macro policy may define this era for years to come.
2026 should be the year markets transition from AI excitement to AI execution. Companies that deploy AI effectively will widen their lead, and in doing so their earnings growth will remain resilient. Our core focus at Florida Trust is to identify and invest in quality companies like these while minimizing volatility and protecting your legacy through diversification and prudent asset management.
Logan Webb, CFA, CFP®
Portfolio Management
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