By: Matt Garrott
What Happened in 2025
The S&P 500 continued its streak of double digit return years with a 17.9% return in 2025, including dividends. Due in part to a weaker US Dollar, Developed International stocks did even better at 31.9%, while Emerging Markets stocks topped both at 34.4%. Bonds turned in very respectable results as well with the Bloomberg US Aggregate bond index gaining 7.3%.
Like every year, 2025 was expected to be a stock picker’s market. Jon Ferro of Bloomberg has noted that the phrase “stock picker’s market” is generally paired with the future tense rather than the past tense. It’s usually “Next year is going to be a stock picker’s market” not “Last year was a stock picker’s market”. How did 2025 go? The S&P 500 outpaced 77% of active large cap blend managers during the calendar year.
In the fixed income world, municipal bonds had a sluggish start to the year before rallying into year-end. Taxable bonds had a more even year. The muni yield curve is steeper than the taxable yield curve with intermediate bonds of both varieties paying reasonable rates. The Federal Reserve delivered three rate cuts.
A dovish Federal Reserve, strong corporate earnings, and softer labor data all boosted investor appetite for risk, some of this flowing into cryptocurrencies and precious metals due to expectations of unrelenting government spending. Labor data remains a mixed bag. The reported numbers are fine but often suffer large revisions after the fact. Gold, supposedly a risk hedge, spiked even as the risk-on AI trade soared.
The question investors are asking themselves at the end of 2025: “Is the Artificial Intelligence trade a bubble, and if so, is it about to pop?” AI used to mean artificial intelligence developers and chip companies. In classic Silicon Valley fashion, the developers are in the process of shifting the asset-heavy aspects of AI, data centers and power generation, to outside firms. In the movie Field of Dreams, a voice said, “If you build it, they will come.” This worked out fine for one crazy guy in Iowa, but it seems like everyone is building data centers today. The last time there was a massive tech hardware buildout, telecom companies discovered too late that they had massive supply for too little demand. Pricing imploded, cascading into collapsing stock market valuations. On top of that, headlines make it seem like AI companies are playing an expensive game of hot potato, passing around the same $30 billion sack of cash to buy chips and data centers from each other. On the other hand, the big AI players are generally cash flow rich and can afford to throw money at AI in the hopes that they become the dominant player in the space. One clear winner in this whole situation is Anguilla. Over 50% of Anguilla’s state revenue now comes from sales of their top-level internet domain code – .ai.
In Fairway news, we hired Blake Rudy and Carter McAbier in Associate Wealth Manager roles and Ben Perelka to our Investment Research efforts. Several members of the Fairway team have been quoted in national media (see our In the News page). If you have a conversation with someone who is concerned about their investments, worried about recession, or is anxious about another personal financial event, please connect them with us. A joint email goes a long way.
Buzzwords: DOGE, Tariffs, Iran, Immigration, AI, Weak Dollar, Data Centers, Government Shutdown, Liberation Day, K-Shaped Recovery
Outlook for 2026
Don’t expect one extended narrative for 2026. Already, we’ve had a military operation in Venezuela. There is plenty of time for multiple themes across the news cycles leading up to mid-term elections. It would be a mistake for investors to attempt to juggle their portfolios in reaction to each crisis du jour between now and then.
Regarding the AI question earlier in this commentary: “Is AI a bubble?” Stock pickers (investment product sellers) need to have an answer to the bubble question and if it’s not “buy more of my stock picking”, they’ll go out of business. For them, predictions are marketing. Long-term investors (investment product buyers) don’t need to have an opinion on which direction the market moves in the short term or why. They already know they’ll execute their financial plan whether the market is up or down, regardless of that day’s headlines. For this crowd, Process beats Prediction.
After doing some math, I am willing to go out on a limb and make one prediction. First, the numbers: 2026 – 1776 = 250. This will mean a year filled with Red, White, and Blue everything. The United States of America is the greatest country on the planet and I can’t wait to celebrate the 250th anniversary with my fellow Americans. I predict the Garrott household will see increased spending on hotdogs, hamburgers, ice-cold beverages, and over-the-top patriotic apparel this summer.
Oaktree’s Howard Marks had a good piece recently on investment risk. It gets into the weeds a bit, but he raises some excellent points from the perspective of an endowment board member on the role of risk in meeting financial goals. For the most part, our clients have the ability to withstand more risk than they take on in their portfolios. Marks points out that when market returns are high, even many seasoned investors are tempted to ask how to make up the returns they “lost” by not being more aggressive. Is this the right question? One thing we know: getting burned after chasing risk feels worse than missing out on returns you don’t need. On our side of the ledger, there is career risk in not recommending the latest hot investment trend, but as fiduciaries, we aspire to be stewards of generational wealth, not asset gatherers looking for short-term pops.
Annual predictions often focus on what will change in the coming year, but it can be more valuable to recognize what isn’t changing. Rebalancing and tax loss harvesting will continue to serve investors well. Be mindful of taxes, especially when anyone suggests you put your money in motion. Chasing yield or returns will increase the odds of an unforced investment error. Investors should say no (or have us say it) more often than they say yes to pitches. Just like every other year, Wall Street expects 2026 to be a stock picker’s market. Just like every other year, we suggest ignoring the sales pitch and keep with what works over the long-term. Control costs, manage taxes, and most importantly, stick to and execute on your individualized financial plan. We continue to emphasize passive investing, but active wealth management. Too many investors get these concepts reversed to the detriment of their wealth and peace of mind.
If you request that we move money via wire transfer, expect a phone call from us to confirm. Scams are getting more sophisticated. The best way to protect our clients is to obtain a verbal confirmation.
The news is unrelenting and consistently negative. As usual, we will be reaching out to you throughout the year, but if you feel the urge to pick up the phone and talk about anything, we are here. Retirement goals are being hit. People are getting married. Babies are being born. We want to hear about it. It’s easier than ever to fall into social media doomscrolling or the news cycle and forget that there are reasons to celebrate and there are people to share those triumphs with.
We are thankful and humbled by the support and kindness we’ve received from our clients this year. We promise to deliver on our core values: Integrity, Service, Reliability, Insight, Excellence, and Results.
Market Commentary Disclosures
Fairway Wealth Management LLC (“Fairway”) is an SEC Registered Investment Adviser. Registration does not imply an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.
This post represents the opinions of Fairway as of the date indicated and may contain forward-looking statements, predictions and forecasts. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Past performance is no guarantee of future results. Market conditions can vary widely over time and can result in a loss of portfolio value.
This post is prepared using third-party sources. Fairway considers these sources to be reliable; however, it cannot guarantee the accuracy or completeness of the information received. This information is educational and general in nature and is not intended to be, nor should it be construed as specific investment, tax, or legal advice. Charts are provided for the illustrative purpose of general market commentary. No client or prospective client should assume the above information serves as the receipt of, or substitute for, personalized individual advice.
