4th Quarter News
We saw a quote from a stock market pundit that captures our mind frame regarding the year ahead in the stock market: “2026 won’t be about easy gains – it will be about earning them.”
We worked hard on client strategies in 2025. But the overall surge in the market – for the third consecutive year – did give us some extra good results. The market was driven by underlying resilience in the economy and the powerful interest in the potential of artificial intelligence. The rally moved past the uncertainties of President Trump’s April tariff announcements and worries over rising U.S. national debt, governmental shutdown, and the various geo-political events.
The predominant forecast for 2026 is for a fourth year of double-digit gains in the market. Only a handful of outlier analysts predict a pullback. Analysts polled by FactSet forecast, in aggregate, that the S&P 500 will finish close to 8,000 – another gain of 16%. This view is based upon a solid economy, strong corporate earnings, stimulus from the 2025 tax cuts, and the view of artificial intelligence as historically transformational.
We agree with this general optimism at Hudson Advisors. But we do have some important caveats about the market’s reliance on Big Tech names and AI enthusiasm. Over the past three years, the so-called Mag 7 have produced more than half the stunning 88% rise in the S&P 500 index. The valuations of these stocks are essentially a bet on future performance.
At Hudson Advisors, our approach will be to look across the market for value-oriented sectors with cash flow visibility rather than narrative growth. Our investment case is grounded in low valuations relative to profitability. Value gives us participation without overpaying for optimism. That is how we will earn good returns for our clients in 2026.
The Economy: We liked the description we saw of the US economy as: “Not a bust — but not a boom.” Annual GDP growth for full year 2025 is expected to come in at around 2%. – slower than in 2024 but still positive. Consumer spending was upbeat and helped sustain economic activity. Average wages grew faster than inflation, with hourly wage gains of 3.8%, giving some workers slight real income gain. Investments in technology and AI-related capital expenditure contributed to growth. The Federal Reserve cut rates 3 times in the final months of the year.
But not all is robust with the economy. The labor market added about 580,000 new jobs in 2025 – the lowest gain since 2020 – and well below the 2 million added in 2024. Most of the 2025 job growth was in the health care sector and job seekers in other sectors struggled. Inflation remained above 2.5% and the still evolving impact of tariff policy complicated understanding of consumer price trends.
The outlook for 2026 is similar: for modest but steady growth. Forecasts for the GDP are in the 1.7%-2.2% range. Job growth will continue to be subdued. Inflation is expected to remain in the 2.5%-3.0% range. Some economists call the current situation ‘stagflation lite” The Federal Reserve is being very guarded about intended monetary actions in 2026.
