2025 was another good year for markets even with the spring tariff plunge. Even though we were promised big cuts in government spending, the deficit grew even faster than the 2020 covid year. Job losses are increasing, the Fed is cutting interest rates, but AI spending is keeping the markets and the economy afloat if only barely. As 2025 draws to a close, we will first look at our 2025 surprises before looking ahead to 2026.
#1: Stocks end the year with negative returns. While this looked very likely in April with losses approaching 20%, a walk back of tariffs and a government ramping up spending allowed stocks to end the year well in the positive.
#2: Natural Gas is the best performing asset. Once again, this surprise looked great through March after doubling in price only to see those gains wiped out by the end of the year.
#3: The MAG 7 will underperform the S&P 500. With a couple weeks left in the year only 2 stocks NVDA and GOOG outperformed, however the overall MAG 7 did outperform overall.
#4: Treasury bonds become a safe haven again. There was some credence to this as treasury yields dropped for the most part when markets were selling off this year. In a good year for risk assets, yields remained mostly unchanged as well.
#5: What happens in China matters. This was true but for the wrong reasons as most of what mattered was the trade relationship with the USA.
#6: The Trump Presidency is uneventful. While it has been anything but uneventful between geopolitics, tariffs, bombings, social media, there was a new term coined this year which was TACO or Trump Always Chickens Out. For all the bluster, he does tend to walk back many of the harshest things he says he is going to do.
#7: Risk makes a comeback in the degenerate economy. This ended up being very true especially in the later part of the year with ORCL credit default swaps and some big time Crypto liquidations. It has not stopped the gambling though……yet.
#8: Central Banks Flip and Flop. This could not have been more spot on. We went from holding rates and worried about inflation to cutting rates and worried about jobs by the end of the year.
#9: Trump and Musk have a falling out. I am not sure how to grade this. They had a major public fall out and Musk left DOGE early in the year. However, since he left they seem to have “made up.”
#10: Podcasting reaches saturation. This could not have been more wrong. Quickest way to riches is a viral video. Now you can throw AI in the mix and you do not even have to be a real person to have a podcast.
2026 Surprises
#1: Precious Metals Peak. The asset class to own in 2025 was precious metals as just about everything related to the space more than doubled. As flows finally start to catch on and many predicting even bigger returns for 2026 we see a blow off top that eventually retraces lower. Just remember, in precious metals, you do not get much of a window to sell the top.
#2: The Federal Reserve Is Forced into Doing More. The consensus is for the Fed to cut a few times next year and then stop. There is a wild card with a new Fed President coming in and POTUS pushing heavily for more rate cuts. The economy is in a fragile place with job losses accelerating. It won’t take much for this to filter into stock and bond markets forcing the Fed to cut rates more aggressively.
#3: AI Data Center Buildout Hits A Wall. The amount of “deals” announced in 2025 was staggering and the adoption of AI in the workplace is just starting. However, the amount of energy and water needed to build out these centers, coupled with the potential for permanent job losses, and an already stressed out population from high prices will cause an uprising which will become a hot topic as we get into the midterm elections.
#4: Mid Term Elections put a kink in the current administration plans. As we get closer to the midterm elections there are going to be a lot of hot button items that could be devastating to the incumbent party. Having to be sensitive of this and not risk gridlock for the last 2 years for the President, they will be forced to pull back on government plans that are unpopular and stay away from any new plans that could be unpopular as well.
#5: Consumer Staples outperform the S&P 500. Consumer staples have been an awful place to be invested for the last several years as inflation has eaten into profit margins and pricing power has not been as strong as other areas. As inflation wanes and interest rates come down, staples see more money flows as margins stabilize and the asset becomes a viable alternative to cash.
#6: The SpaceX IPO will not be well received. While the stock may do well in the initial days of trading, the proposed size of the deal will hinder other areas of the market including Tesla. Money will rotate and it could cause a correction in the stock market.
#7: Stock Markets end the year flat. Many are claiming AI bubble and many are claiming AI 5th inning. Since it is such a huge weight in the indices this matters a lot to markets. While we can see some larger gyrations, neither party wins out and we end up with a flat market.
#8: Japan becomes the biggest risk to markets. While there have been some rumblings in the past about Japan, interest rates, and the Yen, it has been fleeting at best. With interest rates skyrocketing there and borrowing at record levels across the world, any adjustment from the Bank of Japan could cause some serious risk to financial markets especially after Q1.
#9: Healthcare M&A heats up. While many healthcare stocks have been terrible for a while, especially in the biotech space, some new break throughs in oncology, psychedelics, and hair loss will cause an M&A boom as big pharma looks for new blockbuster drugs.
#10: The USMNT reaches the semifinal of the World Cup. Riding a nucleus that mostly plays in the top European leagues and strong home field advantage, the team comes together and beats not 1, but 2 traditional powerhouse countries to get the farthest it ever has at a World Cup.
I look forward to an entertaining year in the markets and will check back in December 2026 to see how these predictions pan out.