Q4 Market & Economic Highlights

“The future is always coming up with surprises for us, and the best way to insulate yourself from these surprises is to diversify.”

—Robert Shiller, Nobel Memorial Prize Winner in Economic Sciences

Q4 Market

The closing months of 2025 were much like the rest of the year…most assets performed well, certainly better than the headlines would suggest. “Affordability” is a common talking point, and while the annual rate of inflation has decreased to approach the desired target of 2-3%, the higher level of prices remains. This is probably the defining story of consumer sentiment, with the distinction between Wall Street and Main Street shown clearly in the chart below:

As long as a) people feel that blue line and b) governments create money that ultimately ends up in the markets, owning assets that can grow with the economy is the most logical path to preserving capital. Cash can feel like a safe thing to hold, but over time, it really drains your purchasing power.

Q4 Actions

We felt comfortable enough with portfolios that no changes were made in Q4. Not only that, but with 2025 being a year where high-quality stocks lagged those of lesser quality, we feel even better about our general bias towards quality stocks after investors chased speculative stocks this past year:

We don’t go quite as far as investment legend Jeremy Grantham in overall positioning, but are firmly in his camp on the type of equities to own:

“I would recommend zero exposure to the US, but if you have to own US stocks, own quality stocks.”

—Jeremy Grantham

Foreign Stocks Win

For the first time in years, holders of non-US stocks can be thankful for their diversification. US returns were good, but returns around the world significantly outperformed. This was partly due to a weaker US dollar, but conditions in many countries improved as they drifted towards the US model of government spending.

2026

We’re in a midterm year, which has historically been the worst of the four years of the presidential cycle. So, bouts of weakness are to be expected…but that’s always the case even when markets are as good as they’ve been in recent years:

And while people generally expect the historical average of “8-10% per year,” the reality is that 8-10% returns rarely happen. The average up year exceeds 20%, and the average down year is approximately -13%. So, average doesn’t mean much in any given year, as this graphic shows:

Will this year be average? Or better or worse? We can’t know that, but the backdrop supports levels of growth that should contain any selloffs. All indications point to money flowing freely, led by the following:

• Fiscal stimulus from Congress – think 18-24 months of pushing the economy at a high rate, through spending incentives and lower regulations.
• Monetary stimulus from the Federal Reserve – we don’t yet know who will take charge of the Fed from Chairman Jerome Powell, but it’s a safe bet that the interest rate environment will favor growth.
• Corporate stimulus from capital spending – US companies are flush with cash, and doing more without hiring, as seen in the continual rise in profit margins

As long as these catalysts remain in place, it will take a series of shocks to weigh down the positive forces of money supply growth in the economy. It may feel like we’re late in the cycle, but with significant resets in 2020 and 2022, it would be perfectly normal for stocks to remain in growth mode.

Conclusion

Like the Federal Reserve, we have two mandates in implementing your financial plan. The defensive sleeve is designed to mitigate drawdown risk, and the growth sleeve to ensure you don’t outlive your money. We’ll continue to monitor conditions and loop you in on both general ideas and your specific financial plan. As always, we appreciate your trust and look forward to a prosperous year together.

*The views expressed represent the opinions of Compass Ion Advisors, LLC, as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, an investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial, or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website here. Past performance is not a guarantee of future results.