Markets cheered the end of the longest government shutdown in history. U.S. equities rose on news of a deal before losing their gains later in the week, weighed down by losses in mega-cap tech due to jitters around AI spending.
Investors are now waiting with bated breath for a wave of economic releases in the coming weeks, which will help inform the Federal Reserve’s decision at its December meeting. Right now, it’s basically a coin toss whether we’ll see a rate cut or not.
We’re excited to release our 2026 Outlook on Monday. Before we do, let’s take a look back at our last Outlook and how our views played out.
Six months ago, our 2025 Mid-Year Outlook encouraged getting comfortably uncomfortable—staying invested, but adding resilience. At the time, uncertainty was high: tariff swings, a noisy policy path, and a tug-of-war between easier financial conditions and sticky inflation.
Our call was that the economy would muddle through the soft patch, avoid a recession and support market gains.
Markets have since climbed the wall of worry into an everything rally: Gold (GLD, +26%), Emerging Markets (MSCI EM, +23%), S&P 500 (+16%), Euro Stoxx 50 (+16%) and Global Aggregate Bonds (Bloomberg Global Aggregate Index, +7%) all surged—outperforming cash (Bloomberg 1-3 Month US Treasury Bill Index, +2%). We laid out five pillars to guide the rest of the year—here’s a scorecard of what we said, what happened, and what we learned:
Understandably, investors were nervous. There were things to fear—tariffs, immigration and legal uncertainty—and reasons to cheer—deregulation and pro-business policies.
Our view then: We expected tariffs and policy uncertainty to weigh on parts of the economy, but believed strong corporate profit margins, healthy labor markets and the AI-driven capex cycle would act as shock absorbers. Our call was that growth would bend, not break, and that secular tailwinds—especially AI—would help the economy stabilize as we headed into 2026.
Tariffs weighed on parts of the economy, with hiring slowing sharply and trade policy uncertainty spiking. But by late summer, markets moved on, embracing the AI investment cycle and looking ahead to support from easier monetary policy and One Big Beautiful Bill Act (OBBBA) benefits. Much of the investment concentrated in AI, especially among hyperscalers, helped drive half of 2025 GDP growth from capex and investment.
The punchline: Tariffs were a headwind, but growth persisted—driven by AI and easier policy. As we expected, these forces should help the economy stabilize into 2026. While tariffs remain a source of uncertainty, markets are pricing in limited disruption, and the economy continues to show resilience.
We highlighted a regime shift: Low inflation and rates have given way to two-way risks and persistent policy uncertainty.
Our view then: Post-covid inflation pushed prices higher—not necessarily a direct risk to markets, but a real challenge for portfolios. Despite the uncertainty, we believed the Fed would be able to cut rates. With that backdrop, portfolio diversifiers that don’t all move together and can beat cash on their own were (and continue to be) the goal —like hedge funds, infrastructure, and gold.
Inflation from the 2021-2022 period has left expectations elevated and made it even more important to insulate portfolios from stickier, more volatile inflation and the positive correlation between stocks and bonds. Tariffs provide upside risks going forward, though a surge in inflation is not our base case. The Fed has resumed cutting rates despite the above-target inflation, and gold has rallied nearly 30% since our Mid-Year Outlook.
The punchline: Inflation rose, leading to a positive correlation between stocks and bonds—not a threat to markets, but a real challenge for portfolios. While we didn’t expect this to broaden out, and still don’t, inflation remains a persistent risk to personal wealth. Holding large cash positions in this environment can quietly—and permanently—erode real wealth, which is why we continue to emphasize diversification as we look ahead to 2026.
The dollar’s supremacy was called into question, especially after “Liberation Day” triggered a broad sell-off in U.S. assets—leaving investors to wonder if this was a temporary dip or something more structural.
Our view then: We saw this as a downtrend, not a downfall. Our models had flagged the dollar as overvalued for years, and we expected a cyclical depreciation driven by slower growth, outflows from U.S. assets, and lower rates. The dollar’s role as the system’s anchor remained intact.
The dollar is now down about 8%, reflecting softer growth expectations for the U.S., narrowing rate differentials, and stronger economic activity abroad. The outflow from USD assets has played out and we expect interest rates to drive currency moves over the next year. Diversification remains our call to action, with notable gains in Europe and emerging markets like Taiwan and South Korea.
The punchline: We said “downtrend, not downfall”—the dollar would lose some shine but remain the system’s anchor. Since then, that call has played out. Looking ahead, we expect it to remain rangebound around current levels.
Six months ago, AI had faded from the spotlight as tariffs dominated the conversation and AI-linked stocks led the March slide.
Our view then: Don’t overlook AI just because it’s not grabbing headlines. The buildout is ongoing, costs keep falling, and capabilities keep rising. We saw lasting opportunity in the broader ecosystem—semis, cloud and data-center infrastructure, software, and “old economy” enablers such as power and networking.
Strength and momentum around the AI theme were far from over. Since June 1, we’ve seen 11 major AI infrastructure deals, with nine disclosed totaling nearly $500 billion in potential spend—led by OpenAI, Nvidia and AWS. The technology sector has nearly doubled the returns of the S&P 500 over the same period, underscoring just how powerful this theme remains.
The punchline: Even with all the noise and a normalizing economy, the broader AI space surged. As tariff fears faded, markets shifted back to what matters most: fundamentals, capex and profit growth across the AI value chain.
Heading into President Trump’s second term, expectations for capital markets activity were high, but once he took office, pro-business hopes were disappointed by a pause in dealmaking.
Our view then: We argued the deal machine was down, not out. Higher rates and policy uncertainty slowed M&A, IPOs and buyouts, but a healthier equity backdrop, open credit markets and a huge stockpile of dry powder set the stage for a rebound once the rate path and political landscape became clearer.
That’s exactly what played out. So far this year, global deal value has reached $3.8 trillion, with the first three quarters up 35% from the same period in 2024. We’re also on track for the largest number of $30 billion+ deals ever.
The punchline: Visibility and political clarity brought dealmaking back to life. With fundamentals back in focus, we’re on track for the second-best year ever for global deals.
Stepping back, our mid-year playbook held up: The economy bent but didn’t break, AI remained an earnings engine, dealmaking thawed, tariffs showed up more in prices than in growth, and dollar weakness has mostly played out. The core message is unchanged: Stay invested, stay diversified, and use volatility to upgrade portfolios—not to sit on the sidelines.
Stay tuned for our 2026 Outlook: Promise and Pressure next week, where we’ll highlight the key drivers for the year ahead.
Indices are not investment products and may not be considered for investment.
Index Definitions:
The Euro Stoxx 50 is a stock market index that represents the performance of 50 of the largest and most liquid blue-chip companies in the Eurozone.
U.S. Categorical Economic Policy Uncertainty Trade Policy refers to a specific category within the broader Economic Policy Uncertainty (EPU) Index for the United States, focusing on uncertainty related to trade policy.
The MSCI Emerging Markets Index is a stock market index maintained by MSCI Inc. that tracks the performance of large and mid-cap companies across emerging market countries.
The Global Aggregate Bond Index is a broad-based benchmark index that tracks the performance of global investment-grade bonds from both developed and emerging markets.
GLD is the ticker symbol for the SPDR Gold Shares Exchange-Traded Fund (ETF), which is designed to track the price of gold.
The Bloomberg 1-3 Month US Treasury Bill Index is a benchmark index that tracks the performance of U.S. Treasury bills with maturities between 1 and 3 months.
The Michigan Consumer Sentiment Index is a monthly report from the University of Michigan that measures the economic attitudes of U.S. consumers.
The U.S. Dollar Index (DXY) is a tool for assessing the strength or weakness of the US dollar in relation to a basket of major currencies.
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States.
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