A new year brings fresh perspective, but it also offers a useful pause to reflect on what we’ve learned, what’s changed, and what still holds true. Our monthly newsletter is intended to provide context, not noise, and to help frame recent market developments within a longer-term view. If nothing else, I hope it serves as a reminder that markets rarely move in straight lines.
The fourth quarter was marked by steady economic activity, a softening labor market, and modest improvement in financial conditions such as borrowing costs and access to credit. Job growth was revised lower and unemployment edged higher, but consumer spending remained firm, allowing overall economic growth to stay relatively stable. Economic slowdowns, it turns out, don’t always announce themselves loudly.
Equity markets advanced globally, led by developed international markets such as Europe and Japan, while U.S. performance was more mixed across investment styles and sectors. Fixed income markets also posted gains as Treasury yields, the interest rates on U.S. government bonds, remained relatively steady and credit conditions, referring to the availability and pricing of loans, stayed supportive.
Global equities posted gains, again led by developed international markets. Returns measured in local currencies outpaced returns translated into U.S. dollars over the full year, reflecting the impact of currency movements. Europe and Japan both contributed positively. Emerging markets advanced modestly but with notable regional differences. Chinese equities declined, offsetting strength elsewhere, while India recovered some ground after lagging earlier in the year.
U.S. equities underperformed international developed peers for the quarter. Value stocks outpaced growth stocks, and small and mid cap stocks led large caps as earnings momentum improved. Sector dispersion, meaning the performance gap between the strongest and weakest sectors, remained elevated. Healthcare led all sectors, while real estate, energy, and communication services declined. Technology, consumer discretionary, and industrials posted modest gains within a mixed domestic equity environment. Another reminder that “the market” is really many markets moving at once.
Fixed income returns were positive, supported by stable Treasury yields. Duration sensitive exposures delivered modest gains, with agency mortgage-backed securities leading among core bond sectors. Corporate bonds advanced, though high yield spreads widened slightly, while investment grade valuations remained tight.
Economic and Housing Snapshot
Recently released data show the U.S. economy grew at a strong pace in the third quarter of 2025, driven primarily by resilient consumer spending, improved exports, and higher government outlays. While the headline growth figure exceeded expectations, underlying trends were more mixed, with business investment and labor market momentum showing signs of moderation.
At the same time, the housing market continues to face structural constraints. Mortgage rates have eased modestly from recent highs but remain well above the levels many existing homeowners locked in over the past several years. This has discouraged selling activity, keeping housing inventory tight and limiting transaction volumes. As a result, lower rates have provided only incremental relief for buyers, and housing activity remains subdued heading into 2026 despite solid overall economic growth. Yes, lower rates help, but they don’t rewrite the math overnight.
What 2025 Reinforced About Portfolio Construction
The market environment in 2025 reinforced that diversification is not just about owning different assets, but about owning assets that respond differently as conditions change. Leadership rotated across styles, company sizes, regions, and income-oriented assets, often in ways that were difficult to predict in advance.
Within U.S. equities, the contrast between large cap growth and mid and small cap stocks highlighted the importance of balancing established market leaders with areas that can benefit when earnings breadth improves. Mid and small cap exposure matters not because they lead every year, but because they tend to respond earlier when economic conditions stabilize and growth broadens.
International allocations played a similar role. Developed international markets offered diversification away from U.S. centric risks, while currency hedged strategies helped manage periods of dollar volatility. Emerging markets added long term growth potential but also illustrated why position sizing and regional diversification matter, given uneven outcomes across countries.
Fixed income once again served multiple purposes. Beyond income, high quality bonds helped dampen portfolio volatility, while exposure across Treasuries, agency mortgage backed securities, and corporate credit provided flexibility as interest rate and credit conditions evolved. Bonds did not move in a straight line, but they contributed balance when equity leadership shifted.
The broader lesson from 2025 is that no single style, region, or asset class consistently carries a portfolio. Intentional diversification means accepting that some allocations will lag at any given time. Dynamic management means adjusting risk and rebalancing as conditions change, not chasing what just worked. This combination is designed to help portfolios remain resilient as market leadership continues to rotate.
A Note on Warren Buffett
This year also marks the retirement of Warren Buffett, one of the most influential investors of the modern era. Over decades, Buffett consistently emphasized discipline, patience, and the importance of focusing on long-term fundamentals rather than short-term headlines. His legacy is not tied to any single investment or market call, but to a philosophy that valued sound businesses, thoughtful risk-taking, and staying invested through changing cycles. While markets and strategies continue to evolve, those principles remain highly relevant for long-term investors today. Simple ideas, applied consistently, tend to age well.
Each year, Buffett would write an annual shareholder letter to investors in Berkshire Hathaway, the company he served as chairman since 1970. While it technically accompanies the company’s annual report, the letter has become far more than a corporate update.
In plain language, Buffett would explain how he thought about investing, capital allocation, risk, market cycles, and long-term decision-making. He avoided forecasts and market timing, focusing instead on discipline, patience, valuation, and behavior; these letters are still widely regarded as some of the most insightful and accessible writing on investing ever produced.
Here is a link to all of his archived shareholder letters: https://www.berkshirehathaway.com/letters/letters.html
Looking Ahead
As we begin 2026, I want to thank you again for the trust you place in me.
Markets will continue to evolve, leadership will rotate, and conditions will change, which is exactly why active oversight and disciplined decision-making matter. Portfolios will be actively reviewed and rebalanced as opportunities and risks shift, with a focus on protecting capital, maintaining diversification, and positioning thoughtfully rather than reacting to headlines.
I wish you and your family a healthy, happy, and successful year ahead, and I look forward to continuing our work together as we navigate 2026 with clarity, discipline, and purpose.
Thanks,
Bill
