Equity markets enjoyed a third consecutive year of gains, with the S&P 500 index advancing 17.9%. After the tariff shock in early April amid concerns of stagflationary impacts, the market rallied from April 8th lows and appreciated throughout the year. Gains were fueled by resilient GDP growth, strong consumer spending, robust corporate earnings, relatively muted inflation and interest rate cuts.
Heading into the sustained economic resilience of 2026, accelerated earnings growth with the possibility of both fiscal and monetary stimulus could lead to further market appreciation. Issues that could derail markets or cause increased volatility are historically high valuations, the soft labor market, fiscal excess (which at some point will pressure long-term interest rates and further pressure the dollar) and geopolitical tensions.
Recent headlines about an AI bubble are constructive and volatility in the space between AI winners and losers is encouraging, leading us to believe any AI bubble may deflate rather than pop. There is no question that AI is transformative and not going away, but the AI narrative versus reality has led to some extreme and unsustainable near-term stock price activity. We see AI itself as a commoditizing tool facilitated by mass digitization, with the greatest benefits accruing to those companies throughout the economy that implement it into work flows to drive revenue and profit growth. The market is beginning to look beyond the AI narrative to reality as it sorts out long-term winners and losers in the space.
The current administration has been implementing aggressive policies while pursuing their objectives of accelerating economic growth and vibrancy of the domestic manufacturing base. Their playbook to “run the economy hot” would lead to an accelerating cyclical recovery along with the potential for higher inflation.
Amid the foregoing opportunities and risks, our investment strategy is to participate in market upside while positioning to navigate the uncertainties. To mitigate inflation and currency risks our portfolio includes many investments with pricing power/flexibility and hard assets, as well as selective international exposure. Fixed income remains an asset to mitigate volatility.
The information contained in this communication is provided for general purposes only, and was prepared in reliance on independent, third-party sources that Fairview Capital Investment Management, LLC (“Fairview Capital”), an SEC-registered investment adviser, believes are reliable. Nevertheless, Fairview Capital does not guarantee its accuracy or timeliness of any information provided herein. The information reflects subjective judgments, assumptions and Fairview Capital’s opinion on the date made and may change without notice; Fairview Capital is not obligated to update this information. Nothing in this communication should be construed as investment or tax advice, a solicitation, offer, or recommendation, to buy or sell any security. Investment management services are offered only pursuant to a written investment management agreement, which investors are urged to carefully read and consider in determining whether such agreement is suitable for their individual needs and circumstances. The information in this communication should not be construed as an endorsement, recommendation or sponsorship of any company or security. If this post mentions a specific investment or security, we or our affiliates may have a position in that security (either long or short), and we may profit from a price change in that security.
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