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Q1 2026 Market Perspective

As the new year begins, investors often reflect on past events and main drivers of market performance, as well as what trends are likely to emerge in the year ahead. Despite ongoing tariff concerns and perceived weakness in macroeconomic fundamentals, 2025 delivered strong returns. The year was marked by a government shutdown in the fourth quarter, three interest rate cuts, and continued concerns around the labor market. Nevertheless, markets advanced to new highs, overcoming periods of heightened volatility, with certain asset classes and sectors outperforming others. Once again, 2025 demonstrates that a disciplined, long-term investment approach can reward investors even during years marked by short-term market declines.


Inflation

Since the beginning of 2025, the Federal Reserve has faced a dilemma between maintaining a low unemployment rate while bringing inflation back toward target. Early in the year inflation seemed to take precedence over unemployment as it remained over their 2% objective. As the year progressed, however, attention increasingly shifted to the labor market. Recent data suggests a cooling in employment conditions, driven by softer labor demand. Nonfarm payroll growth has significantly declined since April 2025, and the unemployment rate finished the year at 4.4%, 0.3 pp (percentage points) higher compared to December 2024. Meanwhile, headline CPI (Consumer Price Index) ended the year at 2.7% YoY (Year-over-Year), a .2 pp decline from the prior year. On the other hand, Core PCE (Personal Consumption Expenditures), the Federal Reserve’s preferred inflation measure, remained relatively stable throughout the year, standing at 2.8% YoY as of September 2025. Inflation trends, along with labor market conditions, are still at the forefront for many economists and will play a key role in determining whether the Federal Reserve continues to cut rates later this year. During the December FOMC (Federal Open Market Committee) meeting, the Federal Reserve released a summary of economic projections in which they kept their 2026 federal fund projection at 3.4% for the year, signaling the potential for additional rate cuts in 2026.

 

Interest Rates

While inflation continues to trend lower, the Federal Reserve remains under pressure from the government to cut rates even further.  There is speculation that President Trump wants to lower rates to stimulate the economy to counter the potential adverse consequences of his tariff policy. The current chair, Jerome Powell, has repeatedly stated that they will continue to monitor and adjust monetary policy according to incoming and current data. In 2025, the Federal Reserve reduced interest rates three times, each by 25 basis points. Currently, the Federal funds rate sits at 3.5%-3.75%.


Another potential shift for the Federal Reserve could occur later this year as Chair Powell’s term comes to an end and a new Chair of the Federal Reserve is appointed in the second half of the year. There are many factors at play that could influence the economic outlook for this year. Overall, the economic reports show the US economy remains solid, which could continue to support growth in the markets.

 

Market Overview

2025 proved to be another great year for the markets. Despite a wide range of events, US equities delivered strong returns, with the S&P 500 gaining almost 18% for the year.  Some of the major trends we saw were AI and its continuous investment from large tech leaders like NVDA, Alphabet and Microsoft, just to name a few.


An asset class that shocked many investors was international markets. Internationals outperformed US equities by a huge margin. Gold delivered off the wall returns as investors faced economic uncertainty and a weakening dollar. Finally, Income also delivered strong returns for the year, making 2025 an exceptional year across multiple asset classes.

 


CWM Portfolios

While we may potentially face increased volatility this year due to the evolving economic conditions, we remain optimistic and view periods of change as potential opportunities.


Portfolio adjustments may be made as new trends and shifts emerge. In recent months, we have seen a rotation from large caps to small caps and from growth to value. Nevertheless, reports suggest that International and Large Caps may continue to perform well in the year ahead, supported by ongoing AI-related capital expenditures and adoption of this new technology. However, this doesn’t change our market view narrative. The chart below illustrates the annual return and intra-year declines from 1980 to 2025. As shown, even in the years where the index finished with positive returns, it experienced an average intra-year decline of 14.2%. This just highlights the importance of being patient and disciplined when investing.




Source: JP Morgan

Corinthian is your partner when it comes to your finances, we are a resource when you have questions, and if you want to know how something will impact your financial situation, please contact your main advisor at (408) 995-0915.

 

Advisory services offered through Corinthian Wealth Management, Inc. a Registered Investment Advisor.


This summary is for informational purposes only and shall not constitute advice, an offer to sell, or a solicitation of an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities.  The contents of this report should not be relied upon in making investment decisions.  The accompanying performance statistics are based upon historical performance and are not indicative of future performance.  Past performance is no guarantee of future performance or profitability.  The types of investments discussed also do not represent all the securities purchased, sold or recommended for clients.  Stated information is derived from proprietary and non-proprietary sources that have not been verified for accuracy or completeness.  While the firm believes this information to be correct, we do not claim or have responsibility for its completeness, accuracy or reliability.  The firm also assumes no duty to update any information in this presentation for subsequent changes of any kind.


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