Greetings, and welcome to 2026.
A new year naturally brings questions about what lies ahead, especially after several years of strong market performance. Investors are wondering whether recent gains can continue, how interest rates may affect portfolios, and whether any changes are needed as we move into the year ahead.
As your financial advisors, our role is not to predict short-term market movements, but to set reasonable expectations, align portfolios with long-term goals, and ensure you are prepared if markets behave differently than planned. Below, we share our outlook for stocks and fixed income in 2026 and discuss what this environment may mean for investors at different stages of life.
U.S. Stock Market Outlook for 2026
The U.S. stock market just concluded the third year of the current bull market, though that fact may surprise investors who focus on day-to-day headlines. The bull market began in October of 2022 and has compounded at more than 20% per year since then, finishing 2025 up approximately 16%.
Despite these strong results, skepticism remains. Some commentators argue that markets are in an artificial intelligence bubble, drawing comparisons to the technology bubble of the late 1990s. We believe this comparison misses two important distinctions.
First, today’s technology companies are fundamentally different. They are profitable, generate significant cash flow, and play an essential role across the broader economy. Second, market leadership has broadened. Gains are no longer driven solely by a small group of large technology stocks. All eleven market sectors contributed to returns last year, meaning we enter 2026 with Big Tech representing a smaller share of overall market performance than it did just six months ago.
Are Stock Market Gains Sustainable?
History suggests that market corrections are inevitable, though their timing is unknowable. After three years of strong performance, it is reasonable to anticipate more modest returns rather than another year of double-digit gains.
A reasonable expectation for U.S. stocks in 2026 is in the 7% to 9% range. Historically, when the fourth year of a bull market is positive, average returns have been closer to 9%. Additionally, as bull markets mature, it becomes increasingly difficult for companies to exceed already-elevated earnings expectations. Corporate earnings still drive stock prices, but the margin for surprise narrows over time.
Our view is that the probability of another positive year remains favorable, but investors should expect returns to normalize.
International Stock Market Outlook
International stocks delivered their strongest performance in more than a decade in 2025, finishing the year up roughly 30% and outperforming U.S. stocks by a wide margin. This has prompted many investors to ask whether international stocks deserve a larger allocation.
While we believe international equities provide meaningful diversification benefits, we continue to favor a bias toward U.S. stocks for several reasons.
First, much of last year’s international outperformance reflected a period of catch-up following years of relative underperformance. In 2024, international stocks gained approximately 3.3%, compared to a 24.9% return for U.S. stocks. When viewed over multiple years, international markets continue to lag.
Second, international stocks tend to outperform when the U.S. dollar weakens significantly against other currencies, a condition that historically does not persist for long periods.
Finally, U.S. companies are driven by a profit-oriented culture that encourages innovation, efficiency, and shareholder returns. This dynamic is not always present to the same degree in other regions. Over the past decade, U.S. stocks have delivered annualized returns of approximately 14.7%, compared to 8.4% for developed international markets.
For 2026, we expect international stocks to earn returns closer to their long-term average, approximately 8%.
Fixed Income Market Outlook for 2026
When managing client portfolios, we primarily focus on U.S. fixed income, so our commentary reflects conditions in the domestic bond market.
Fixed income investments generally fall into two categories: short-term instruments and longer-term bonds. Short-term investments include money market funds, certificates of deposit, and short-duration bond funds. Longer-term fixed income includes U.S. Treasury and corporate bonds with maturities of ten years or more.
The Federal Reserve has the greatest influence on short-term interest rates, while longer-term bond yields are largely determined by market expectations.
Short-Term Fixed Income and Interest Rates
We enter 2026 after the Federal Reserve has lowered interest rates three times last year. As a result, yields on money market funds have declined to below 4%, down from more than 5% in 2023. Market expectations suggest the Federal Reserve may lower rates twice more this year, which would further reduce yields on preservation-oriented assets.
For investors, this means interest income from money market funds, CDs, and similar investments is likely to be lower in 2026 than it was last year.
Long-Term Bonds and Yield Expectations
On the longer end of the yield curve, the 10-year U.S. Treasury begins 2026 yielding approximately 4.25%, close to its long-term historical average. Bond yields reflect both real interest rates and inflation expectations, and current levels suggest a market environment consistent with normal economic conditions.
Assuming continued economic expansion and no material shocks, we expect longer-term bonds to average annual returns between 4% and 4.5% over the remainder of the business cycle. This represents a meaningful improvement from the roughly 1.5% average returns fixed income produced during the decade preceding COVID.
What This Means for Your Portfolio in 2026
Taken together, we believe the odds of another positive year are favorable, though portfolio returns are likely to be more modest than in recent years. Periods of volatility should be expected and viewed as a normal feature of investing rather than a signal to change course.
Short-term market movements rarely change long-term outcomes when portfolios are properly aligned with goals.
For investors still accumulating assets, market pullbacks can present opportunities. While the duration of any decline is unknowable, history shows that declines are temporary, and disciplined investing during volatile periods plays a critical role in long-term wealth creation.
For those approaching retirement, now is an appropriate time to build a cash reserve to fund the first one to two years of retirement spending. Allocating these funds to preservation-oriented assets such as money market funds or high-yield savings accounts can significantly reduce income risk once retirement begins.
And for those already retired, reviewing cash-flow needs and confirming that income reserves are in place can help ensure spending plans remain intact even if markets experience a pullback.
As always, our focus remains on helping you navigate opportunity and uncertainty with confidence, discipline, and a long-term perspective.
In this article, the U.S. stock market is based on the S&P 500 Index, and the International stock market is based on the MSCI EAFE Index. The S&P 500 index is an unmanaged index of the 500 largest public companies in the United States. The MSCI EAFE index is an unmanaged index of the largest public companies domiciled in Europe, Great Britain, and the Far East. Individuals cannot invest directly in the index. Past performance does not guarantee future returns.