We won’t join the chorus...but we might join the debate team….

(Jan 2026)

It is the time of year when all the major players in the Wall Street investment management universe come out with their 2026 prognostications for the US equity market.  We won’t join the chorus of voices for this event, because over any year-to-year period, the market’s volatility and unpredictability leaves the accuracy of these predictions on par with the odds you get at the roulette table.  However, sharing an outlook with clients is important because, as we have outlined in prior newsletters, it is human nature to extrapolate your most recent experience as what your forever future will be.  In the instant case, the market has had back-to-back strong years, and clients need to remember that the probability is near zero this will continue forever.  But we do think it is instructive to share the 10-year market outlook of these firms because over longer time horizons, the market has tended to track back to its historic average.  Having said that, it is important to note the rolling 10-year periods still vary considerably.  These firms do bring an army of analysts, statisticians and economists to their process, which for no other reason, gives portfolio managers the psychological benefit that they are operating from a quantitative basis upon which to derive their asset allocations, despite the variability of the real—world outcomes.

Our own process, which is derived from an industry staple, the S&P 500 Earning Yield[i], and a synthesis of economic, market and government policy drivers that come from research we pay for, falls within the same range of outcomes as the major Wall Street firms.  However, as you will note below, the 10-year projections are considerably below the recent performance of the US market, and may require a shift from new era weightings into old era plays, and tactical allocations in equities to small cap, value and international, in addition to asset classes that have previously been out of favor, but may be primed for better returns.  (In other words, the forward, expected annual returns for the stock market over the next 10 years (2026-2035) are projected to be between 4-6 % annually.)

The estimated 10-year* forward nominal compound return of the US market by provider:

Vanguard: 4.00-5.00%

Goldman Sachs: 6.50%

Morgan Stanley 6.5%

JP Morgan: 6.70%

*Some providers used a 10-15 range.

We are always assessing this information from a risk-adjusted perspective.  Why?  Because all things being equal, if clients can get the same return with a lower risk asset, the better choice is self-evident.

We have to acknowledge you cannot spin gold out of straw, so we look for returns by slicing and dicing markets by size, sector, factors, domestic, foreign, and across asset classes.  But ultimately, returns will be driven by what the markets give and therefore we read, research, and work constantly to position clients’ portfolios to achieve the clients’ objectives over their investment time horizon.

We hope this edition has been informative for you, and we look forward to working with you in the new year.

As always, we are grateful for your business and friendship.

We are sincerely yours,

Dave & Drew