January 2026 Newsletter

Dear Valued Clients,

We hope this newsletter finds you well. As we progress into the new year, we want to provide an update on the markets and our forward-looking perspective.

‍Market Commentary: Continued Resilience with Broadening Growth

The market has maintained a solid trend of growth, though with the usual volatility, as economic fundamentals and corporate earnings remain robust. While policy and geopolitical risks may create temporary jolts, we continue to focus on consistent, long-term financial goals.

Key Observations:

• Broadening Equity Strength: We are encouraged to see market leadership begin to expand beyond the largest mega-cap technology companies. While the "Magnificent 7" stocks are still projected to deliver strong earnings growth and remain a staple in our portfolios, future growth estimates are steadily improving across the broader S&P 500 and in smaller companies typically benchmarked by the Russell 2000. This widening earnings contribution, alongside the recent outperformance of smaller companies, suggests a more resilient market environment.

• 2025 Retrospective: For 2025, many of our clients saw strong overall portfolio returns, with the stock portion outperforming benchmarks (e.g., up 17-19%) and bonds returning a stabilizing 5-7%.

• Our Current Positioning: Our strategy continues to be positioned for growth but with a more defensive tilt. This includes a focus on diversification and the use of bond holdings as a stable "war chest," designed to cover approximately five years of inflation-adjusted expenses in case of a market downturn. We remain cautious about short-term market forecasts amid geopolitical uncertainty.

• Interest Rates & Inflation: The Federal Reserve is widely expected to hold rates unchanged for the time being, but the general outlook for interest rates remains lower as we move through 2026, with most expecting one or two rate cuts.

Our View on Key Trends and Planning

We are continually evaluating long-term themes that impact your portfolio:

• Artificial Intelligence (AI): We remain long-term believers in the potential of Artificial Intelligence to drive growth across the economy. We are also monitoring the valuation landscape to ensure we navigate any aspects of a potential "bubble" that may arise in certain sectors.
• Global Markets: As global activity gains momentum, we see increasing opportunity in international equities and maintain our tilt towards high quality. In particular, European equities are beginning to narrow their long-term valuation discount to the U.S., a trend supported by strong earnings and AI adoption in leading European companies.
• Our Q1 Planning Focus:
  
  • Review annual savings and or withdrawal rates
  • Review the 12 month cash position
  • Define or update financial goals for the year
  • Tax return preparation and review

Our commitment remains focused on delivering deep, research-driven insights that can help you stay on track to reach your long-term financial goals, regardless of the short-term market noise. As always, reach out to us directly if you wish to discuss your specific portfolio or any of the planning items and other subjects covered in this update.

The Bauer Heitzmann Team