2026 Market Outlook: Tax Changes, Bull Market History & What We're Watching | Ep 27

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Happy New Year. As we step into 2026, Adam and Andy kick off the year by tackling two questions: What financial housekeeping should you handle in January, and can this bull market really keep going?

The episode covers practical planning items taking effect this year, from charitable giving changes to estate tax increases. Then they dig into what everyone's really wondering about: whether the market rally that's dominated the past few years has finally run out of steam.

Financial Housekeeping for the New Year

January offers a clean slate for financial decisions, and that timing matters. As Andy points out, making portfolio risk decisions when you're thinking rationally beats making them during a panic. The start of a new year provides an opportune time to contemplate such investment decisions

If you're still accumulating wealth, now is the time to revisit your savings plan. Contribution limits change annually, and automating those savings is far easier than dragging yourself to the gym at 6am to keep other New Year's resolutions. Set it once and let it run.

For those drawing down portfolios in retirement, January is when you should reassess which accounts you're pulling from. Depending on your age and the mix of accounts you have, what made sense last year might not be optimal this year. The tax consequences of where you take distributions can vary significantly based on your circumstances.

The other key question: Has anything changed in your life that warrants revisiting your portfolio's risk level? This should be an internal household decision, not a reaction to headlines about tariffs or market concerns. You're making this adjustment because you have new priorities, not because you're trying to time the market.

Tax Law Changes Taking Effect in 2026

Several provisions from the "One Big Beautiful Bill" that weren't effective in 2025 are now live. The charitable giving landscape has shifted in both directions.

For those who don't itemize deductions, there's good news. You can now write off up to $1,000 in charitable gifts if you're single, or up to $2,000 if you're married filing jointly, as an above-the-line deduction. This is substantially higher than the $300 and $600 threshold amounts available during COVID. The catch is that these must be cash gifts, and they're subject to those specific limits.

For those who do itemize, there's a new wrinkle. The first half percent of your adjusted gross income worth of charitable gifts is not deductible. For example, If your AGI is $300,000, the first $1,500 of gifts you make can't be written off. Only gifts exceeding that threshold are deductible. This is cumulative at year end, so you'll need to track your giving carefully.

The lifetime estate and gift tax exemption has been bumped up to $15 million per individual, or $30 million for married couples using the portability provision. Everyone keeps waiting for this number to get chopped down, but it keeps climbing higher instead.

There's also ongoing uncertainty about Affordable Care Act tax subsidies for health insurance purchased on the exchange. During COVID, income limits were raised significantly so higher earners could qualify for generous subsidies. The recent debt ceiling fight scrapped those expanded limits and went back to much lower income thresholds. With midterm elections approaching, Republicans are scrambling to figure this out before rising health insurance premiums become a campaign issue. This situation remains fluid as of this recording.

Putting the Current Bull Market in Historical Context

When clients asked Adam at the end of 2025 how much "juice is left to be squeezed out of this orange," he had a data-driven answer ready.

The current bull market started in October 2022 and is now about 38 months old with roughly a 90% gain. That's gotten a lot of people nervous, thinking it can't possibly go much higher. But zooming out to look at historical bull market trends suggests a different story.

The late 1940s through early 1960s bull market lasted 181 months with a 936% gain. The 1970s through 1980s bull market ran 155 months with an 844% gain. The 1990s bull market stretched 153 months with 817% in gains. Even the post-financial crisis bull market lasted 131 months with 529% in cumulative gains.

This isn't a prediction that the current rally will match those numbers. There is no way of knowing that for certain. But these historical data points provide context showing that four to five year bull markets with substantial gains are historically normal, not exceptional. By that measure, the current 38-month, 90% rally is actually quite average, relatively speaking, for an early to mid-stage bull market.

Surprises can always derail things. But absent major unexpected shocks, history suggests there's no particular reason to assume this rally must end soon simply because it's already gone up quite a bit.

What We're Watching in 2026

Adam highlighted AI as a key theme to monitor. ChatGPT launched a couple years ago, and AI has dominated headlines ever since. The question for 2026: Will we actually start seeing AI trickle into the earnings of non-Mag 7 companies? Will it become something economically productive beyond being a search engine on steroids?

Andy pointed to three trends worth tracking. First, international stocks finally showed signs of life in 2025 after a decade-plus of attractive valuations going nowhere. If that momentum continues, a global allocation makes sense this year.

Second, there's an interesting barbell effect happening. Mega-cap growth stocks (your Mag 7 names) are doing extremely well. But simultaneously, small-cap value stocks are also showing strong momentum. This split creates opportunities for investors willing to look beyond the headline index numbers. 

That small-cap value strength at the end of 2025 has Andy wondering if 2026 could bring a real pivot from growth to value. After years of growth domination, the seeds of a rotation might finally be taking root.

On AI specifically, Andy expects we're still in early innings. Right now there's a massive arms race for users, similar to streaming services and Uber in the early 2010s when everything was priced incredibly cheap to gain market share. The monetization phase comes later, once companies have locked in their customer bases. That probably won't happen in 2026.

The Fed and Midterm Elections

Two major events loom over 2026: a new Fed chair (whose identity is unknown as of this recording) and midterm elections. How will they factor in?

The new Fed chair will likely have the more direct impact through monetary policy. Expectations are for a more dovish approach than Jerome Powell took, though Andy expects there will still be Fed members in the room making data-driven decisions. Maintaining Fed independence remains important for avoiding the big booms and busts that were far more common before modern central banking.

As for midterm elections, Andy is bracing himself for the commercials but doesn't expect any meaningful investment impact. The key message: Keep your politics separate from your investments. That's advice they'll likely be repeating frequently throughout 2026.

Looking Forward

There's certainly wind behind the economy's sail heading into 2026. We're riding a wave of optimism driven partly by AI excitement and partly by solid fundamentals like continued GDP growth and companies beating earnings expectations.

But the core principles don't change. Refocus on diversification. Refocus on personal goals and circumstances. Don't get caught up in the emotion, good or bad, of whatever the year brings.

And remember, when it feels like the market can't possibly go higher: consider the length of past bull markets. The current market might actually be a perfectly normal bull market by historical standards.

Listen to the full conversation on Long Story Short: