Presenters: Andy Pratt, CFA, CAIA and Adam Newman, CFA, CFP®
Here is the webinar recording from January 21, 2026. You can browse the topics discussed and main takeaways using the sections and time stamps below:
Click the time stamp in each section title to jump to that part of the video on a new screen.
- Andy and Adam presented the first quarterly economic and market review webinar of 2026, with Lowell absent while recovering from knee replacement surgery on Friday.
- The webinar was recorded on January 21, 2026, the day after the market experienced its first negative 1% down day of the year and the worst day since October 2025.
Q4 Market Performance Overview (01:45)
- Q4 2025 showed modest returns with US stocks up about 2.5%, continuing the theme of international markets leading the way as both developed and emerging markets outperformed.
- For the full calendar year 2025, this marked the third consecutive year of double-digit equity returns, with international stocks posting a banner comeback year up over 30%.
- The US bond market had a strong year, up 7%, while global bonds were slightly weaker, providing a reminder of why diversification matters in balanced portfolios.
- Fixed income normalized back to mid-single digit return levels after 2022's historic selloff, demonstrating that bonds still have a role in diversified portfolios.
- International markets showed remarkable resilience during April's tariff tantrum, barely falling 10% while US stocks dropped nearly 20%.
Sector Performance and Market Breadth (05:12)
- Last year saw strong broadening in market performance beyond just the Magnificent Seven, with financials, healthcare, and industrials performing well from both a performance and earnings growth perspective.
- Tech and tech-heavy sectors did well, but the rally was not concentrated to only a few companies as some feared.
- All sectors experienced meaningful intra-year volatility, with tech suffering a nearly 30% drawdown during April's tariff tantrum.
- Earnings and performance were strong across all sectors, challenging the narrative that we're in a concentrated bubble.
- The market breadth demonstrates this was not just an AI-driven rally but a fundamentally supported broad market advance.
What Drives Stock Returns: Earnings (07:00)
- Earnings continue to improve across the board, with even an acceleration in small-cap earnings recovery becoming visible.
- What drives stock returns over time is earnings, not headlines or daily noise.
- Looking at GDP, the consumer, and falling inflation, there are many positive indicators beyond just stock prices.
- Q3 GDP beat expectations strongly, and Q4 projections also exceeded expectations despite talk of a weakening or flattening economy.
- The actual earnings trend, coupled with economic growth, makes a strong case for continued optimism about general economic conditions.
Bull Market Context and Investor Sentiment (09:21)
- Coming off the October 2022 bottom, the current bull market is up about 94%, which is below the historical average bull market return of 192%.
- Bull markets since the 1970s have lasted longer in both duration and performance compared to earlier periods.
- This feels like one of the most hated bull markets, with widespread caution and concern despite strong economic conditions creating a disconnect between investor sentiment and actual performance.
- The current bull market is in the middle innings when compared to historical bull markets, not overstretched in terms of time or return.
- Patient investors who stayed calm through 2025's volatility, especially in April, were ultimately rewarded.
US Equity Strategy Updates (13:32)
- Large growth once again won in 2025, with the Magnificent Seven (formerly FANG stocks) continuing their dominance, though value showed a slight edge in Q4 across all market caps.
- The Russell 2000 was up nearly 13% for the year, but S&P's mid and small cap indexes showed only single-digit returns due to a critical difference: S&P requires companies to be profitable.
- A strong "junk rally" occurred in lower-quality stocks coming out of April's lows, with unprofitable companies up about 50% versus 30% for high-quality stocks.
- The junk rally is expected to be short-lived and highly volatile, as these lower-quality stocks show extreme swings rather than the consistent performance of profitable companies.
- The recovery rating was not turned on because the near-bear market in April was very short-lived and reversed quickly.
Large-Cap vs. Small-Cap Style and Size Update (20:42)
- The large-cap dominance trend that started in late 2016 has continued with only one reversal during the immediate post-COVID period in 2021.
- Large-cap companies only missed analyst earnings expectations by 3%, while mid-cap companies missed by 16% and small-cap companies missed by 25%, justifying the large-cap outperformance.
- Current PE ratios are elevated (S&P 500 at 26 vs historical average of 16), but this is justified by extraordinary profitability, lower interest rates, and strong free cash flow generation.
- The firm is maintaining its bifurcated approach: overweight growth in large caps and overweight value in small/mid caps.
- Six of the Magnificent Seven stocks currently have strong buy ratings, demonstrating they are truly unicorn companies that continue growing despite their enormous size.
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