Allocation and Investment Committee Meeting 02/09/26
Our notes on the economy
This has been quite confusing. The data that DC sends out about the economy says one thing and what you and I see every day looks completely different. Private sector job hiring keeps dropping. The US has lost an average of 22,000 jobs per month over the last few months. It is still growing BUT only at a rate of .4%. We now have over 685,000 job openings in the US. If you minus the COVID period, this is the highest it has been since 2017.
CPI tells us that US inflation is at 2%. Really? Check this out. Over the last five years, the price of coffee has increased by 100%. Eggs by the dozen are up 83%. Ground beef??? Nearly 70%. Let’s not forget car insurance prices...up 64%. If you add all this up, you would note that over the last five years, consumer prices have increased by 4.5% a year and 24% over in total. That is huge y'all..
Our discussion on the bond markets:
The bond markets played a big role in our allocations this last year and may do so again in 2026. With the above-mentioned economic news, the FED has dropped rates by 175 basis points to an expected range of 3.5% to 3.75%. They could go lower. President Trump has been on a I HATE POWELL run that we as a country has never seen. He wants rates lower. As of today, the Fed Funds Futures is telling the market that it expects rates to hit 3.15%ish by the end of 2026. So, with more rate drops in the possible future, we should have a good bond market once again in 2026 which only adds to our clients returns with diversified portfolios. Remember, when rates fall, the price of bonds held go UP. In 2025, bond prices jumped by 7%. This does NOT include the yield. That 7% figure is the best we have seen since 2020.
Our discussion on the equity markets:
Last year was nuts. The markets started out on a tear up to mid-February when the S&P hit 4.5% up on the new year. Then the tariff talk started in DC, and the markets reacted by dropping 21% by early April. Yuck. That was fast. Real fast. That took the S&P 500 return to a negative 15% for the year. That is also the fourth worst start to a year all time. It got ugly and people did what people do. I WANT OUT! Hindsight being 20/20, the tariffs never happened. On April the 9th, Trump reversed his decision on tariffs and as a result the market jumped 9.5% that day marking the third largest one day gain in the for the market since 1950. The markets kind of jumped up and down for another couple of months as Trump would take to social media and go back and forth but by June, the fear of tariffs disappeared, and the market was back to an all-time high. That turnaround from down 21% to up 28% from that low happened in just 12 weeks. That is remarkable. For our clients who stayed invested...patience and cool heads paid off.
What also stood out was the return of international stocks. For the first time in many years (since 1993), the International Index outperformed the S&P 500 with the MSCI clocking in a 36.3% return and the Emerging Markets Index returning 34.4%.
By years' end, the Magnificent Seven (Nvidia, Apple, Microsoft, Google, Amazon, Meta, and Tesla) created a top-heavy S&P 500 with the top ten stocks in the index making up almost 40% of the value. So basically, when you buy an S&P 500 fund, nearly 40% of your dollar invested in just ten companies with the other 60% of your dollar going to 490 other stocks. Not very diversified, is it? Leading the 7 was of course Nvidia, which became the world's largest company with a market cap of over $5 trillion. Oddly, 2025 was quite different than 2024 as far as the returns of the Mag 7 individually. In 2025, only Google and Nvidia outperformed the index. Google made 70.8% on the year and Nvidia did 32.6%.
So to kick off 2026...corporate earnings and revenues are expected to rise by around 14% which would be 21 consecutive quarters of growth. In our opinion, this is good news for the 490 companies mentioned earlier as we expect the rest of the index components to catch up.
Interesting Thoughts we Discussed
None of the stock indexes above got to wear the crown as the top dog in 2025. That prize went to Gold. In 2025, gold prices surged 64% for the best year it has had since 1979. If you can remember that far back, the top song of the year was My Sharona by the Knack, and the top films were Superman, Amityville Horror, Rocky II, and Apocalypse Now. Feel old?
Jackson Wood’s Crypto Corner
I know the recent volatility has been unsettling, and I want to share some perspectives that might ease concerns. When we look at where we are today compared to crypto's historical cycles, something interesting emerges. The current Bitcoin drawdown stands at approximately 42% from recent highs, and while that is significant, previous Bitcoin bear markets saw drawdowns of 93% in 2011, 86% in 2015, 84% in 2018, and 77% in 2022. This isn't just a smaller correction; it may be evidence of a market maturing before our eyes. Through that wider lens, the asset is less volatile, not more, and that's exactly what we'd expect as institutional infrastructure takes hold.
What may make this correction fundamentally different is who's buying it on the way down. Major wealth managers like Wells Fargo, Bank of America, and Vanguard have opened their platforms to distribute bitcoin ETFs to clients, and Bitcoin ETFs have attracted $147 billion in assets by early 2026. These aren't momentum chasers; they are pension funds, retirement accounts, and corporate treasuries building strategic positions. When gold ETFs launched in 2004, their biggest inflows came in year three. Bitcoin ETFs are entering that window now. Less than 0.5% of U.S. advised wealth is currently allocated to crypto, meaning we may be in the earliest innings of institutional adoption.
The difficult truth about market timing is this: the best entry points rarely feel comfortable. Every major crypto rally has been preceded by periods that tested conviction. What's different at this time is the quality of the buyers stepping in. When institutions commit billions through regulated vehicles, when major banks recommend 1-5% allocations, when retirement accounts gain access. That's not hype, it's structural change. Our small allocation to crypto positions your portfolio at the intersection of scarcity, utility, and adoption. That's where we’d want speculative capital to be.
Allocation Suggestions:
Taking in all the above and we maintain that our portfolios will have a base allocation that is comprised of:
50%-55% Stocks
30%-40% Fixed Income
10-20% Private Investments or Alternatives
All investors and their plans are created differently, and every investor should have an allocation that fits their needs. The above allocation is what we call our “base” which primarily is for people looking to grow their assets. The percentages will change depending on where clients are in their lifecycle and plans.
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