Markets survived fear, politics, and tariffs—and came out more vigilant.
KEY TAKEAWAYS
Markets entered the year euphoric and exited it more disciplined
The Trump Trade failed, but markets adapted rather than broke
Volatility reset expectations without destroying fundamentals
Near all-time highs reflect vigilance, not excess
Optimism works best with memory… and guardrails
MY HOT TAKES
Markets didn’t collapse when the narrative broke; they adapted
The Trump Trade failed because expectations ran ahead of reality, not because the economy failed
Volatility served its purpose by stripping away complacency without dismantling the foundation
Sitting just below all-time highs reflects caution and memory, not reckless optimism
Real optimism survives only when it is disciplined, patient, and aware of past scars
Be optimistic… … carefully
You can quote me: “The darkest shade in markets is usually a transition, not a conclusion.”
Darkest shade. I am an optimist, in case you haven’t figured it out yet. Some folks use stress and negativity to spur activity, and I prefer the opposite. For me, it’s the upside and positive energy that gets my heart racing. Yesterday was the winter solstice in the northern hemisphere. It is the day of the solar year with the least amount of light–the shortest day, or I suppose you can say that it is the one with the longest night, not that any of those seem very appetizing.
Do you remember summer? The birds singing, the warm, light wind blowing through the leaves, and the smell of freshly cut grass. Those long, sunny days. That seems like a long time ago. Well, it technically was–it was a half orbit around the sun ago.
Last year right around this time, we were preparing for a new tenant to enter the White House. The S&P had run up almost 30% through the start of December of last year. The Fed was cutting interest rates–finally, and the newly elected President Trump had promised markets the world implicitly and explicitly. There was the all-important Trump Put as an implicit promise. We all know that the President used the markets as a scorecard in his first White House tenure, shifting tone and even policy in response to market signals. This time around, markets expected the same, and this time, the Trump Put would be bolstered by a Fed Put. What could possibly go wrong?
Then there were the explicit promises. There were sure to be tax incentives, maybe even checks signed by the Commander in Chief himself. Fiscal stimulus was about to be unleashed. Stodgy regulators were going to be sent packing and looser days would be ahead. It could be a bonanza for highly regulated banks and energy companies. Mergers stuck in the dusty offices of the DOJ and the FTC would be freed up. Long-slighted crypto would be invited to the grownup table and get a prominent seat. It was going to be the dawn of a new era for America. It wasn’t just about financials, old-world industrials/energy, and crypto. AI was running hot! The Magnificent-7 was up nearly 70% by early December. Investor sentiment and risk appetite was off the charts. The so-called “Trump Trade” was born. It was going to be an “everything rally” led by tech, followed by languishing energy and also-ran financials. The only questionable trade was around suffocating healthcare.
The economy was holding up and inflation was trending down toward the Fed’s 2% target. But there were some stress cracks showing up behind the bright red, white, and blue bunting. Interest rates were supposed to be coming down. Mortgage rates were supposed to fall with Fed cuts and cause a rush of activity in the beleaguered housing market. But, alas, 10-year yields, which are used to price mortgages, were spiking, rising by almost a full percentage point from their September lows. Mortgage rates briefly touched 6.6% in September only to rise up and close out the year around 7.25%. The bond vigilantes had emerged from their nearly 4 decade slumber to protest a swelling deficit. A deficit that would only get worse with all those promised fiscal stimuli. This overhung the final days–the darkest days of 2024. It was a choppy year that ended with volatility, but it was an overall solid year for market returns.
The inauguration in late January would mark a turning point. Days were getting longer–nights shorter. We were past the solstice. That would all change in March as we watched much of our year-earlier gains washed away, and we were just inches away from a bear market. It was indeed a dark time. Many institutions and hedge funds were paralyzed and getting whipsawed on the regular. The tried and true strategies from a year earlier simply didn’t work any more. The Trump Trade was officially pronounced dead.
But out of the darkness came a light. Not the blinding kind that tricks you into thinking risk has vanished, but the softer, more honest kind–the kind that arrives quietly, and forces you to recalibrate rather than celebrate. Q2 did what Q2 often does after a shakeout: it reminded investors that markets do not move in straight lines, and that fear, when it becomes consensus, tends to overstay its welcome. Earnings were not spectacular, but they were resilient. Consumers didn’t disappear. Companies adapted. Margins bent but did not break. The economy did not roll over on command, despite the number of confident recession calls that had already been written in permanent ink.
Tariffs were ugly on the surface, but suddenly seemed only skin-deep. Companies were not folding and prices inched higher but to levels nowhere near expectation. Q3 followed with something even more valuable than upside–clarity. Not certainty, mind you, but clarity. Inflation didn’t vanish, yet it didn’t reaccelerate into something unmanageable. The Fed stayed stubbornly patient, which frustrated everyone, and that in itself was oddly stabilizing. Markets rebuilt hope the old-fashioned way, inch by inch, data point by data point. Risk assets found their footing again. Leadership narrowed, then broadened, then narrowed again. It wasn’t pretty, but it was constructive. That’s usually how real recoveries look in real time–messy, uneven, and deeply unsatisfying for anyone hoping for a clean narrative.
And then, just as confidence began to feel a little too comfortable, Q4 did what Q4 sometimes does. It reminded us that optimism is not a permanent state. Growth expectations got trimmed. Politics reasserted itself. Rates refused to cooperate. Volatility crept back in through the side door. The market didn’t collapse, but it stopped being generous. Gains became harder to come by. Investors who had grown used to momentum rediscovered the feeling of friction. Hope wobbled again, not because the world was ending, but because it stubbornly refused to be simple.
Now here we are. The S&P sits nervously just below all-time highs, like a runner pacing before the finish line, aware of how far it has already come and how easy it would be to stumble in the final steps. That nervousness is not a problem; it’s how the market works. It tells you that expectations are no longer reckless. It tells you that positioning is more thoughtful. It tells you that markets remember what it felt like in March, and in October, and they are not eager to relive it. This is not euphoria. It’s vigilance.
Which brings us back to the solstice. The thing about the darkest day of the year is not that it’s dramatic, it’s that it’s definitive. Once you’re there, the math changes. You don’t notice it at first. One extra minute of daylight doesn’t warm your hands or change your commute. But it accumulates. Quietly. Relentlessly. Nature doesn’t promise you an easy spring. It promises you a coming one.
That’s how I’m thinking about 2026. Next year is shaping up to be a good year, but not a gentle one. There will be bumps. There will be moments where it feels like the light has stalled or even slipped backward. Policy will surprise. Data is sure to confuse. Markets will test resolve, as they always do. Some of the trades that worked this year won’t work next year… or maybe they will, just not in the same way. 2026 will not look like 2025. Or maybe it will, but from a different angle, under different lighting, with different leadership and different narratives built around the same fundamental forces.
Optimism, real optimism, is not about ignoring those risks. It’s about respecting them without surrendering to them. It’s about discipline and process. It’s about remembering that markets reward patience far more consistently than they reward conviction without humility. The lesson of this past year was not that hope was misplaced. No, it was that hope needs guardrails.
One thing, however, is certain. Summer will come. Not tomorrow, not all at once, and not without storms along the way. But it will come. The light will lengthen. Growth will reassert itself in fits and starts. Capital will adapt. Innovation will continue doing what it always does–solve problems unevenly, profitably, and often ahead of our ability to fully appreciate it.
Darkest shade doesn’t mean permanent darkness. It means transition. And transitions, while uncomfortable, are where opportunity tends to hide for those willing to stay awake long enough to notice the change in the light. I can see it. But, then again, I am an eternal optimist.
FRIDAY’S MARKETS
Stocks rallied on Friday carried by positive sentiment from the cooler-than-expected CPI print from a day earlier and Micron-driven tech optimism. 10-year yields gained 2 basis points and Bitcoin ticked higher after a challenging week.
NEXT UP
The week ahead will feature a number of important economic figures including ADP NER Pulse, GDP, Durable Goods Orders, Industrial Production, and Consumer Confidence. Download the attached economics calendar to make sure you are the first in line for success.