2026 has been the year the script flipped. A war-driven disruption in the Strait of Hormuz — which carried about one-fifth of the world’s oil — sent energy prices soaring and pushed inflation back up. In response, the Federal Reserve reversed course and raised interest rates in September, and many economists expect more increases by year-end. We think that’s the wrong medicine.
The first half of 2026 had no shortage of factors that drove markets down and then back up again. We witnessed increased volatility from the war in Iran, oil prices pushing inflation to multi-year highs (and then back down), and a new Fed chair taking the helm. Now in August, markets have had new concerns to digest, from AI investment questions, rising treasury yields, renewed oil price volatility, and a more fragmented Fed. Many of these are longer-term themes that could keep driving volatility in the months ahead. Yet these same trends have also propelled markets this year, which underscores how much diversification still matters within portfolios.
The world economy is still growing, but the easy disinflation phase has been interrupted. In the U.S., that likely means “higher for longer” policy patience. In Europe, it means slower growth with greater energy sensitivity. In Asia ex-China, it means better trend growth but more vulnerability to oil and shipping shocks. In China, it means steady growth and policy flexibility, but not a clean breakout. For markets, diplomacy now matters almost as much as data: any durable de-escalation around Iran and any clearer trade agreements would improve the outlook faster than most economic models currently assume.
As we face continued volatility, we will look for the upside in growth, technology, and real estate while protecting to the downside with our alternatives and fixed income. We continue to believe a truly diversified portfolio is the only approach appropriate in this economic environment. We thank you for your continued trust and partnership and look forward to the new year!
As global complexities increase, the importance of diversification is paramount for a long-term investment strategy. We continue to believe in US dominance, and we look to capitalize on the technology sector from a tactical and strategic portfolio allocation. Looking ahead we believe that a falling rate environment will help support equity valuations and increase real estate transactions.
Pollock’s paintings are characterized by an “all-over” approach to painting, often of splattering an entire canvas with dense, interconnected webs of paint rather than focusing on a specific focal point. All of these policy changes and executive orders along with broad and seemingly arbitrary tariffs may be part of “the art of the deal” but I admit, I don’t see how this ends without some lasting or at least residual damage and maybe that is because I have never really understood the art of Jackson Pollack.
Our portfolios are designed to benefit from an extension of the business cycle and a continuation of US leadership. As the policy priorities of the new administration become clearer over the first half of the year, markets may be tested at times, but our well-diversified portfolios and extensive use of low-to-no correlated alternatives should serve as a ballast through market volatility.
While we remain optimistic that we avoid a recession in the near-term, sticking a perfect landing seems overly optimistic hence we will keep our newly adopted more defensive stance in place until we see a reason to change in either direction. We want to remain exposed to areas where we see high-growth potential (innovation), on-shoring effects while keeping a watchful eye on a slowing but thus far resilient consumer and rising geopolitical escalations present risks that call for broad diversification and a moderately defensive stance at present. Its always something!
As we move through 2024, the current macroeconomic environment is challenging as we contend with domestic political issues, the larger geopolitical conflicts, and the Fed’s impact with the current rate environment. That being said, the American economy and country has always proven itself to be resilient and we believe that resilience will hold. The upcoming presidential election is sure to be one of the most challenging elections that we’ve ever seen, yet the turmoil that might come about will be limited by the likelihood of a mixed government made up of both parties. Having split control and the resulting necessity of bipartisanship helps suppress extreme ideas that have been discussed in the past such as taxing unrealized capital gains.
In 2022, the prevailing sentiment among professional investors and their firms was that the U.S. was headed towards a recession due in large part to the Fed’s aggressive monetary policy. The focal point of discussion revolved around the nature of the economic downturn – whether it would be a soft or hard landing. Either way, the nearly unanimous consensus was that this recession would be the most anticipated recession in history.
