2026 Charting the Course

Over the past two centuries, each era of American economic transformation has produced a dominant sector. Finance & Real Estate built the young nation's foundation, as capital formation and land development underpinned expansion. Railroads drove Transportation to nearly 70% of the entire market, becoming the backbone of industrialization. Energy & Materials powered the industrial and post-war boom through much of the 20th century. Today, Information Technology & Communications leads the way, reflecting the transition to a digital, innovation-led economy. Yet today's tech dominance – around 45% of the market – is actually more modest than the near-monopolies of sectors past, a reflection of a more mature, diversified economy. The takeaway for investors: sector leadership is never permanent. Every dominant industry eventually matures or is disrupted by something new. 

A large share of recent market gains has been driven by the Magnificent 7, supported by stronger earnings growth in this subset of companies rather than broad growth across all stocks. Yet at the same time, performance within this group has become increasingly uneven, with strong results from a few companies masking weaker performance among others. This concentration, as well as the dispersion seen even within these large stocks, highlights the importance of diversification and thoughtful investment decisions, even when overall market returns appear strong.

When retirement begins, the timing of returns can sometimes matter more than the overall returns. As the chart shows, early losses paired with ongoing withdrawals can permanently impact a portfolio—even if long‑term average returns look fine on paper—because you're pulling dollars out when balances are lowest. This risk is called "sequence of returns risk" and is why a portfolio with an appropriate risk profile at retirement is an important part of your retirement strategy.   

Over the last two decades, asset allocations utilized by public defined benefit plans have reduced their allocation to public equities by more than 10%. While this could indicate a de-risking on the surface, those assets have been largely reallocated to private rather than public investments in pursuit of a liquidity premium. Fixed income allocations have also dropped by 5%, which has been deployed not only in private credit but also real assets as funds pursued yield in a low rate environment. In more recent years, discount rates have started to decrease while the rate environment has simultaneously started to normalize; while the impact of this may not be visible for years given liquidity restraints in private assets, it will be interesting to see whether asset allocations shift back towards the allocations of old or if the appetite for private assets is here to stay.

Inflation as measured by CPI may have moderated over the last several months, but that doesn't mean price changes have affected all goods and services equally. Over the last 25 years, food, housing, and medical care costs have risen at a rate greater than overall inflation. On the flip side, technological advancements and efficiencies have driven down the cost of goods like televisions, software, and cell phone services.