January 15, 2026Quarterly Investment Update Year End 2025
As we look back on 2025, it’s important to filter the signal from the noise. If you caught our last quarter commentary, you’ll remember the list of conflicting economic signals. Well… those signals haven’t changed much. There are a few signs that we’re headed for a market correction toward a distinct bear market. But there are also signs that we’re going to maintain the momentum of market gains.
Re-Cap
The U.S. economy showed some resilience despite challenges like a change in the White House, tarifs, government shutdown, and substantial policy shifts. There was strong growth overall opposed in part by a weakening labor market and persistent inflation.
- Real GDP expanded 1.8% to 2.0% on a full year estimate driven by consumer spending and AI investments. Headline CPI inflation averaged around 2.8% - 3.0% annually, due primarily to tarifs. While still higher than the Fed’s target of 2%, inflation still cooled significantly from prior years.
- The unemployment rate hovered around 4.3% - 4.5% for 2025, peaking at 4.6%, the highest in four years. As of this writing, unemployment fell in December to 4.4%, surprising the experts.
- Despite real trepidation due to lingering inflation, the Federal Reserve cut interest rates multiple times during 2025, resting on an efective rate around 3.72% by December.
- Despite volatility, particularly around tarifs, markets posted double-digit gains during 2025. The S&P rose 16%, the NASDAQ was up 19-20%, and the DJI gained around 13%.
Solid growth considering all the uncertainty the year started with. Add tarifs, unemployment, market volatility, uneven growth, we’re happy how it translated into portfolio growth.
Housing Market
The long-awaited recalibration of the housing market may take longer than we had hoped.
Multifamily construction starts are still outpacing single-family starts for 2025 and 2026 indicating afordability is still driving future projects. High mortgage rates are the obvious culprit. Adding to the problem in home purchasing power, other costs like insurance and January 15, 2026rising property taxes. While homeownership is still a goal for most people, circumstances like a job change, retirement, growing families, will drive the decision to jump in the market.
In 2025, the average home stayed on the market for 51 days as of May, which is an increase from previous years. Still, shorter than the peak days during the pandemic. This trend indicates a return to more typical selling timeframes as the market tries to stabilize.
The governor of Florida, Ron Desantis, has been floating the idea of eliminating property taxes. The idea is that once you own your home, there shouldn’t be any further burden on homeownership outside its maintenance. We’re not sure exactly how that will work as nearly all states rely on the steady stream of property taxes to fund education and other basic services.
Fannie Mae and Freddie Mac will be opening up larger mortgages starting January of 2026. This will represent a 3.3% increase from the current limit. Depending on which part of the country you look at, the limits will be from $832,750 to as high as $1,249,125 in the larger metro areas. The intention here is to keep pace with housing inflation and make it easier and cheaper for more buyers. Conforming loans typically are more flexible, such as lower down payments.
Fraud Prevention
Unfortunately, online, text, and phone scams are on the rise. There are too many scenarios and types of scams to list here but be advised that you are extremely likely to receive a fraudulent phone call, email, or text message enticing you to divulge information that can be used to steal your money.
Consider these as RULES, not tips:
- Never continue a conversation that you didn’t initiate. Scammers are getting more sophisticated at sounding legitimate. Hang up. The more you engage, the more likely it is to give them what they’re looking for.
- Never EVER share a one-time passcode or security code. Those codes are for you and you only. No bank or financial institution needs these codes. They already have access to your account. Only a scammer would ask for it.
- Independently verify contacts and phone numbers. If someone calls you (initiates the interaction) and asks you to confirm or verify any information, hang up and call the number on your credit or debit card or mailed statement and describe the interaction to a legitimate customer service representative. That person will confirm if the call is legit or a scam. Never use the phone number or text number of the person who called you even if it looks legitimate.
- If the caller sounds desperate or is trying to get you to do something quickly, it’s probably a scam. If you’ve walked into your local bank branch you’ll see, banks run at a snail’s pace. Financial institutions value accuracy over speed. There is virtually no scenario that someone will call you and demand confirmation or information for some time sensitive transaction. Even if the person is claiming to be from ‘fraud prevention’. It’s easy to say you’re from ‘fraud prevention’ when you’re the fraudster.
If you think you’ve been the victim of a scam, call the hotline on your statement or on the back of your card immediately and report it. Disable or put a freeze on all of your accounts if possible. Change your passwords as quickly as you can. Report the incident with law enforcement.
What to Expect in 2026
It may be a good time to dial back some risk in your portfolio. We’re certainly not recommending that we divest from the market entirely. There is a possibility that recent AI driven gains are poised for a correction, but there are just as many reasons that the market rally could continue well into 2026. The economic mobilization to facilitate and cater to AI technology, particularly in the energy sector, is having positive investment and infrastructure benefits.
Among the reasons to be optimistic, corporate profits are still ticking slightly upward, estimated to be roughly 14% among the S&P 500 companies. Interest rates will likely be slightly lower in the quarters to come as the specter of inflation recedes further into political rhetoric than economic reality.
In a rare twist, Global GDP is predicted to outpace U.S. growth for 2026 by nearly a full percentage point. China and India are expected to top the lists for the coming year.
Price Earnings (P/E) ratios are through the roof right now. High P/E ratios reflect the premium investors are willing to pay for the promise of higher prices and/or expected earnings in the future. Low P/E ratio reflects a lower price compared to a company’s expected earnings. Generally considered a good value. P/E ratios are anticipated to remain staggeringly high through 2026. AI stocks, the so called Magnificent 7 (it’s really 9 stocks) are the definition of speculation on new technology. AI will most certainly change the way businesses run but there will be dificulties in bringing meaningful applications to the consumer market.
Conclusion
It’s good to remember that three years ago the S&P 500 Index was valued at 4,573.82 at the beginning of 2022. We’re starting 2026 at 6,858.47. That’s a 33% bonus for staying with the January 15,2026 market. To be clear, we believe that volatility will still be of concern to investors going forward. That volatility also creates opportunities for certain hedging strategies. Until recently, many of these hedging strategies were only open to the very rich. Not anymore. If you’d like to learn more about the opportunities that a volatile market ofers, feel free to reach out to us or simply book a meeting. We here at Pacific Leader wish you and your family a wonderful New Year!
If you have any questions, please reach out to us via our new website at:
www.pacificleaderfinancial.com
You can always call our ofice at: (888) 797-5881 x7720
You can also call or text me directly at: (408) 471-4081
Sincerely,
Matthew Dennis, CPA, AIF
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The Gross Domestic Product (GDP) is a comprehensive measure of U.S. economic activity. GDP
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