Market Commentary | January 2026

Wildermuth Commentary January 2026.pdf

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A Chaotic Year, a Strong Finish

The U.S. stock market wrapped up 2025 on a surprisingly strong note, with the S&P 500 up over 16% for the year and flirting with new highs. It’s a strange way to wrap up a year that brought tariff jolts, an AI investment boom, a spring pullback, and constant warnings about a slowdown. But markets are near records again, the economy is still steady, and investors are trying to figure out what matters most for 2026.

That paradox of slower job growth alongside a rising market was one of the defining themes of the year. A big part of the reason might be productivity growth. The latest GDP report showed the economy growing at a robust 4.3% in the third quarter, well above expectations. Consumer spending held up, healthcare spending jumped, and travel demand remained strong. It’s hard to reconcile those numbers with a labor market that has clearly downshifted unless productivity is doing more of the heavy lifting. For the first time in a long while, that looks highly likely.

AI remains central to this story. The capital-spending boom has been massive—one of the fastest investment cycles since the early internet era. Semiconductor and infrastructure names posted staggering gains: AMD up 77%, Palantir up 135%, and Micron up an eye-popping 239%. Nvidia’s 39% rise almost looks modest next to those moves. The result is a market that’s become even more top-heavy, but also one where productivity gains are finally showing up in the data instead of just in corporate slide decks.

Still, this year wasn’t only about tech. Banks, materials, and healthcare stocks have all attracted renewed interest as investors look for alternatives to the most expensive mega-cap names. International markets—Japan, the U.K., Germany—quietly outperformed the U.S. for stretches of the year, reminding people that diversification still works, even in an era dominated by US-centric AI headlines.

Inflation expectations are stable. Mortgage rates are still high, yet Treasury yields have steadied as the Fed resumed cutting. The 10-year sits near 4.1%, but many view this level as healthier than the near-zero rates of the 2010s.

Valuations are elevated, but not at dot-com extremes. Even the excess CAPE yield—a metric that shows how much extra return investors get from stocks over bonds—looks tight but not alarming. Falling bond yields have kept it within a normal historical range.* Markets can also stay expensive for long periods when real rates are stable and earnings continue to rise.

Still, under the surface, volatility hasn’t gone away. Gold and silver traded like meme stocks for the year, Bitcoin reversed its early-year run, and the dollar rebounded after a sharp first-half drop. Index progress was fairly steady, but the action underneath was far more chaotic.

Looking to 2026, the narrative has shifted from “AI can do anything” to “AI must deliver.” Productivity gains are showing up, but expectations are moving higher. Investors want to see massive AI infrastructure spending turn into real margin expansion.

For now, investors are still giving AI the benefit of the doubt. But with valuations high and everyone crowded into the same themes, the margin for disappointment is thin. The rally can continue, but 2026 will likely be when the story has to justify the spending.

Daniel Wildermuth

Portfolio Manager, Quartz Astra Strategies

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DATA SOURCES

Market Data: https://www.wsj.com/market-data


*CAPE Data: Robert Shiller

INDEX DESCRIPTIONS

The Standard & Poor’s 500 Index is a capitalization-weighted index that is generally considered representative of the U.S. large capitalization market.

The NASDAQ Composite Index is a capitalization-weighted index that is comprised of all stocks listed on the National Association of Securities Dealers Automated Quotation System stock market, which includes both domestic and foreign companies.

The Dow Jones Industrial Average is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.

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