Discipline in a Year of Headlines
By Dr. Robert Votruba
As we look back on 2025, one theme stands out more clearly than any other: uncertainty became the norm.
For decades, investors have been told that markets hate uncertainty. Historically, that has been true. Sudden, unexpected events tend to create volatility as markets struggle to price the unknown. What made 2025 different is that uncertainty was not episodic. It was persistent. Headlines surrounding tariffs, interest rates, geopolitics, elections, and technology arrived almost daily. Rather than a single shock, investors were asked to digest a constant stream of new information.
And yet, markets adapted.
Early in the year, the announcement of “Liberation Day” tariffs triggered a sharp market reaction. That response was understandable. The scope, duration, and economic impact were unclear, and markets tend to react most strongly when outcomes are unknown. As the year progressed, however, the U.S. negotiated trade agreements with many countries, and the feared worst-case scenarios did not materialize. In recent months, the effective tariff rate has hovered around roughly 11%, far lower than many initially expected. Once uncertainty gave way to implementation, subsequent tariff headlines produced far less volatility. Markets didn’t suddenly like tariffs, they simply learned how to price them.
Despite persistent concerns, the broader economy showed notable resilience. Recession fears that dominated forecasts as far back as early 2023 gradually subsided. Growth continued, even as certain areas of the labor market softened. In response to evolving conditions, the Federal Reserve lowered interest rates three times in 2025. Importantly, these were not crisis-driven cuts, but adjustments made in the context of continued economic expansion. Looking ahead, markets are now weighing expectations for additional rate cuts in 2026, alongside a leadership transition at the Federal Reserve, with Chairman Jerome Powell set to step down in May. This adds another layer of uncertainty, one markets are already actively pricing rather than reacting to in real time.
History provides helpful context here. Periods of declining interest rates outside of recessions have historically been supportive for a wide range of asset classes. In prior non-recessionary rate-cutting cycles, U.S. stocks, international stocks, and bonds have all tended to perform well over time.[1] This does not imply future outcomes, but it reinforces an important point: the context surrounding rate cuts matters far more than the cuts themselves.
From an investment standpoint, diversification mattered in 2025. While the “Magnificent 7” accounted for a significant share of S&P 500 gains throughout most of the year, market leadership broadened toward year's end. By year-end, participation widened across sectors and regions, and after years of underperforming domestic markets, international equities ultimately outperformed even the Mag 7. This was a reminder that concentration rarely persists indefinitely, and that leadership rotation is a normal feature of markets, not a sign of weakness.
As we look toward 2026, it is important to distinguish between expectations and predictions. Markets are currently weighing several potential supports, including continued capital spending on artificial intelligence, incentives aimed at domestic manufacturing, possible regulatory changes, and expectations for continued earnings growth. Even if the largest productivity gains from AI take time to materialize, the sheer scale of capital spending itself can influence revenues, earnings, and margins. Analysts currently expect double-digit earnings growth in both 2026 and 2027,[2] with contributions expected to be more broad-based than in recent years, rather than concentrated solely in large technology companies. Notably, S&P 500 profit margins today sit near record levels.
At the same time, risks remain. Inflation is still above the Federal Reserve’s long-term target, and the possibility that it remains sticky could slow the pace of future rate cuts. Asset valuations are elevated. Geopolitical uncertainty persists, including midterm elections, Federal Reserve leadership changes, potential Supreme Court rulings on tariffs, and ongoing conflicts in Eastern Europe and the Middle East. Uncertainty has not disappeared; it has simply become familiar.
One of the most consistent features of markets are temporary declines. Since 1980, the stock market has been down at some point every single year, with the average intra-year decline measuring approximately 14.1%. Despite those drawdowns, annual returns were positive in more than 75% of those years.[3] Bonds tell a similar story. Dating back to 1976, bonds have experienced declines at some point every year, with an average intra-year drawdown of roughly 3.5%, yet bond returns were positive in 44 of the past 49 years.[4] Volatility, even in traditionally conservative asset classes, is not evidence that something is broken, it is the cost of participation.
This distinction becomes especially important when considering how portfolios are constructed. Indeed, broad market indices (such as the S&P 500 or the Dow Jones Industrial Average) sit far above their 2008 pre-financial-crisis highs. In fact, at the close of 2025, the S&P 500 hovered near its all-time high. However, the experience of many individual stocks has been far less forgiving. Roughly 36% of individual stocks remain below prior peaks,[5] and that figure likely understates reality due to bankruptcies, delistings, and mergers that permanently impaired shareholder capital. Even within the U.S. technology sector, one of the strongest and most transformative sectors in modern market history, approximately 22% of companies still trade below where they were nearly 20 years ago. Cisco only recently surpassed its peak from 25 years ago. Bank of America just exceeded its 2006 high.
Academic research reinforces this reality. A long-term study by Professor Hendrik Bessembinder of Arizona State University, examining U.S. stocks from 1926 through 2023, found that most individual stocks delivered negative lifetime returns, and that less than 3% of stocks accounted for all net shareholder wealth creation. The long-term success of the stock market has been driven by a very small group of exceptional winners. The question investors face is straightforward: do you want to bet on identifying that small minority, or benefit from them automatically through diversification?
Finally, while no one can know what markets will do in 2026, history offers one near certainty: at some point during the year, markets will be lower than where they began. That has been true every year for decades, including many years that ultimately produced strong gains. The current bull market, which began in October 2022, is now roughly 38 months old. Historically, the average bull market has lasted about 70 months.[6] Markets do not end because of age alone, and they never move in straight lines.
Which brings us to a timeless reminder from Peter Lynch:
“Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.”
Our focus remains unchanged: building diversified portfolios, managing risk thoughtfully, and maintaining discipline through uncertainty, because uncertainty has never been the enemy of long-term investors. Reaction has.
[1] Capital Group, Bloomberg, Morningstar, Standard & Poor’s
[2] FactSet
[3] FactSet, Standard & Poor’s, J.P.Morgan Asset Management
[4] Bloombert, FactSet, J.P.Morgan Asset Management
[5] The Economist
[6] Yardeni Research
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. National Financial Network is not an affiliate or subsidiary of PAS or Guardian. CA Insurance License Number - 0D23495. Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts and statements of financial market trends are based on current market conditions and are subject to change without notice. Opinions mentioned are the authors. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. Market data provided by: J.P. Morgan Asset Management, Wall Street Journal, Barron’s, Standard & Poor’s, The Economist, Capital Group
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