Summary, Last Year:

International equities outperformed U.S. equities last year, marking a reversal of the decade-long period of U.S. market leadership. Gold continued its strong run, as did other precious metals such as silver and copper. Core bonds also delivered solid returns, reversing the recent trend in which short-term bonds had outperformed longer-term bonds. A key driver of international equity outperformance was the decline of the U.S. dollar. This shift drew considerable attention as the Trump administration began signaling a desire to reduce the relative value of the dollar. 

Our Commentary:

While international stocks performed well in 2025, U.S. stocks also posted strong returns. The key question looking ahead is whether international stocks can continue to outperform. Last year, the Trump administration articulated a goal of weakening the U.S. dollar, and the dollar did, in fact, decline. This helped international stocks, as investments denominated in foreign currencies became more attractive to U.S. investors. In simple terms, currency movements worked in favor of non-U.S. markets.

Looking ahead to 2026, however, the decline in the U.S. dollar may slow or even reverse. If that happens, U.S. stocks could regain their relative advantage. Over the long term, corporate earnings tend to drive stock prices, and U.S. companies continue to outpace both developed and emerging international markets in earnings growth. Given that 2025 marked one of the largest annual declines in the dollar’s value, we believe the recent trend in favor of international stocks may prove temporary.

Industrial metals, not just gold, also had an exceptional year in 2025, and we expect this theme to continue. Returns may moderate in 2026 if the U.S. dollar regains some strength, which could reduce demand for metals. Even so, the longer-term outlook remains constructive. The global push toward clean energy supports demand for copper, while the buildout of artificial intelligence infrastructure is increasing demand for a range of industrial metals. Gold, meanwhile, continues to serve as a store of value and an alternative to the U.S. dollar, a role reinforced by ongoing purchases from central banks around the world. 

One notable dynamic to watch in 2026 is the potential influence of so-called “bond vigilantes,” particularly in the context of the U.S. midterm elections. Bond vigilantes are investors who respond to rising government spending by demanding higher bond yields—often by selling government bonds or choosing not to buy them. If this behavior intensifies, it could push up yields on the 10-year U.S. Treasury bond. Higher Treasury yields can affect stock valuations by narrowing the “equity risk premium,” which is the additional return investors expect from stocks relative to lower-risk assets like government bonds. In theory, a smaller equity risk premium makes stocks less attractive compared to bonds.

The Federal Reserve is also likely to remain in focus in 2026. Rate cuts could fuel further asset price gains, raising concerns about a potential “melt-up”, a period when asset prices rise rapidly and unsustainably. In addition, Federal Reserve Chair Jerome Powell’s term is set to expire in May 2026. His successor may take a more dovish stance on interest rates, which could increase the likelihood of additional rate cuts. While we do not expect an extreme melt-up scenario, it is a risk we are monitoring closely. 

Until next quarter, 

– Leelyn Smith Investment Committee

Bond Disclosure:

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Forward-Looking Statements:

Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives.  Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.

Opinions voiced are not intended to provide specific advice and should not be construed as recommendations for any individual.  To determine which investments may be appropriate for you, consult with your financial professional.

Indices are unmanaged measures of market conditions. It is not possible to invest directly into an index. Past performance is not a guarantee of future results.

The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. 

International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods.

Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.  Financial Planning offered through Leelyn Smith, LLC a registered investment advisor and separate entity from LPL Financial. Securities offered through LPL Financial. Member FINRA/SIPC.  Additional advisory services offered through Leelyn Smith LLC, a Registered Investment Advisor Leelyn Smith LLC, and LPL are separate and unrelated companies.

The information contained in this e-mail is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed.  If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited.  If you have received this message in error, please immediately delete. 

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.