A shift from asset‑light to capital‑intensive sectors and regions kept volatility subdued and the S&P 500 index stalled just below all-time highs in February. With the estimates for AI somewhere between a new utopia and the end of the world, we believe a tactical investment approach remains key.

Evidence of the “run it hot” scenario discussed last month was apparent in January and while trade and geopolitical issues once again resurfaced, we believe the next crisis is more likely to come from bond markets. While recent issues in private credit may be the tip of the iceberg, we will continue to monitor VIX for signs of an imminent crisis.

After a solid year for equities in 2025, recent action in commodities suggests the market may be considering a “run it hot” scenario that could devalue the dollar and produce further gains in 2026. Of course there are no guarantees and with stakes this high, we believe a tactical approach remains the best way to extract and preserve value.

As outside forces created step-changes in fundamentals that yanked markets in every direction, 2025 served as a good reminder that shielding portfolios from only the truly harmful equity drawdowns delivers a much better cost–benefit tradeoff than hedging every dip. With an evolving set of factors that may combine in positive or negative ways, investment flexibility remains key for 2026.

Shaking off a mid-month wobble, stock markets worldwide staged another broad rally in October as tentative peace in the Middle East, a rumored China trade deal and the second rate cut of 2025 lifted spirits.