Quarterly Q&A – 2026 Outlook | Strategy Update

Strategy Update: Outlook 2026

As we enter 2026, we want to thank you for your vote of confidence in our work. The past two years were rewarding, to say the least, for global economies, financial markets, and investors. However, they were not without some episodes that tested even the most seasoned investor’s resolve. The swift decline in excess of more than 20% for equity markets this past April comes to mind! It is during these periods of volatility that we appreciate your understanding and commitment to our unique, risk-managed investment style and wealth management strategy. With that said we thought we would share our response to some of the most often asked questions about financial markets and our work. We also encourage you to send us questions that you think would be helpful!

When stocks fall more than normal, it is nice to see that you reduce my risk – how does this play out over the long run?

In times of uncertainty, we aim to err on the side of caution to help protect your capital from significant loss and strive to manage your assets for longevity. This tenant of managing risk, coupled with our competitive desire to enhance your wealth during bull markets, are the driving forces for our team’s enthusiasm and motivation to do our very best on your behalf. However, as you are aware, managing downside can sometimes make our short term returns a bit lumpy – we decline less when the market falls, but we often bounce back a little slower when it recovers. This can make our returns in the short term a bit “lumpy.” However, over longer periods of time, this approach has helped families and non-profits avoid the catastrophic declines of bear markets and allowed us to generate above-average returns.

You have been optimistic about markets…how do you see 2026 and beyond?

As we have expressed in our recent Strategy Updates, we believe global economies and financial markets are set up to continue this new and exciting business cycle and bull market. We base this bullish outlook on several factors, but the most important theme is the revolutionary technology shifts that are evolving with artificial intelligence (“AI”). Like technology revolutions in the past, we believe that global economies will benefit from significantly higher productivity growth and corporate profitability. When we combine this with our expectation of lower inflation and accommodative monetary (Federal Reserve) policy, we are optimistic about global markets and your portfolio, particularly given the reasonable stock price valuations in the US and overseas (sans the “Magnificent 7”). This combination of positive metrics should support a continuation of this powerful bull market and business cycle for several years. As a reminder, stock indexes have historically doubled or tripled over the course of a business cycle and bull market, so there is much to look forward to.

How does artificial intelligence factor into investment opportunities beyond large technology stocks?

While the early AI investment narrative focused heavily on semiconductors and large technology companies, we believe the opportunity is beginning to broaden. AI adoption is increasingly affecting other sectors of the economy including healthcare by accelerating drug discovery and personalizing medicine, industrials through optimizing complex processes and logistics efficiencies, and financials through areas such as fraud detection and automation. This broadening creates opportunities to build more diversified portfolios, rather than being concentrated in a small group of stocks.

What is your view on global markets and international diversification?

We believe global diversification remains an important opportunity as we move to 2026. In 2025, foreign stocks outperformed US stocks by a wide margin, driven by stimulative fiscal and monetary policy overseas and growing adoption of AI. Many international markets have been neglected for years, leaving valuations attractive relative to the US. At the same time, these markets are benefiting from the same productivity trends, which supports our constructive view on global equities.

What risks are you monitoring most closely this year?

While we remain optimistic, we are carefully monitoring several risks. The labor market is an important area of focus as AI continues to reshape employment, even though history suggests workers often find new roles over time. We are also watching Federal Reserve policy closely, particularly how it balances a potentially weakening labor market with a strong economy. Keep in mind that there will be a change in leadership within the Federal Reserve in May, and it is highly likely that the next Fed Chair may be pro-lower rates. If the Fed were to lower interest rates too aggressively, they could re-ignite inflation which would be a negative for markets. In addition, the US balance sheet and elevated debt levels remain on our radar, as these factors could influence market stability.

I have significant money market balances and CDs…is this a good thing?

Despite strong stock market performance, many investors still hold elevated cash balances in money market funds and short-term CDs. With interest rates likely to fall over the course of the year, we view this as a window of opportunity to lock in longer-term, high-quality bonds at attractive yields, while avoiding the reinvestment risk that comes with declining rates. If you have large money market balances, this is an excellent time to speak to us about converting these to better yielding individual bonds.

What can we do to make my portfolio more tax efficient?

As markets rise, after-tax planning becomes increasingly important. Within your portfolio, we have been much more proactive in regard to tax-loss harvesting throughout the year to help manage realized gains. For certain investors, our longer-term long/short overlay strategies can provide a more aggressive approach to realizing losses while maintaining exposure to markets. If you would like to know more about this, please let us know!

I keep hearing about alternative assets like private equity and credit – is this something Main Street is exploring?

We have a very curious investment team and are always exploring alternative assets and strategies to enhance your wealth. In recent years, we have invested significant time and resources towards researching private equity and credit, as well as venture capital. This journey has led to a better understanding of the quality of the choices in this market. Though these alternatives are very popular – with that has come many entrants of lesser quality. At the present time, returns in these markets have not been stellar – probably due to their popularity. However, given our research and a better market for these asset classes, we will likely seriously consider these as an additional asset class.

Will you stay committed to your Active Risk Management approach?

Throughout 2026, we will continue to be disciplined about actively managing risk through your portfolio’s allocation to equities, careful sector management, and the employment of carefully placed stop-loss orders. Though we are optimistic about markets around the globe, we are keenly aware that unknown risks can present themselves – our Active Risk Management stands prepared to handle such occurrences.

We hope you find this update helpful. If you have any questions, or you have experienced a change in your financial situation, please let us know. From all of us at Main Street Research, we appreciate your continued trust and partnership and look forward to navigating the year ahead together.

If you have a family member, friend, or colleague who could benefit from our work or a no-cost wealth management and portfolio review, please let us know, and please feel free to share this Strategy Update.

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