In yesterday's e-mail, I reviewed the profitable advice I gave my readers last year. And following up today, I'll share my outlook for 2026.
For some longer-term context, in my year-opening e-mail two years ago, I discussed why the markets might do poorly in the short term: high valuations, bullish sentiment, rising national debt, the upcoming election later that year, two major wars around the world, etc.
However, I remained cautiously optimistic, especially for the long term.
For the first time in decades, Wall Street strategists were predicting that the S&P 500 Index would be down in 2024. But as I discussed in my e-mail, there were also plenty of historical reasons pointing to the contrary.
And as we've seen, the markets have ripped higher the past two years.
Rather than learn from their mistakes, the bearish sentiment among the "investing intelligentsia" is even greater today. Every day, I'm bombarded with articulate, well-credentialed people telling me why a market crash is just around the corner...
I continue to view this as a contrarian indicator and remain "constructive" on stocks.
Most important, the U.S. economy is doing extraordinary well. GDP growth was an exceptional 4.3% in the third quarter. Unemployment, while rising slightly, remains at a historically low level. Inflation remains muted at around 3%. Wage growth is outpacing inflation, indicating consumers are spending strongly, and corporate profits are robust.
And just because the market had a good year doesn't mean it will be followed by a bad one. In fact, just the opposite has been true historically.
Going back nearly a century, the S&P 500 has risen 73% of the time on a yearly basis. And the Dow Jones Industrial Average has hit an all-time high each year since 2013.
As for our national debt, it hits new highs every month. This is indeed a problem that we need to address. But thanks to our nation's wealth, growth, productivity, and global reserve currency, I disagree with those who predict it will lead to a calamity for stocks anytime soon.
That said, after three consecutive strong years for the markets, with stocks (and valuations) near all-time highs, I think investors should have modest expectations.
So is it time to dump all your stocks and hunker down in the world's safest investment, short-dated U.S. Treasurys, and collect a healthy 3.5%?
In a word, no. And here's why...
My "spidey sense" isn't telling me to batten down the hatches, as it was before the dot-com and housing market crashes.
There are two main differences from back then: Valuations today, while high, are not in bubble territory... and I don't anticipate a macro shock like the U.S. economy going into a big recession or a debt bubble bursting.
As I wrote in my June 13, 2024 e-mail, one of the two biggest mistakes I've made in my investing career is that I failed to follow this maxim: When you're in a bull market, ride it!
This lesson is so important – and so applicable to today – that I want to emphasize here what I said then:
At every point in my investing career over the past 25 years, there has been a well-articulated bear case for why the market is soon going to go lower. This was as true at market peaks as market bottoms.
The single biggest reason my funds underperformed from 2010 to 2017, which is why I ultimately decided to close them, was that I fell for the narrative that another big financial crisis was just around the corner.
I didn't want to experience the pain of late 2008 and early 2009 again, so I sold my winners and positioned my fund defensively – holding lots of cash and short positions. In short, I battened down the hatches and prepared for a storm... even though the skies were sunny.
Of course, that doesn't mean you should never be prepared for a big downturn. As I continued:
There are times when savvy investors should prepare for a crash... but only when there are massive, obvious bubbles – not small ones like the meme stock bubble in early 2021 or GameStop (GME) in the past month.
I very publicly identified two market peaks in early 2000 and early 2008, but such bubbles and subsequent crashes occur roughly once a decade.
The rest of the time, you should ignore the ever-present fearmongering in the financial media and – assuming you own good stocks (or an index fund) – sit tight.
(The second big investing mistake I made in my career was failing to let my winners run.)
So while I'm not eagerly putting my cash to work – I'm quite happy earning a nice, guaranteed return on it – I recommend holding high-quality stocks and index funds you already own (and likely have big gains on).
As I've explained in many prior e-mails, though I don't think stocks are in bubble territory, the S&P 500 is in the top 10% of its long-term valuation range. Historically, that means the average annual real return over the following decade has tended to be modest – typically ranging between zero percent and 4%.
I tend to be an optimist (odd, perhaps, for a value guy). So if I were forced to guess, I think the S&P 500 will compound at 4% annually over the next decade with dividends reinvested.
Similarly, right now you can buy the world's safest instrument – a U.S. Treasury – with guaranteed yield of around 4.2% for the next 10 years. (Long-term rates are higher than short-term rates today.)
I obviously don't know everyone's specific financial situation, and I can't give personalized financial advice anyway. But for older folks who have savings, income streams from Social Security, a pension, or an annuity that allows them to live comfortably if they earn 4% on their money... a good idea is to park as much of it in cash as needed to sleep soundly at night.
Of course, this raises the question: Why not put every penny into cash?
The primary answer is that inflation might take off, which is certainly possible (though I think it's unlikely). If it goes back to 9%, which is where it was as recently as June 2022, the Federal Reserve will likely raise rates. That would reduce the value of long-term bonds.
In this inflationary environment, stocks are likely to do better because companies – at least the good ones – can raise prices and therefore continue to grow their profits.
Put simply, over the long term, stocks tend to outpace inflation because they represent ownership in dynamic companies. A business can do different things to adjust prices, increase revenues, and maintain profit margins.
As my colleagues and I here at Stansberry Research have consistently said, stocks of high-quality companies are incredible drivers of long-term wealth.
So there you have it, folks...
Again, I'll admit this is an outlook that many of my readers may not find completely satisfying... I'm not pounding the table to either buy or sell – or do much of anything except what my team and I here do every day: scour the markets to find an occasional gem that has been overlooked or over-punished.
When we do, subscribers of our flagship Stansberry's Investment Advisory are the first to know. In fact, we just published our January issue with two brand-new recommendations this past Friday.
If you aren't an Investment Advisory subscriber already, why not give yourself a New Year's gift by becoming one? And when you give it a shot, you'll have our 30-day money-back guarantee. You can get all the details here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. Continuing my update on my travels in Kenya and South Africa (I'm flying home tomorrow night)... We did a short half-day trip from Olepangi Farm to the Lolldaiga Conservancy, where we saw lots of wildlife and did a beautiful hike to the top of a bluff (those are my parents, wife, sister, and nephew):
