Potential Trends
Leading into the new year, there are potential market and economic trends that may carry forward from last year.
Broadening of the equities market.
Within the United States, an increasing number of stocks have participated in the market rally, with nearly 60% of S&P 500 companies trading above their 200-day moving averages by the end of November 2025.
US outperformance has been a defining feature of investment returns in recent years, often referred to as US exceptionalism. Following the global financial crisis of 2008-2009, risk-adjusted returns from US equities and fixed income have significantly surpassed those of other countries and regions. Global equity markets are broadening, too. More companies are driving returns outside the small handful of U.S. technology stocks associated with AI.
The Rapid Growth of AI Investments
With hundreds of billions of dollars poured into the sector in recent years, the expansion of AI is progressing at an astonishing rate. As this development unfolds, which companies are poised to reap the benefits in the long run?
Emerging Areas of Investment
Three distinct areas of opportunity in AI investment have surfaced:
- The four-layer technology stack that underpins AI systems
- Companies providing operational infrastructure
- Organizations adopting applications to boost productivity
Major players like Microsoft, Alphabet, and Meta have the motivation and resources to continue investing aggressively, thereby driving increased demand for advanced semiconductors and infrastructure.
Financial Stability Among AI Leaders
Currently, the stock prices of leading AI companies are generally bolstered by robust earnings growth. Moreover, companies making bold AI-related investments, such as Alphabet, Amazon, Broadcom, Meta, Microsoft, and NVIDIA, are better equipped to support their substantial capital expenditures than the startups of the late 1990s.
Steepening in the fixed income market.
A steepening yield curve in fixed income markets refers to a situation where the difference between short-term and long-term interest rates increases.
The Federal Reserve, the Bank of England, and the European Central Bank are facing structural changes in job markets stemming from AI, labor force aging, and declining immigration. These factors include decreasing employment, which boosts the tension between easing monetary policy to help labor markets and holding rates steady (or raising them) to keep inflation under control. This dilemma is especially acute for the Fed, which is facing more political pressure than it has at any time since the early 1970s.
The Role of Bonds in Diversification
Bonds are once again offering diversification opportunities, along with the potential for higher returns. Investing in high-quality core, core-plus, corporate, and municipal bonds can help create balance during times of increased economic uncertainty and record-high equity valuations. Historically, short-term bonds have performed better than cash during times when the Federal Reserve either cut rates or maintained them. The actions of the Fed tend to have a more pronounced effect on bonds with shorter maturities compared to other segments of the yield curve. Ecos Wealth Advisors believes that the current easing cycle will continue to favor this sector in the first half of this calendar year.
Importance of Perseverance and Diversification in Asset Classes
Perseverance is crucial in investing, as it helps you stay focused on your long-term goals despite near-term market fluctuations. Diversification reduces risk by spreading investments across various asset classes, such as equities (stocks), fixed income (bonds), and alternatives. A well-diversified portfolio enhances the potential for stable returns while minimizing volatility.
Your Ecos Wealth Advisors regularly review and adjust your asset allocation to maintain balance and adapt to changing market conditions.
Ecos Wealth Advisors is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.