The Markets

Lots of people are willing to predict what’s ahead.

If the past is prologue, few will be accurate. You don’t have to look far to find an example. In 2023, a majority of economists agreed recession was ahead. They were wrong. Tyler Cowen of Bloomberg explained:

“Last year at this time, 85 [percent] of economists in one poll predicted a recession this year — and that was an optimistic take compared to the 100 [percent] probability of a recession forecast two months earlier…And yet none of this has happened…most economists expect the U.S. to avoid a recession in 2024.”

Here are two predictions we’ve seen for 2026:

The U.S. stock market will move higher. During the last week of 2025, some on Wall Street were feeling quite enthusiastic about the year ahead.

“At the big banks and the boutique investment shops, an optimistic consensus has taken hold: the U.S. stock market will rally in 2026 for a fourth straight year, marking the longest winning streak in nearly two decades,” reported Alexandra Semenova and Sagarika Jaisinghani of Bloomberg. “Not a single one of the 21 prognosticators surveyed by Bloomberg News is predicting a decline.”

The U.S. stock market will move lower. Contrarian investors see high levels of bullishness are a red flag. When a significant majority of investors is optimistic, contrarians tend to be pessimistic, and vice versa. For example, Andy Serwer of Barron’s took a contrarian viewpoint last week:

“Unlike the usual prognosticators…I’m going to go out on a limb and say the market goes…down…I feel like the bull has been running on fumes a bit lately…between the administration messing with the economy’s biggest industry, healthcare, and brewing labor shortages, growth will surely be hindered.”

Despite abundant forecasts, it’s not possible to predict the future.

“In a market shaped by unknowable global forces (wars, trade conflicts, etc.) and great innovations (artificial intelligence, miracle weight loss drugs, etc.), it’s simply not credible for anyone to know where the index will land in 12 months to the exact index point. It would take tremendous skill and a great deal of luck to even guess where earnings are going in that period, but the mercurial nature of market sentiment complicates the exercise even further,” explained Jonathan Levin in Bloomberg Opinion.

Major U.S. stock indexes posted attractive returns for 2025, although share prices declined on the last day of the year, reported Alex Veiga of AP News. For the week, major indexes finished lower. Yields on most U.S. Treasuries moved higher over the week.

THINGS TO WATCH IN 2026. Global financial markets are like a Rube Goldberg machine – affected by a lot of factors in unpredictable ways. Bloomberg evaluated 700 calls from 60 financial institutions regarding the outlook for 2026. Sam Potter of Bloomberg reported on key themes identified in those calls, including:

· Artificial intelligence (AI). Optimism about AI is nearly universal, reported Potter. “Astronomical expenditure. Uncertain rates of return. Uneven pace of adoption. By now every firm on Wall Street is well aware of the risks surrounding the artificial intelligence boom. But when it comes to the year ahead, few advocate walking away from what they describe as a ‘revolutionary’ technology.”

· Interest rates (a.k.a. monetary policy). Financial markets already anticipate that global central banks will ease monetary policy, which means they will lower rates. The exception is the Bank of Japan. In the United States, “The [Federal Reserve] will come under increased political pressure to cut rates…but most firms think the market is currently pricing too many cuts,” reported Potter.

· Government spending and taxes (a.k.a. fiscal policy). “Governments continue to stimulate their economies. In the U.S., the ‘Big Beautiful Bill’ includes tax cuts that should boost growth next year, while Germany has shifted from decades of fiscal restraint to a new era of significant borrowing and investment,” wrote a company cited by Bloomberg.

· Tariffs and trade. There was some uncertainty about tariffs. “Although it’s possible the Supreme Court could strike down parts of the Trump administration’s tariff regime, the growing dependence on tariff revenue suggests the authorities will find ways to keep barriers in place,” opined one of the institutions.

· Inflation. Overall, institutions expect inflation to remain sticky, although some say it might move lower “Inflation likely to remain above Fed's target…but could drift down if one-off price increases from tariffs wane or economic activity weakens,” wrote one.

· Geopolitics. As global tensions and crises continue, the unified global financial system may fragment, causing friction in the free market system. Potter cautioned that the overall view of institutions was, “…never underestimate the potential for geopolitical or trade-related shocks.”

· Depreciating U.S. dollar. When the value of the U.S. dollar falls relative to other countries’ currencies, it can make investments outside the U.S. more attractive than those inside the United States, stated an institution in the survey.

It’s interesting to note that government debt and deficits were not often mentioned. One firm stated, “Although there are many encouraging signs for the year ahead, there are also clear risks on the horizon, and investors should prepare for inevitable market pullbacks. Stocks are expensive. Sticky inflation and mounting government debt in the U.S., Europe and elsewhere are also cause for concern.”

If there are any issues you would like to discuss, please let us know.

WEEKLY FOCUS – THINK ABOUT IT

“Write it on your heart

that every day is the best day in the year.

He is rich who owns the day, and no one owns the day

who allows it to be invaded with fret and anxiety.

Finish every day and be done with it.

You have done what you could.

Some blunders and absurdities, no doubt crept in.

Forget them as soon as you can, tomorrow is a new day;

begin it well and serenely, with too high a spirit

to be cumbered with your old nonsense.

This new day is too dear,

with its hopes and invitations,

to waste a moment on the yesterdays.”

—Ralph Waldo Emerson, Writer and poet

❓ Frequently Asked Questions: 2026 Federal Retiree COLA

Q: What are the 2026 COLA rates for federal retirees?

A: As announced in October, the Cost-of-Living Adjustment (COLA) rates for 2026 are:

• CSRS Annuitants: 2.8%

• FERS Annuitants: 2.0%

Q: When will the 2026 COLA increase take effect?

A: The COLA is effective on December 1st of the current year.

Q: When will the COLA adjustment appear in my retirement payment?

A: The COLA adjustment will first appear in your annuity payment on the first business day of January. This payment reflects your December benefit, which is when the COLA officially takes effect.

Q: Do FERS retirees receive the COLA regardless of age?

A: Generally, no. Federal Employees Retirement System (FERS) and FERS Special Cost-of-Living Adjustments are not provided until age 62.

• Exceptions apply for disability retirement, survivor benefits, and other special provision retirements.

• Note: If you are a FERS retiree with a CSRS component, that component is subject to the CSRS COLA calculation.

   

Q: How is the COLA percentage determined?

A: The COLA is calculated using a formula based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Specifically, the percentage increase is determined by comparing the average CPI-W from the third quarter of the current year to the average from the third quarter of the last year a COLA was granted. The increase is then rounded to the nearest tenth of one percent.

The Markets

It’s beginning to look a lot like a rate cut…

A lot of information about the economy arrived last week. Some was delayed by the government shutdown. Some was right on time. Investors took a look and decided their holiday wish could come true. The Federal Reserve (Fed) might deliver a cut rate cut this week. Here’s a brief recap of the information that landed just in time for the Fed to consider it.

Inflation rose in line with expectations. From August to September, headline inflation increased from 2.7 percent to 2.8 percent year over year, while core inflation (which excludes volatile food and energy prices) fell from 2.9 percent to 2.8 percent, according to the Personal Consumption Expenditures (PCE) price index. It’s one of the Federal Reserve’s favorite inflation measures.

September spending mirrored rising prices. “U.S. consumers continue to be cautious with their wallets, spending more on basic goods and less on fun extras…gains in spending were largely concentrated on household necessities like gas and energy, housing and utilities, and healthcare…Spending on discretionary items like recreation services and goods actually decreased from the previous month…,” reported Nicole Goodkind of Barron’s.

The holiday shopping season got off to a strong start. Fast forward from September to November, and Americans were less cautious with their wallets over the Thanksgiving holiday shopping week. A software company that tracks consumer spending online reported that Americans spent $79.6 billion that week – a 5 percent increase year over year. “More than half of consumers shopped exclusively or mostly online during the five-day period…,” reported a research company cited by Spencer Soper of Bloomberg.

Consumer sentiment crept higher. Although the University of Michigan Consumer Sentiment Index remained near all-time lows, sentiment improved from November to December.

University of Michigan Surveys of Consumers Dec 2024 Nov 2025 Dec 2025 Historic monthly average

Index of Consumer Sentiment 74.0 51.0 53.3 84.8

Index of Current Economic Conditions 75.1 51.1 50.7 -

Index of Consumer Expectations 73.3 51.0 55.0 -

Major U.S. stock indexes closed higher last week with the Standard & Poor’s 500 Index just below an all-time high, reported Connor Smith of Barron’s. Yields on U.S. Treasuries notes and bonds rose over the week.

LANGUAGE IS CHANGING. There are a lot of languages in the world (7,159), but almost half the world’s population (3.7 billion people) communicates using just 20 of them. Individual languages change over time. “They’re living and dynamic, used by communities whose lives are shaped by our rapidly changing world,” reported Ethnologue, a research center for language.

Dictionaries catalogue the ways language changes, adding new words that reflect the world around us. Several English dictionaries recently announced their Words of the Year (WOTY) for 2025. They include:

Parasocial, which is the Cambridge Dictionary’s WOTY. Parasocial is defined as “involving or relating to a connection that someone feels between themselves and a famous person they do not know, a character in a book, film, TV series, etc., or an artificial intelligence.” Searches for the term increased significantly “following the release of personalized AI chatbots by multiple companies in the preceding year, public discussion about the psychological impact of parasocial relationships expanded from being mainly about influencers and celebrities to including the benefits and dangers of chatbots.”

Rage bait, which is the Oxford Dictionary’s WOTY. It was selected after three days of voting during which 30,000 people offered their insights and opinions. Use of the word increased three-fold in 2025. Rage bait is defined as: Online content deliberately designed to elicit anger or outrage by being frustrating, provocative, or offensive, typically posted in order to increase traffic to or engagement with a particular web page or social media account.

AI slop, which is the Macquarie Dictionary’s WOTY. It is defined as “low-quality content created by generative AI, often containing errors, and not requested by the user.” It was chosen by staff editors, who wrote, “While in recent years we’ve learnt to become search engineers to find meaningful information, we now need to become prompt engineers in order to wade through the AI slop.”

67 (pronounced six-seven), which is Dictionary.com’s WOTY. The word “is a viral, ambiguous slang term that has waffled its way through Gen Alpha social media and school hallways. While the term is largely nonsensical, some argue it means ‘so-so,’ or ‘maybe this, maybe that,’ especially when paired with a hand gesture where both palms face up and move alternately up and down…Because of its murky and shifting usage, it’s an example of brainrot slang and is intended to be nonsensical and playfully absurd.”

It will be interesting to see how language in Australia changes over the next few years. Effective December 10, 2025, the nation implemented a law that requires people to be 16 or older to have social media accounts. As you can tell from some of the words above, online communications can have a transformative effect on language.

“Social media enables new words, phrases, and expressions to go viral in a matter of hours, sometimes reaching global audiences…language, once shaped primarily by formal institutions, now responds to

grassroots innovation and mass participation, especially among youth cultures and online communities.”

WEEKLY FOCUS – THINK ABOUT IT

“Sharing meals has a strong impact on subjective wellbeing – on par with the influence of income and unemployment. Those who share more meals with others report significantly higher levels of life satisfaction and positive affect, and lower levels of negative affect. This is true across ages, genders, countries, cultures, and regions.”

– The World Happiness Report 2025

💰 2026 Thrift Savings Plan (TSP) Contribution Limits

The Internal Revenue Code (IRC) has set the TSP contribution limits for 2026. Here is what you need to know about the annual Elective Deferral and Catch-up Contribution limits:

1. Annual Elective Deferral Limit

The standard annual limit for all participants will increase to $24,500.

2. Catch-up Contribution Limits

The Catch-up Contribution amounts for participants aged 50 and older have also increased:

Key Information & Action Items

• Roth Requirement (Secure 2.0 Act): Federal employees must make all Catch-up Contributions as Roth Contributions.

• Action: You can make your TSP contribution elections using myPay.

• Note: There are 27 pay periods in 2026. Please plan your contributions accordingly.

Last month, mortgage rates briefly reached their lowest levels in a year, but they quickly reversed course and increased following recent central bank activity.

It is critical to clarify a common misconception: a Federal Reserve rate cut does not directly lower mortgage rates.

While market sentiment is related, mortgage rates are primarily tied to the bond market, specifically the 10-Year U.S. Treasury yield. As a result, mortgage rates often anticipate and adjust to market expectations of inflation and economic data before the Fed officially acts. This disconnect is the reason for current market volatility.

The Bottom Line: This complex environment underscores why staying informed with reliable, timely data is more crucial than ever.

Let's discuss a targeted strategy for your real estate plans. Don't let market shifts derail your goals for buying or refinancing in 2026—or even now.

The Markets

Uncertainty abounds.

Investors were skittish last week. Share prices jolted higher and lower amid concerns about artificial intelligence (AI) data center spending, upcoming Federal Reserve rate decisions, and the strength of consumer spending, reported Phil Serafino and Natalia Kniazhevich of Bloomberg. These issues will affect the future performance of companies, and investors are trying to anticipate what may be ahead.

In the third quarter, companies were profitable and sales were strong

Overall, U.S. companies performed well in the third quarter of 2025. So far, 95 percent of companies in the Standard & Poor’s (S&P) 500 Index have reported on performance over the period. Almost three-fourths performed better than analysts expected. Overall, company profits were up 13.4 percent for the quarter, reported John Butters of FactSet.

Sales (a.k.a. revenue) have been strong, as well. In the third quarter, S&P 500 companies had the highest combined sales growth in three years (+8.4 percent). “Three sectors are reporting (or have reported) double-digit revenue growth for the quarter: Information Technology, Health Care, and Communication Services,” reported Butters.

Share prices reflect recent performance and investors’ expectations

While strong company performance is reassuring, some analysts and asset managers believe stock prices, overall, are too high. For instance, Bank of America’s November survey of global money managers found that most respondents thought stocks were overvalued, reported Brett Arends of MarketWatch via Morningstar.

Not everyone agrees. Last week, Dan Kemp of Morningstar reported, “Strong revenue growth and unusually high profit margins…alongside the US stock market’s growing concentration in companies benefiting from the rapid growth in AI have led Morningstar’s analysts to increase their estimates of the market’s fair value. As a result, the average US company under Morningstar’s coverage now appears undervalued...”

Expect volatility to continue

While Morningstar analysts think valuations are attractive, they expect markets to remain volatile. The U.S. stock market’s “concentration in tech stocks – companies dependent on long term future growth – brings with it increased risk of lurching price movements driven by short-term changes in investor sentiment.”

There were a lot of ups and downs last week. Major U.S. stock indices ended the week lower. In contrast, U.S. Treasuries rallied, with yields on most maturities falling.

‘TIS THE SEASON! The holiday shopping season gets underway this week, and expectations are high. The National Retail Federation (NRF) looks at a bunch of economic factors – consumer spending, disposable personal income, employment, wages, inflation, and monthly retail sales – to estimate how much people will spend over the winter holidays. This year, the forecast suggests sales will top $1 trillion.

“American consumers may be cautious in sentiment yet remain fundamentally strong and continue to drive U.S. economic activity…We remain bullish about the holiday shopping season and expect that consumers will continue to seek savings in nonessential categories to be able to spend on gifts for loved ones,” explained NRF President and CEO Matthew Shay.

The gift shift

The Currency reported on a recent survey, called the Going Rate, that explored how Americans think about gift giving and spending. When responses were tallied, it found that:

86 percent Believe gifts can be meaningful without being expensive.

75 percent Expect gifts will be more expensive this year because of tariffs and inflation.

60 percent Think gift culture has gotten “out of hand”.

58 percent Have a gift budget.

56 percent Buy gifts throughout the year to spread out the cost.

48 percent Experience gift fatigue.

33 percent Are adopting no-gift policies.

Fifty-five percent of millennials, 50 percent of Gen Z, and 28 percent of baby boomers would rather give the gift of time and shared experience. They believe their presence is the real gift. Respondents who plan to give gifts expect to spend about $64 per person, on average.

WEEKLY FOCUS – THINK ABOUT IT

“Honey, do you honestly think I would check thousands of tiny little lights if I wasn’t sure the extension cord was plugged in?”
– Clark Griswold, National Lampoon's Christmas Vacation