Index Returns
While the fourth quarter experienced the longest government shutdown in U.S. history at 43 days, the markets finished mostly positive. Earnings growth domestically continues to play an important role as well as multiple expansion in international equities. The S&P 500 was up 2.66% in the quarter and finished the year with a strong 17.88% return. The Russell Midcap Index was flat in the final quarter but still advanced 10% in 2025. The Russell 2000 Index (Small Cap Stocks) fared a bit better than Mid-Caps with a 12.81% return on the year. Gold and Silver had impressive runs with Gold spiking around 60% and silver advancing more than 160% in 2025.
International stocks continue to be the big story with strong local performances enhanced by a weakening dollar. The MSCI EAFE Index gained 4.86% in the quarter and finished the year with a return of 31%. Emerging Markets also had a great year advancing by more than 33%. These returns were bolstered by the 95% return in Korea and 54% return for Mexico.
Bonds had a great year in 2025. The Barclays Aggregate Bond Index advanced 7.30%. The global bond market was up roughly 12% on the year as well. Look for solid returns for bonds in 2026 if rates continue to be trimmed.
Economic Review and Outlook
The economy has remained resilient through these uncertain times. Tariffs, inflation, and a government shutdown could not impede solid consumer spending. Third quarter GDP grew at an impressive 4.3% annualized rate. The fourth quarter looks like it will be in the 2.0% – 3.0% range. If this projection holds true, it will be quite impressive considering the extended government shutdown.
The tax bill that was passed on July 4, 2025, will have an impact for a lot of households in 2026. Almost all the set to expire tax cuts from 2017 were extended by this bill. In addition, there are new tax breaks for seniors, families with children, tip workers, overtime workers, and auto loans. It is likely that millions of households will receive higher refunds when they file their taxes in early 2026 for 2025. Early estimates show that working Americans may receive a 40% increase in the amount of their refunds. This windfall is likely to fuel economic growth in the first two quarters of 2026.
The Federal Reserve seems to be very content with rates at these levels. Inflation is hovering around 2.7% annually, which is above the Fed’s target of 2.0%. The market still expects two more rate cuts in 2026 before pausing. If spending picks up dramatically in the first quarter, then more rate cuts may be unlikely.
The Leading Economic Index decreased by 0.3% in September to 98.3 following a 0.3% drop in August. Industrial Production increased 0.2% in November. The Capacity Utilization Rate (which measures how much slack is in the economy) was at 76% in November which is still 3.5 points below its long-term average.
Non-farm payrolls rose by 50,000 in December and the unemployment rate remained at 4.4%. Weekly unemployment claims were 208,000 for the week ending January 3, 2026. The 4-week moving average is at 211,750. There are 7.6 million job openings in the U.S. It is important to remember that the unemployment rate is a lagging indicator. Although a weaker economy typically triggers a higher unemployment rate, the massive drop in immigration may keep the labor force thin causing the rate to hold steady.
Manufacturing registered 47.9% on the ISM PMI Index in December. This indicator remains in contraction territory for the 10th consecutive month. The New Orders Index came in at 47.7% which was an increase of 0.3% from November. The ISM Services Index was at 54.4% in December, which was up 1.8% from November. The Business Activity Index came in at 56% which was a 1.5% increase from November. New Orders for the service sector came in at 57.9% which was 5% higher than the prior month.
This is a mid-term election year. Politicians want to get re-elected. The 2025 tax law assured that millions of households will get higher tax refunds upon filing their returns in 2026. Tariffs are now bringing in about $30 Billion a month. If some sort of Tariff dividend is sent out in the second half of the year, look for continued economic growth in the U.S
Equity and Bond Markets
Domestic stocks continue to push higher even though valuations are stretched relative to long-term averages. There have been some developments over the last 12 months regarding this current market expansion. Only two of the Magnificent 7 companies outperformed the S&P 500 in 2025. This means that we are seeing more depth in participation than before. Meaning, the market is no longer being driven by the largest handful of companies. We are seeing outperformance across multiple sectors and companies.
The next question for domestic performance seems to be, “Is this sustainable?” While anything can happen in the short-term, we are still quite positive on equities over a long-term time horizon. Below is a chart that represents equity exposure in defined benefit plans (Pensions) on the left compared to defined contribution plans (401(k)s) on the right. Money continues to flood into equities through retirement plans which is causing perpetual demand.
The bond market had a great year in 2025. The Barclays Aggregate Bond index was up more than 7%. Yields are still around 4.3% for this index which means even if rates do not change that yield still provides a decent return for 2026. Global bonds were even more impressive with returns north of 25%. If the Dollar continues to weaken in 2026, we could see 5-10% returns in global bonds for this year as well.
One of the major themes so far this year has been the performance of alternative asset classes. Commodities such as gold and silver had an incredible run in 2025. Having assets in your portfolio with negative or low correlations to stocks can increase returns over the long-term.
Portfolio Management
The Investment Committee continues to monitor the economy, the market, and the portfolio allocations. While we are a little concerned with the valuations in the domestic large cap growth space, other areas still look reasonable. Domestic value stocks are trading near long-term averages which is encouraging. International stocks had an incredible 2025, and we think that this outperformance will continue this year.
Although we are aware that another government shutdown could happen at the end of the month, we think there are enough positives to keep this economy out of a recession in the near-term. Having said that, the market can correct at any time for really any reason. It is normal to have multiple 5% corrections per year, and we have had around 9 months now without significant downside volatility. If we do see an increase in selling pressure, we will likely ignore the short-term correction and focus on what we think will be a decent 2026. Our international exposure and focus on asset allocation should allow us to get past any short-term pullbacks.
After three years of double-digit returns, we do expect some downside volatility. Maintaining an appropriate allocation and diversification will be critical to portfolio performance. While nobody can predict what can happen in the short-term, we believe that long-term investors will be rewarded with good returns if they can just keep a long-term focus and ignore any of the short-term volatility that is likely to be present in 2026.
Financial Planning
A New Year brings the promise of new beginnings. And by beginnings, we of course mean starting fresh with various investment account contribution limits, tax laws, and other financial changes. We are hitting the highlights below:
401(k)s/403(b)s
- The employee deferral limit is now $24,500. If over age 50, the catch-up contribution is an additional $8,000. If you are age 60-63 (at the end of the calendar year) your catch-up is a special amount of $11,250.
- Please remember, if your W2 wages are over $150,000, catch-up contributions must be Roth contributions. See this month’s Insights article on our website or last quarter’s Newsletter to learn more.
IRA/Roth IRA
- IRA and Roth IRA contribution limits increased to $7,500. The catch-up contribution is $1,100 for individuals over age 50.
SIMPLE IRAs
- SIMPLE IRAs are becoming less simple (bad joke we know). The deferral limits depend on the size of the company sponsoring the SIMPLE, and if the employer contributes a higher match to employees. Please see the chart below for more details.
Health Savings Account (HSA)
- For self-only coverage, the maximum contribution is $4,400.
- For family coverage, the maximum contribution is $8,750.
- If over age 55, a catch-up of $1,000 can also be contributed for both types of coverage.
529s
- $20,000 per year per beneficiary can now be withdrawn from 529s for private K-12 education. For Indiana plans, K-12 expenses must be for schools or services based in Indiana to avoid a tax-credit recapture.
- This $20,000 can also be used for other qualified expenses such as tutoring outside of the home, standardized tests fees, and online educational materials.
Estate Planning
- Annual Gift Exclusion – $19,000 per person.
- Lifetime Gift/Estate Exclusion – $15,000,000 per person. A married couple can give $30,000,000 either during life or at death without paying Federal estate taxes.
Charitable Contributions
- Cash donations to charities are deductible for individuals and families that take a standard tax deduction. The maximum is $1,000 for single filers and $2,000 for married filing jointly. Keep your receipts!
Company News
Well, if you thought we were done announcing babies, you’d be wrong! Two grandbabies of GFM joined the family in the Fall of 2025. Owner/Principal, Melanie Colwell, welcomed her first grandchild: Beckham Matthew Colwell. Operations Lead, Jessica Roach welcomed her second grandchild: Maiana.
Melanie and Beckham
Jessica and Maiana
We’ll have to see what 2026 has in store, but we are guessing it will be hard to top the 5 babies that joined the Galecki family in 2025!