Investing In What Doesn’t Announce Itself

January 2026 Client Letter

A look at the forces shaping markets beneath the headlines.

January has a way of pulling our attention forward. Investors start asking what the year ahead might bring and whether the decisions they carried into the new year still make sense. After a year filled with fast-moving headlines and changing narratives, that reaction is understandable.

What can be easier to miss is where progress comes from. In investing, the most important work rarely happens at moments of clarity. It tends to occur during periods that feel uneven or unresolved, when progress is being made before results are obvious.

I was reminded of that recently in a personal way. Two years ago, I routinely finished Peloton rides near the top of my age group. A couple of minor injuries last year forced me to step back and rebuild. Improvement did not come from pushing harder. It came from consistency, recovery, patience, and showing up day after day, even when the gains were hard to see.

Investing often works the same way. Periods that feel least productive on the surface are often the ones laying the groundwork for future success.

This perspective shapes how I think about a new year. Rather than focusing on predictions or short-term market calls, I find it useful to think about positioning and the forces shaping outcomes before they become widely recognized.

What follows is not a forecast for 2026; it is a framework for thinking about risk, opportunity, and portfolio construction within a much longer game.

Why We Think Long-Term—Even When the Calendar Says Otherwise

Before talking about 2026 specifically, it helps to explain how I think about investing more broadly. I do not spend much time fixated on one-year outcomes. My approach has always been continuous and long term, not neatly segmented into calendar boxes. Businesses do not operate on twelve-month scorecards, and successful long-term investing rarely does either.

Markets, however, are often judged on a much shorter horizon. Investors often measure success or failure over quarters and calendar years. One of the largest assets most of us own is our home. If the real estate market weakens and the estimated value declines, does that alone prompt a sale? Of course not. Most homeowners do not even check the value regularly, and when they do, short-term fluctuations are largely irrelevant unless a move is imminent.

A portfolio of stocks deserves the same perspective. A declining stock price does not automatically signal a problem. There are times when fundamentals change and selling makes sense. More often, price declines reflect shifts in sentiment rather than deterioration in business value. In those moments, lower prices can represent opportunity rather than failure.

Warren Buffett has long described stocks as ownership stakes in real businesses, not trading vehicles judged by daily price movements. Seen through that lens, short-term volatility matters far less than long-term earning power, balance-sheet strength, and competitive position.

I also recognize the reality investors live with. Markets are visible every day, and performance is easy to track in real time. Even so, January has become a moment when people naturally step back and ask what comes next. With that context in mind, it’s worth thinking about how the past year unfolded and what may feel different as we move ahead.

A Year Where Headlines May Carry Less Weight

March and April of last year delivered a dense stretch of headline pressure. Questions around tariffs, currency movements, and speculation about Federal Reserve independence arrived almost at the same time. It was not just the issues themselves that mattered but how tightly they were clustered.

What made that period challenging was not only what investors were reacting to but also how little time there was to digest one development before the next arrived. Markets often struggle most when several unknowns overlap.

The headline environment in 2026 may feel different. The early phase of a new administration brought a fast pace of policy announcements and frequent recalibration. That pace appears to have begun to slow. Headlines will not disappear, but fewer major unknowns may be competing for attention all at once.

Not all headlines carry the same weight. Some events are dramatic without being destabilizing. Others introduce uncertainty that lingers. Markets tend to care less about the volume of news and more about whether outcomes can be reasonably assessed.

History suggests that when uncertainty shifts from unknown to understood, markets adapt. Even significant developments become more manageable once they are absorbed and priced. In those moments, headlines lose their power not because they matter less but because their implications are clearer.

This does not suggest a calm year or an absence of surprises. It simply reflects how markets typically work. Not every headline deserves the same attention, and some developments, despite their significance, ultimately ease pressure rather than add to it.

Venezuela, Energy, and a Different Kind of Headline

One recent development involving Venezuela is a good reminder that not all headlines have the same implications for markets.

For years investors have heard that the United States is energy independent. There is truth to that, but it doesn’t tell the whole story. The U.S. produces large amounts of light, sweet crude oil. Many of the nation’s largest refineries, particularly along the Gulf Coast, were built decades ago to process a different product entirely: heavier, sour crude.

Venezuela is one of the most efficient sources of that type of crude. When access was restricted, U.S. refiners had to adjust. Heavier crude was sourced from farther away, often at higher cost and with less efficiency. The result was not an oil shortage but a system that operated with more friction.

Recent U.S. action in Venezuela has the potential to change that dynamic. If it leads to renewed access and investment, it could improve supply reliability, support refinery margins, and allow the refining system to operate more smoothly. In practical terms, that matters for energy companies, fuel costs, and inflation.

This is where the distinction between dramatic and destabilizing becomes relevant. Events that improve access, logistics, or efficiency can be constructive even when they dominate headlines. Lower energy input costs may ease pressure on consumer prices. That, in turn, can give the Federal Reserve more flexibility as it evaluates future policy decisions.

From a portfolio perspective, this is not about politics or short-term speculation. It is about understanding how energy markets function, how infrastructure constraints affect profitability, and how changes in supply chains ripple through the broader economy.
Not every geopolitical event increases uncertainty. Some, once understood, reduce it.

A Reasonably Supportive Environment for Stocks

Rather than trying to forecast where markets might land, I find it more useful to focus on the conditions businesses are operating in and how those conditions are evolving.

Economic growth has slowed from its post-pandemic pace, but it has not stalled. Employment is easing without showing clear signs of stress, and companies continue to invest even with a higher cost of capital. Inflation pressures have moderated, which should provide policymakers more flexibility than they had a year ago.

That flexibility matters. If interest rates continue to move lower, financial conditions gradually become less restrictive. Balance sheets improve. Refinancing becomes easier. Cash flow stabilizes. None of this guarantees strong market returns, but it does tend to create a more workable environment for businesses over time.

There is also more discussion around margin expansion. After several years of rising costs, some of the biggest headwinds are starting to settle. Wage growth has moderated. Supply chains are more predictable. Input costs, while still elevated in certain areas, are better understood. Businesses do not need perfect conditions. They need clarity.

At the same time, many companies spent the past few years investing heavily in productivity. Automation, software, and infrastructure upgrades were not optional. They were necessary to stay competitive. The return on those investments rarely shows up immediately in reported earnings, but over time, they can improve efficiency and support margins.

Taken together, steady growth, easing inflation pressures, improving visibility, and years of productivity investment do not eliminate risk. Markets rarely move in straight lines. But when these building blocks behave, equities have often had room to work over time.

A Quiet Support: The 65‑Year‑Old Consumer

Much of the conversation around the U.S. consumer today centers on strain. Housing costs are elevated. Insurance premiums have risen. Everyday expenses feel more noticeable. These pressures are real, but they do not describe every part of the economy equally.

One of the quieter sources of support comes from demographics. More Americans are turning 65 than at any point in the country’s history, and that trend is expected to continue for several more years. Many in this group are entering retirement with meaningful savings, home equity, and steady sources of income, including pensions and Social Security.

Spending patterns tend to change at this stage of life, but they do not disappear. Travel, leisure, healthcare services, and experiences often move higher on the priority list. Just as important, spending does not stop at the individual level. Financially secure retirees often help support adult children and grandchildren, whether through childcare, education expenses, or assistance with housing.

The result is a consumer landscape that is more nuanced than broad averages suggest. While some households remain under pressure, others continue to draw on savings accumulated over decades. Demand does not vanish. It shifts.

This does not eliminate the risk of a slowdown, nor does it suggest that all consumers are thriving. It helps explain why economic resilience has persisted even as concern about the consumer remains widespread.

The Fourth Industrial Revolution, Hiding in Plain Sight

When most people think of an industrial revolution, they picture railroads, factories, pipelines, and power plants. Steel, energy, and heavy machinery come to mind. These were visible transformations, easy to recognize even as they were taking shape.

The current one looks different.

Much of today’s industrial change is happening behind fences, inside data centers, and within existing infrastructure. It is being driven by artificial intelligence, robotics, and compute-intensive systems that require enormous amounts of power, cooling, and physical support.
Because the outputs are digital, it is easy to underestimate the scale of what is being built.

That is where this revolution hides.

Before a single AI model runs, land must be prepared, equipment moved, and power secured. This is not a virtual process. It is a construction and infrastructure effort unfolding in real time.

Companies like Caterpillar supply the equipment needed to prepare sites and build large-scale facilities. Emerson Electric provides automation and control systems that manage complex industrial and energy environments where precision matters more than speed. Cummins sits at the intersection of legacy and transition, supplying power solutions while adapting to cleaner and more flexible energy systems.

Even regulated utilities, often viewed as slow moving, have become central participants. Companies such as Duke Energy, NextEra Energy, and Southern Company are increasingly essential partners in supplying reliable electricity to a more energy-intensive economy.
What makes this phase of investment notable is not just its scale but its durability. These projects are not one-time events. They require ongoing maintenance, upgrades, and expansion. The infrastructure supporting this cycle is being built to last, and demand tends to build on itself over time.

Many of the businesses involved share another characteristic that often receives less attention during periods of rapid technological change. They generate cash flow and return capital to shareholders. Dividends may not dominate the conversation around artificial intelligence or data centers, but over time they can remain a meaningful contributor to total return, particularly when paired with sustained reinvestment and long-term demand.

This is often how major economic shifts unfold: not all at once, and oftentimes not in the places people expect to look.

Beyond the Acronyms: A Market of Stocks, Not Seven Names

One of the more interesting market developments last year was not what dominated the headlines but what contradicted them.

Much of the recent investing narrative has centered on the idea that a small group of mega cap technology companies is the stock market. Acronyms simplify complex realities, and over time, that simplification can harden into assumption. The assumption, in this case, is that if those few names are driving returns, everything else must be standing still.

That was not what actually happened.

Five of the seven companies most often cited as market leaders underperformed the broader market last year. I do not view that as a warning sign or a loss of leadership. Stocks move in cycles. Even exceptional businesses pause, consolidate, or simply hand the baton to others for a time.

What mattered more was what that pause revealed.

It showed that markets still reward execution beyond the most crowded trades. Performance broadened across industries and business models, often in places receiving far less attention. The stock market, as it turns out, remained a market of stocks.

That distinction matters. When investors become overly focused on a narrow set of names or narratives, decision-making can become distorted and opportunity easier to miss. Over time, durable returns tend to come not from guessing which acronym will dominate next but from owning a diversified collection of businesses with different drivers, cycles, and sources of revenue.

That dynamic may become more visible in the year ahead. Markets rarely move forward on a single track. Leadership rotates. Capital flows adjust. New contributors emerge. When that happens, diversification stops feeling theoretical and starts feeling practical.

Why These Themes Matter—and Why Time Still Matters More

Taken individually, none of these themes is revolutionary. Headlines ebb and flow. Economic conditions shift. Demographics evolve. Infrastructure gets built. Leadership rotates. These are familiar features of markets over time.

What matters is how they come together.

Periods when economic growth remains intact, cost pressures ease, productivity improves, and participation broadens tend to reward discipline more than drama. They are rarely obvious in real time. Progress often appears uneven, and leadership seldom moves in a straight line.

The temptation, especially after an eventful year, is to focus on what might happen next. In our experience, the more durable advantage comes from being positioned thoughtfully before outcomes become clear.

That perspective shapes how we approach portfolio construction. Rather than trying to predict short-term moves or react to every new narrative, we focus on owning a diversified collection of durable businesses. Companies with real cash flow. Balance sheets that can absorb change. Competitive positions that allow them to adapt as conditions evolve.

Time remains an underappreciated part of that equation. It allows productivity investments to compound. It allows margins to normalize. It allows businesses with durable cash flows to raise dividends year after year, contributing to total return in ways that are easy to overlook in any single calendar year. It also allows cycles to play out and leadership to rotate without forcing constant decisions.

None of this eliminates uncertainty. Markets will always test patience. Headlines will continue to demand attention, and periods of volatility are inevitable. Over time, however, investors who stay focused on fundamentals, diversification, and a long-term horizon tend to be better positioned to participate in progress without reacting to every headline along the way.

That is the mindset we bring into 2026. Not as a forecast but as a framework. One that recognizes change without chasing it and opportunity without overstating it.

As always, we’re here to help you navigate what’s next. If your financial situation has changed—or if you have questions about your investment portfolio—please don’t hesitate to call us at (800) 843-7273.

Warm Regards, 

 

 

 

Matthew A. Young
President and Chief Executive Officer