CAISSA 2026 Market Outlook

Video Transcript

Welcome to the Caissa 2026 Outlook.

We will reveal our outlook right at the start, and it’ll take about 15 minutes. And then we’re going to dive deeper into segments of the economy that we’re seeing as leading indicators for the market, which could take a little bit longer because we’re going to get more in the weeds on those. So here we go. We’re going to get kicked off here.

And first off, I do want to welcome you but take note of our table of contents here so you can maneuver throughout the presentation. There are going to be many bookmarks. So if you look over here, there are several different areas that you can jump to: fixed income. Jump to international alternatives. This way, you can jump to the part of the presentation that matter the most to you. This video’s going to be a little bit longer since it’s the full year forecast, and I do encourage you to use those bookmarks if you don’t want to listen to the entirety of the video.

So let’s get started here. First off, we’re going to talk through the investment committee. We are really excited to share that Caissa has strengthened our investment committee by engaging a specialized partner as our advisory board. This supports select aspects of our investment due diligence and our macroeconomic research.

And it’s a relationship that gives our investment committee access to a team of over 80 analysts. Most of them are CFAs and they’re all dedicated to investment research. And that allows us then to sharpen our insights that we bring to our clients.

It’s important that Caissa remains your personal CIO. So CIO meaning your chief investment officer. And we are the driver of every investment recommendation. But this partnership simply enhances our capacity and frees our internal Caissa investment team to devote more time to tailoring our strategies to specific portfolio financial goals and wealth priorities. So here are the people on our team internally: TJ, Brad, and myself on the investment committee, and then utilizing and leveraging an analyst team of over 80 people for their due diligence on individual portfolio managers as well as macroeconomic things.

With that, we’re going to get right to the outlook so that you can chime in and maybe leave or you can jump to a bookmark. But we’re going to get out to all the whys after the outlook and dig deeper into that. But right now, this is our 2026 and 10-year forecast by the Caissa Investment Committee and our advisory analyst.

The 2026 column indicates what we are looking for, that particular asset class here listed out to produce returns looking forward to the next 10-years, versus the column for 2025, which we forecasted for last year. And you’ll notice that the difference from 25 to 26, the year-over-year change, is pretty marginal and almost negligible.

But here are some highlights, and you can read some of the information off to the side here, but most people have been hearing about the buzz of AI. Artificial intelligence is supposed to be one of the most influential forces in the markets next year. Public equity markets, particularly the US, are already highly concentrated in AI related exposure. So if you own US equities, you have already made an AI bet, and it might be your largest because roughly 38% of the S&P 500 is tied to companies connected to artificial intelligence.

As we look into 2026, we think the markets have a potential runway for high single digits if our macroeconomic assumptions come to fruition. And our tenure outlook does taper a little bit over to five years for that all cap strategy here in the middle, right there.

If we think about and look at fixed income, that’s towards the top, fixed income does remain pretty compelling on both taxable and municipals. With yields being elevated across the yield curve for projecting that US government bonds will continue to deliver some of their strongest long-term returns since the financial crisis, this is a welcome development for investors seeking income and diversification.

Our emphasis here at Caissa is we’re going to remain emphasizing high quality investment grade fixed income. But our 2026 outlook is such that bonds will continue to attract growth with coupons, meeting yield for that 10-year outlook. And they’re going to hover around that 4.3% here.

Meanwhile, we aren’t ignoring the high-yield bond area because their outlook is about 6%. But right now we’ve only added a sliver of high yield to our portfolios simply because we aren’t seeing that excess yield, comparatively with the risk that comes along with it, is a good trade off at this moment. But we are watching for that trade-off to become even more attractive.

Now, additionally, down in this section here, if you want to keep your eyes on that, we continue to believe that active management strategies are having the ability to create alpha generation in this market. So you might be seeing us adding some dynamic fixed income, some real assets, possibly alternatives like private markets and hedge funds. They really do offer a nice flexibility to navigate some other sector divergences and they can help us capture some market opportunities or maybe uncover some missed price assets. And it helps us manage that the standard deviation or the risk-return complex of the portfolio nicely.

So this asset class for us could be generating somewhere in that six to 8% returns. Again, we’re likely going to be adding a sleeve of that dynamic equity into our portfolios, but we really want to make sure that the risk and the return offset are attractive to that portfolio.

So we just talked about the Caissa outlook and that outlook encompasses our team of 80 analysts that support our advisory board. We also work with Schwab for custody and they do have an exceptional economic research department that we follow closely. So we want to look at their tenure outlook as well.

And if you look at their outlook, they separate not just all cap, but they’re looking at large, mid small, international, et cetera. And if you look at their outlook, and the dark blue is their historical returns, historically the large caps have been yielding about 11.1%. Now  looking forward in this lighter blue area, they are looking at about 5.9% forward 10-years.

So our equity expectations are modestly lower this year, but right in line with Schwab’s as well as other marketplace people that we’re looking at. And it’s primarily because market prices are somewhat outpacing the increases in corporate earnings forecasts. So we’re keeping an eye on that.

If we switch over to this area in fixed income, these returns are solidly in line with cases at about 4.8% return going forward. And then if we think about the Fed reserve and continuing to reduce short-term rates, our 10-year forecast for cash now is really standing at about 3.3% down from a year ago at about 3.5%.

If we think about some more macroeconomic, and we’re looking at things that Schwab is looking at as well, we’ve modestly lowered our 10-year forecast for the real US GDP again, gross domestic product, from about 1.9% up from that 2%.

And this graph over here is showing the difference between who is outperforming the US equities, or over here is international below this line. GDP has a lot to do with that. And so a couple of the factors we’re looking at is, again, GDP running at about 1.9% for the forward 10-years. And that was well below the historical average of about 2.7% since 1970.

Now our long-term US inflation forecast is edging a bit higher from 2.3 to 2.4%. And that uptake is really reflecting both the near-term pressures such as tariff uncertainty and then the long-term trend that remains modestly above the Fed’s 2% target.

So what does that mean for us internationally? Again, we’re going to come back to this graph. Internationally, it might be a large dollar story. So we anticipate a gradually weaker dollar over our forecast horizon. Well, our forecast has long been at odds with the dollar’s persistency to trade above fair value in part due to its role as the global reserve currency.

2025 demonstrated how quickly that can change, driven by shifts in trade policies and increased international hedging of the US dollar asset exposure that the dollar experienced in very fast and precipitous notable depreciation.

At the same time, prices of gold surged, investors in central banks saw an alternative to dollar-based assets. And the dollars shrink since the global financial crisis has historically provided a tailwind to the US markets. And you can see that indicated here over the last several years, 10 to 15 years but further dollar weakness could really shift that dynamic and shift that dynamic for the US dollar-based investors, that weaker dollar could make international investing more appealing.

So, without any current, excuse me, currency hedging, it might be that this tailwind is for non-dollar-based assets. Hence, Caissa has spent a lot of last year taking our underweight to international up to neutral, and we will keep eyeing that to think about maybe going a little bit overweight.

So all in all, we talked about some inflation rates sitting around two and a half percent, the dollar weakening, and whether or not we want to keep increasing our international weight, as well as our 10-year outlook being right in line with Schwab. So that’s really the quick and dirty. So if you want to get back to your day, you can tune out now or feel free to pop along in different bookmarks within the entire presentation and figure out whatever it is that you want to hear about.

But here we’re going to get much more in the weeds slide by slide, topic by topic. So next up are our top 10 slides that showcase what we think is going on in the economy that really does underscore what the Caissa investment committee allocation decisions are. Much of the information hereafter is sourced out of our advisory board team of analysts, some from Schwab, some from JP Morgan. So it’s really a hodgepodge of sources so we can coordinate all of that information.

I’m going to hit a little bit on GDP. GDP is a measurement. It’s used to gauge the growth of our economic production. It’s a really nice calculation that indicates the economy, how it should speed up or slow down. And we are looking at some averaging trends going into 2026. So that’s what this chart is showing is some of the trends and how much, what the makeup of GDP is as of the last reading in Q3 of 2025. Now you’ll notice this blue area is indicated as consumption. So that blue area marks about 68% of GDP is consumers.

They are a major contributors to GDP. So we watch that indicator very, very closely. Despite tariff headwinds, the government shut down restrictive immigration policies, strong AI investment, and resilient consumer spending, which have really supported the US economy. So while growth may have slowed a little bit in quarter four of 2025, we have to remember that that One Big Beautiful Bill Act should probably inject some stimulus into the economy via some larger income tax refunds that will boost activity early on in the year.

And additionally, the president is talking about taking some of the tariff proceeds and sending them out to households in a direct check. It could be say for about $2,000 each. And all that put together could give us a little sugar high. So it’s not a long-lasting growth trend. It’s going to be a little sugar high to help consumers spend the money now that the effects of that stimulus could fade off, and again, higher tariffs, lower immigration, if those things both persist. Growth could slow again in the second half of 2026. And on top of that, we’re going to have some midterm elections come this fall that could store up some political spending.

So on a major topic of growth, we keep hitting on AI and we’re going to keep talking about it because, wow, there’s a lot going on in this area that has been a really big boost to the economy. But if you think about it, the flip side of that is a potential stunt on our labor force growth. So that’s what we’re going to talk about next.

If you look at our labor force dynamic, here is the non-farm payroll gains trajectory. And then the unemployment rate and annual wage growth are shown on this particular slide here.

So we’ll talk about this a little bit, even with some sluggish job growth restrictive immigration policies, we’ve talked about that, that should put a limit or a lid on this unemployment rate sitting at 5.5% and maybe, maybe just sitting there for a little bit because they’re slower moving US economy with the federal government workforce reductions, shrinking labor supply is really going to weigh heavily, heavily on our labor force hiring activity could accelerate alongside of consumer spending in early 2026, but it’s looking like it could fade in the last half of the year.

The administration is successfully reducing illegal immigration, and they’re ramping up those deportation efforts. So that does weaken labor force growth, and it could limit any meaningful rise in the unemployment rate. So we think it’s going to be sticky right around here. Expectations would probably be that labor supply is limited, but stable, and the unemployment is anticipated to remain at that four-point half to 5.5% here.

Another related macroeconomic indicator is inflation. If you look at the contributors to inflation, CPI is a consumer price index that measures inflation. Our last reading was in November, and it was right in this 2.6, 2.7 range. But in this area, it shows you what contributes to that inflation and what the largest contributors are.

Now inflationary impacts of tariffs, they’ve grown more apparent and coming through in the recent months with the latest headline beating about 7 2.7%. But the key to note is that what makes up this light blue and dark blue, this larger area is really shelter and dining, and they tend to be the largest part of inflation components right now that we’re keeping an eye on.

Again, back to the tariffs, the composition of this, they have yet to fully flow through all our data. They’re in there, they’re just not in there in its full effect yet, and they should really intensify a little bit in the few months ahead. So that along with fiscal stimulus through a potential for the TA tariff check directly to consumers could put inflation up above that 3.5% year over year by the middle of the year. So then we think it will gradually return to the Fed reserves’ 2% target.

So we are watching these trends closely again because after a peak in June, it is worth noting that there could be some dramatic changes after that, you know, depending on how tariffs are being assessed. And there is a Supreme Court ruling on reciprocal tariffs. So we’ll be staying tuned as to how that affects things in that area.

Now we’re going to turn to equities and look at sources of earnings growth and profit margins. If we look at this particular chart, this is showing us what the growth makeup is. And that dark green is the margin. In the light green is revenue. And then we look at S&P profit margins here.

Now, productivity gains, this is what we’re looking at for profit margins. But slower wage growth and tax cuts really should support corporate profits and corporate margins being at this elevated rate, and having an upward trajectory.

In 2025, we had that dollar weakness. Remember the AI investment was a plus, resilient consumers, and we still had a double digit 10% earnings growth despite a nominal economic growth below about 5%. We think this trend could or should continue in 2026 on the back of solid productivity gains. Also we’re going to have some wage pressure downward, and some tax cuts.

So this chart is really indicating that margin gains for corporate earnings are expected to have nice double-digit growth in the near term, which is really positive for the stock market. However, what we do have to remember, earnings growth is cyclical, and any unexpected dramatic slowdown in the economic growth could limit that further upside, leaving equity markets a little bit vulnerable at these elevated valuations that we’re seeing. So highly likely something’s going to slip here a little bit next year or this year in 2026. It’s going to be hard to see double-digit returns again. But with a lot of technology-spending focus on margins and holding down costs, there are a lot of components that are pointing very positively to high single-digit growth in our equities.

Now if we think about interest rates, we have a divided Federal Reserve. So we think they could deliver maybe two more cuts in 2026. And if you look at where the trajectory of their interest rates have been, that slow, nice stair climb a few years ago dipping down in COVID and then a steep, steep, steep and fast increase in interest rates after COVID and now we’re back trying to get back to some normalcy here and getting that short term rates in that three, three and a half percent.

So last year, the Fed cut rates by about 75 basis points. So .75 of 1%. We think the Fed could cut rates once in each half of this next year while it assesses the economic impacts of some of the fiscal stimulus and tariffs. However, if the economy weakens again late in 2026, particularly if the outcome of the midterm elections might be thought to stunt further fiscal stimulus, the Fed may adopt a more accommodative state stance.

So we’ll be watching that, but minor Fed easing and more than overseas, and it probably leaves rates along that Fed’s long-term goal sitting around in here in 3%. One thing to note, too, is that right now the president’s going to be announcing a new pick for the Federal Reserve chairman. So that’ll give us some indication of where we might be going as well.

We have to look at the dollar. I brought it up a few times as to what the dollar does for the US versus international investing. We watch it’s investment for global investing and how the dollar might boost internationally. Slowing US economy monetary easing could lead to more dollar weakness as it fell sharply last year.

And you can see in this left graph right there, that how steep and sharp that was,it was really pressured by high starting valuations of US equities. And then the mounting concerns about global investor concentration in the US Health of the economy and the US government policies also weigh in on that.

But the Federal Reserve is really still interested and focused on easing policy, whereas other global central banks are really at the end or near the end of their rate-cutting cycles. So narrowing interest rate differentials and still a high trade deficit, it should probably drive in support of further decline in the dollar that would support international investing. So that is a, a key supporter of some of our portfolio analysis.

If we turn our attention to the components of a portfolio, the fixed income, their yields are nicely attractive right now. And so if we look at a current yield of about 4.3% right now, which is where we are, that really does imply a forward total return of about 4.3% in the near year. So the next five years is what they’re forecasting here, higher starting yields point to really solid returns from these core bonds.

So despite signs that the economy might be slowing, there might be a little bit higher inflation and there’s, I guess in the industry, a little bit of a concern about Fed independence and continued deficit spending. That could put a floor on these long-term interest rates. So for investors, there is not a great argument for making some sort of outsized bets on either duration or less credit, high yield, et cetera. So what we want to do is, and at Caissa we’re starting with high quality bonds, and they’re going to deliver solid returns in the years ahead. This is really welcome for our portfolios to take the pressure off the stock portion of your portfolio.

On the equity front, we’re looking at the S&P of course, we have to talk about the index concentration. So this slide, not the MAG 7, but we’re looking at the top 10 companies and the S&P 500 and what their valuations are here. So this is all the S&P 500, this is the top 10, and this is the remaining 490 there if you will.

So on this equity front, this chart does help us understand what the components inside of the S&P 500 are doing. That concentration amongst the top 10, and we’re going to call them mega cap positions, those are the largest-sized US companies with over 200 billion in valuation, versus just a normal large cap company is about 10 billion to 200 billion in valuation, if that gives you a sense.

But these 10, we’ll call them top 10 mega cap US equities, could start to look a little bit more expensive relative to the rest of the market. If you just look through the lens of a PE ratio, meaning the price you pay for a stock versus the earnings you expect to receive from it, they’re getting a little bit on that upward valuation at 28 times.

So a lot of this has to do with some AI enthusiasm that has really helped propel the US equity market to all-time highs, but it does have an outsized impact on those mega-cap companies. However, these companies’ market performance has started to outpace their earnings growth expectations. So they’re leaving valuations a little bit elevated. Long-term investors should be aware of this, but we are not hitting any warning signs of this yet. We are still very much in the neutral stance on the S&P 500 being fully invested there, but not making liens in or out of one area of it.

The other part we need to look at, and it’s almost similar, but it’s the MAG 7 and a lot of you guys have heard about the MAG 7. It was a great year for the equity markets. It is the third year in the row that the S&P 500 had double-digit returns. That’s exciting of course, but when we think about the future, it’s worth being cautiously optimistic. We’re optimistic, but a little bit cautiously, especially when we think about where we are with valuations because this rally has become more high quality over the last year. So it’s that MAG 7 isn’t as fearful as it once was. So we’re continuing to watch that.

But what do I mean when I think about MAG 7? Here are all the names: Nvidia, Meta, Tesla, Amazon, Alphabet, Microsoft, and Apple. Looking at this top chart, okay, we see the MAG 7 share of the total return of the S&P 500 peeking out right here’s that that share of the returns peeking out in 2023 and then now pulling back slowly but surely they’re coming back in line with the Mag 7’s overall weight in the index in 2025 though, if you didn’t own the Mag 7 stocks, you were still up 13% of the S&P with that 490, but the Mag 7 gave you an extra 23% leaving you at an average rate of about 16% return for large caps.

Now if we look at the year over year earnings growth from here, we see that earnings’ dynamic shift where the Mag 7’s growth is decelerating, but now plateauing for these Mag 7s right here around this green 2020 4%. That’s good news. The other good news is that the rest of the index is starting to pick up. We’re going from four to nine to twelve and 2025, only two of the MaG 7 stocks beat the overall index. And so if you look at 25 here, these two stocks, Nvidia and Microsoft beat the overall stock.

So even though those did outperform, the magnitude of that outperformance has been shrinking in the last couple of years. So look at this outperformance. Now only two stocks beat it and it’s getting more normalized. So we have to be active in picking stocks within the Mag 7, but we don’t have to be as fearful of it as maybe a couple of years ago if we look at global equities now.

So, despite our recent rally in the US, international equities still trade at a discount to their US counterparts, even though they had an amazing year last year. International stocks outperformed their US counterparts by a very wide margin last year, with the local currency returns further boosted by dollar weakness. So you can see here, and again, the purple area is currency issues. So that’s how the dollar affected things. And currency was a detractor in 2024, but it was a huge catalyst in 2025, you can see. So even after this large rally, international stocks continue to trade at a discount.

So with a dollar expected to weaken further and US investors will likely still overweight domestic US equities, despite the ability to access these attractive themes, international equities should continue to perform as long as investors recalibrate those portfolios toward a more appropriate long-term asset allocation. Hence, Caissa has added to neutral weight in internationals, and we’re trying to think about possibly going overweight.

So part of that is that broadly the global economy is looking like it’s going to be reasonably good this year. India’s doing well. The Eurozone is picking up in terms of growth. We’re seeing lots of fiscal spending coming out of Germany, China – they’re putting a lot of money into their economy and their numbers are a little bit hard and a little bit suspect to analyze, but they do have that sovereign fund that they put back into the economy a lot and it looks like they will still be continuing investing in technology and AI and some robotics and that’s going to help power their industry. So the overall consensus is global economy is going to move forward pretty positively.

One of our last slides here that we’re going to bring back into the conversation is alternative investments. Adding alternatives can really provide to a steadier total return, more diverse income and diversification throughout the portfolio.

So what this slide is trying to tell us or this chart is that the normal 60% equity, 40% portfolio is here. And if you look at the size of all these dots, the bubble size equals yield. So if it’s really, really small, it’s probably not giving you any yield or income distributions or interest. If it’s really, really big, then you’re getting more yield off that, which some of these make sense. So this is like a credit or private bonds that’s going to give you a lot of yield, which is a really big circle. Private equity usually doesn’t tend to kick out interest or something like that. So it’s a very small bubble.

So here’s where with the 60/40, and really we’re trying to think broader, not just public markets but also the private markets as well because on this axis here, it’s the correlation. How highly correlated are they with a 60/40 portfolio. And then on this axis here are the annualized returns. So further returns as they go up. More highly correlated as you move, right?

So what we think we have are some legs going into 2026. If we talk about the AI trade, it’s certainly not a public market phenomenon within the public market; it tends to be really crowded, pretty much concentrated. So think about the opportunities we have shifting over to the private markets. A lot of the companies, the newer innovators that haven’t gone public may not go public until they are in this private equity venture capital space. And so some of those innovators might be giving you good returns, meaning there’s some organic growth that’s happening in these private markets.

And if you think beyond that, let’s look at infrastructure. Infrastructure, there are many different outcomes or profiles when we think about the cashflow and diversification there. You think about where the power components are coming from for AI, what are the data centers that are fueling their ability to operate these AI things. So that’s something that we’re looking at and thinking about.

And then if we want to go back to a fixed income type of private investment, there’s a trend  that we’re seeing that can give you some level income, but it’s not maybe a public fixed income, a public bond, it might be credit to a private market. And so all of these are interesting areas to try to gain alpha or more exposure, different diversification. And Caissa is putting in sleeves, and we’re coming up with a sleeve of alternatives that can meaningfully improve your portfolio outcomes and help investors reach all of our strategic goals. So we’re adding dynamic equity and dynamic fixed income sleeves depending on each client’s individual opportunity set and if their portfolio can sustain that risk-return tradeoff for that.

So those are our themes, and that wraps up our deeper dive into the weeds on the details supporting our 2026 outlook for investment portfolios. We do hope you were able to find the nugget somewhere in there of useful information within much of this.

So please do provide us feedback in the link that’s going to be at the end of this commentary here, as we continually want to make sure our communications are given to you simply, that they’re informational, and that you enjoy them and that the way that we’re presenting them is beneficial to you.

So thank you for sharing a few minutes of your day with us today, and have a good week.