2026 - What do the tea leaves say?

Holidays are interesting times. There is holidays cheer, there is holidays stress, that FSA account has to be used up, travels have to be borne, some introspection is done, and some resolutions are made. As a financial advisor, the task of listening to all the financial pundits is an extra task on my list. No one can predict the future, but it is still an interesting exercise to listen to different perspectives and identify the key themes that may play out in the year to come.

So, what do the tea leaves say for 2026? For this, let us step back and note where 2025 has brought us, and then see where it can be leading us to.

Diversification is alive and kicking. For much of the past decade, U.S. stocks outperformed nearly everything else. That changed in 2025 as international stocks and bonds both contributed meaningfully to portfolio returns. This is a good reminder that a diversified approach can help smooth the journey toward our goals.

Markets are expensive. Strong market returns have pushed stock prices higher relative to company earnings. The S&P 500 now trades at levels approaching those seen during the dot-com era. We should be prepared for volatility as markets adjust to higher valuations. And this is another reminder for the importance of good asset allocation.

The AI genie is out of the bottle. AI has captured enormous attention and investment. While AI will undoubtedly transform our economy, the key question for investors is whether current stock prices already reflect this future growth. This is a third reminder that maintaining appropriate balance in a portfolio is essential.

K-shaped economy is a household word. In recent years, economic growth has been positive but uneven. The economy continues to grow at a healthy pace, though sadly, not everyone is experiencing this equally. Some sectors and income groups are thriving, while others face challenges. As investors, it is important that we separate what affects the overall market from our daily experiences.

Tariffs are not gone. Despite significant attention in 2025, tariffs have not caused the economic disruption that was feared. Inflation has remained relatively stable, and growth has continued. This does not mean tariffs are not causing an impact, but it suggests that their effects may be more nuanced than headlines suggest. The key lesson is that we should not react to every policy announcement.

Politics rules. 2025 was ruled by politics. And 2026 will be no different. The upcoming midterm election, ongoing discussions about government debt, and the impact of various legislations passed will all generate news throughout the year. Point to note is that while these topics matter for policy and planning, history shows that markets have performed well/badly across different political environments. However, understanding and incorporating the impact of resulting policy changes in our planning is important.

Change of the guard at The Federal Reserve. With new leadership coming to the Fed in mid-2026, monetary policy will likely evolve. However, history demonstrates that the economy has grown or shrunk across different Fed chairs nominated by both political parties with no definitive pattern. Sticking to long-term financial goals, irrespective of monetary policy changes, is key.

The verdict? Perhaps, the most important takeaway from recent years is that what we fear most often does not come to pass. This does not mean we should ignore risks. Elevated valuations, slower global growth expectations, and various uncertainties all deserve continued attention. It is how we manage these risks but still moving forward is what really matters.

The challenge for us is not predicting which specific events will matter most. The challenge is to understand and accept what we control and what we do not control. We plan and manage what we control, and we evaluate and accept the risk-reward relationships of the things we do not control.

May the New year bring you joy and peace, hope and fulfillment. Happy New Year!

Lavina Nagar, CFP(R) is the president and founder of Maya Advisors, Inc., a financial planning and investment firm in Palo Alto, California.