Dear Clients:

U.S. stocks capped an exceptional three-year run in 2025, with the S&P 500 posting its third consecutive double-digit total return.  The index gained 17.9% in 2025, building on returns of 25.0% in 2024 and 26.3% in 2023.  Since the bear market low on October 12, 2022, the S&P 500 has more than doubled on a total return basis.

That outcome was far from inevitable.  Earlier in the year, investors were severely tested during the April “Tariff Tantrum,” when roughly $6 trillion in wealth was temporarily erased in an epic two-day rout (April 3-4).  By April 8 the S&P 500 was down more than 15% on the year, making its fourth-worst start to any year on record.  Investors who were scared out of stocks near the April lows missed a powerful rebound:  the index recovered all of its losses within a month and went on to reach 39 All-Time Highs (“ATHs”) before year-end.

Periods like this rarely feel historic in real time, but the rebound from the April lows ranks among the most powerful market recoveries on record.

2025 Performance Highlights

1. Total Return assumes the reinvestment of dividends in the index.
2. The S&P 500 Index is an unmanaged, capitalization-weighted index generally representative of the U.S. market for large capitalization stocks. This index cannot be invested in directly.
3. The equal-weight S&P 500 Index is an unmanaged, equally-weighted index generally representative of the U.S. market for large capitalization stocks. This index cannot be invested in directly.
4. The S&P 500 Value and Growth Indices are sub-indices of the S&P 500 Index whose constituents are determined on the ratios of book value, earnings and sales to price. These indices cannot be invested in directly.
5. Past performance is no guarantee of future results.

What Comes After a Three-Year Double-Digit Run?

After three stellar years, a natural question is where U.S. stocks go from here. As Socrates suggested, wisdom begins with recognizing what we do not know, and markets are inherently unknowable over short horizons. Still, history can help frame a reasonable range of potential outcomes.

Three consecutive years of double-digit gains are rare.  Since 1928, there have been only five other such streaks:  1942-1944, 1949-1951, 1995-1997, 2012-2014 and 2019-2021.  Two streaks ended after the third year (those beginning in 2012 and 2019), two extended to a fourth year (1942 and 1949) and only one lasted five years (1995).

What happened in the fourth year following these streaks?  As shown in the illustration above from Bespoke Investment Group (“Bespoke”), the Year 4 returns ranged from 30.7% to -19.4%–an extremely wide dispersion.  The takeaway is not predictive precision, but perspective:  the 2023-2025 advance was unusual and outcomes in 2026 could vary widely, both positively and negatively.

Short-Term Volatility is the “Price of Admission” For Creating Long-Term Wealth in Stocks

Key takeaways:

• Short-term volatility and uncomfortable drawdowns are normal features of equity investing.
• Since 1980, the average intra-year decline has been 14.1%, but positive annual returns occurred in 35 of 46 years (76% of years).
• The roughly 19% decline in April felt dramatic, but such declines are not extraordinary in long-term context.
• Given history, a sharp and unsettling drawdown at some point in 2026 would be well within the range of normal outcomes.
  • We’re all subject to the same emotions, it is critical to remember difficult periods are a normal part of the investment journey–not a signal to abandon your long-term plan.

Why Wall Street Forecasts Are For Entertainment Only

The stock market’s performance in 2025 again defied the confident predictions and prognostications of highly-paid Wall Street strategists and other soothsayers and “experts.”  We believe it’s impossible to accurately forecast markets and the economy, so making precise predictions is a waste of time.

For example, according to Bloomberg at the end of 2025 the most pessimistic forecasts (Bank of America and Ned Davis Research) had the S&P 500 closing 2026 at 7100 (3.7% higher than at the end of 2025), the most optimistic (Oppenheimer) predicted 8100 (18.3% higher) and the average (“consensus”) target was 7555 (10.4% higher).

While Wall Street confidently foresees the three-year performance streak continuing  into 2026 (prior history notwithstanding), it’s notable none of the strategists is currently predicting a negative 2026.  In fact, according to Bespoke, going back to the end of 2000, the Wall Street “consensus” has only ever predicted gains for the coming year—every one of the 25 years.  In reality, the S&P 500 fell in 7 of those 25 years, or 28% of the time.  For instance, the S&P 500 dropped 19.4% in 2022, while the consensus forecast called for a gain of 3.9%, a discrepancy of 23.3 percentage points.  As shown in the illustration above, going back to 1926 the S&P 500 has fallen in twenty-six calendar years.

According to the Wall Street consensus (which we regard with skepticism), the blueprint for 2026 appears certain:  solid earnings growth, two or three interest rate cuts, higher but stable inflation and steady economic growth.  All of this will lead to a benign environment for stocks and more gains in the year ahead.  As American writer Walter Lippmann observed, “Where all think alike, no one thinks very much.”

Negative years are not anomalies—they are a normal part of investing.  We are not predicting a decline in 2026, but we do recognize that markets fall about one-quarter of the time, even during long-term upward trends.

Mid-Term Election Years (Like 2026) Have Been Challenging For Stocks

Mid-term election years (“MTEYs”) have historically been more volatile due to political uncertainty.  Our friend Sam Stovall at CFRA Research has studied MTEYs going back to 1946.  According to Stovall, “during ‘wave’ years, when the Executive and Legislative branches were controlled by the same party (as they are now), the elections resulted in the loss of four seats in the Senate and 33 seats in the House of Representatives, frequently diluting or shifting control of Congress.”

Further, “as a result of this uncertainty, the S&P 500 in MTEYs since WWII recorded a paltry 3.8% price increase and rose in price only 55% of the time, compared with an average gain of nearly 11% and a 76% frequency of advance for the other three years in the cycle.  What’s more, the second and third quarters (of MTEYs) recorded the only consecutive average declines in the 16-quarter Presidential Cycle.  Finally, the S&P 500 endured an average intra-year drawdown of 18% during MTEYs, which was more than five percentage points higher than the average for the other three years in the cycle.”

As always, history is descriptive, not predictive, but it reinforces the likelihood of volatility rather than offering a forecast.  In year two of President Trump’s first term (2018), the S&P 500 fell 6.2%, while the index fell 19.4% in year two of President Biden’s term (2022).  What will the S&P 500 do in year two of President Trump’s second term (2026)?  Regardless of the election outcome or market path in 2026, maintaining a disciplined, long-term plan remains essential.

Spotlight Stock—Colliers International Group Inc. (Nasdaq: CIGI)

Colliers International Group is a global professional services and investment management company focused on commercial real estate and infrastructure, with an increasing tilt toward higher-margin, recurring revenue streams.​

Business overview

• Colliers operates across three main platforms: Real Estate Services, Engineering, and Investment Management, serving clients in more than 60 countries.​
• Real Estate Services provides brokerage (leasing and capital markets), property and project management, valuation and outsourcing solutions, while Engineering delivers multidisciplinary consulting and project management across buildings, transportation, infrastructure and environmental projects.​
• The Investment Management arm manages over $100 billion in assets across real assets, infrastructure and private credit, generating long-dated, fee-based revenue.​

Strategic positioning

• Over the past decade, Colliers has deliberately shifted mix toward more recurring, less transactionally sensitive activities such as outsourcing, advisory services, engineering and investment management.​
• Management has completed more than 70 acquisitions to build scale and capability in these segments, supported by a decentralized, partnership-driven culture and meaningful insider ownership.​

Investment thesis

• Colliers trades against a backdrop of depressed sentiment toward commercial real estate, even as its revenue mix becomes more resilient and recurring.  ​
• Strong free cash flow generation, modest capital spending and disciplined capital allocation support long-term compounding of intrinsic value.  ​
• Secular growth in outsourced real estate services and private capital investment in real assets provides a favorable long-term runway.​

Final Thoughts

Stocks have enjoyed an extraordinary three-year run.  Given the historical context, we believe it is prudent to maintain more moderate expectations for the year ahead while remaining committed to long-term objectives.

We have long been subscribers to The Daily Coach, a thoughtful (and free!) source of daily reflections on leadership, business and education.  As a complement to themes in this letter, we’re including a reprint of the January 5 reflection “Learning to Be Comfortable With Uncertainty,” which we think is particularly timely as we enter the new year.

As always, we appreciate your confidence and trust and remain focused on helping you navigate the financial markets with discipline, perspective and patience.

Regards,
Kirr, Marbach & Company, LLC

Past performance is not a guarantee of future results