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I’ve seldom witnessed a time when information was so unreliable.
We spend a phenomenal amount of time and resources focused on understanding what is happening around the world that may affect the stock market and other areas of our clients’ financial lives. We’ve always employed an intensely disciplined approach to review sources from various perspectives, comparing headline reports to primary sources of information, and doing our best to identify and challenge our personal biases. What seems crazy to us, is that nearly all of the information we come across, regardless of the source, has been wildly skewed and is propagandized to one side or the other. Naturally you’ll read this first as saying the other side is spreading misinformation, but it’s your side too.
Misinformation is baked into the data as well. We’ve again seen more substantive downward revisions of economic data, and it feels as though politicians and pundits have realized they can blast the most miniscule (and often irrelevant) information in memes across social media to manipulate public perspective. Again, all sides are doing this and if we truly want to understand the world around us, we must look first at the ways our own biases and groupthink can cause us to misinterpret reality. None of this is even touching the new reality that AI can fabricate all kinds of believable fakes (I’m not claiming everything is a deep fake, but I have access to AI video and audio tools, and it is alarmingly easy to do).
So what then, can we believe?
Businesses are run by people who are carefully working to create products and services for people who need them, and they aren’t doing it passively. They adapt to consumer demands, changing costs, new technologies, and economic conditions. They have a profit motive, and the end goal is to reward their owners in the form of a dividend payment. So, we invest by owning businesses that have been successful at this for many years. When we have a long-term perspective, these types of investments work very well and eliminate the need to obsess over market timing (which always hurts more than it helps).
It’s important to have the appropriate amount of cash in your portfolio. How much depends a great deal on your personal situation, but insufficient cash can force you to sell investments at a temporary loss that you otherwise wouldn’t sell. In our portfolios, we manage this dynamically depending on the magnitude of potential risks we see on the horizon (as those appear more significant, we tend to have more cash in portfolios). Having the right amount of cash in a portfolio also allows us to take advantage of opportunities as they arise.
We can diligently diversify risk across various industries, business, and service models while avoiding low-quality and high-risk investments (“index” investing really diversifies the high-risk, momentum stocks with lower-quality investments you wouldn’t intentionally buy). We can measure our effectiveness at this in a granular way and pay attention to the specific business, political, and economic risks that could hurt the business (tariffs are a great example here). A tariff on a specific product may heavily impact one business and have a negligible impact on a business not impacted by that product. Investments aren’t all the same, so it is important to invest in them on their own merits. For CoCreate clients, we fully manage this process for you.
We can believe that the only way we can fix the challenges in our society is to begin loving our neighbor, especially those who are different from us. We can’t expect the pundits and politicians to stop exploiting our polarized perspectives. We have to fix that on our own, in a grassroots groundswell of love, forgiveness, and humility. So as you’re watching headlines about anything going on in the world, remember that if you expect the worst from people, you’re guaranteed to get it, but if you open yourself up to look for the best in people, you’ll be surprised by how much you’ll find.
Military Operations in IRAN
I hate war, but I also hate mass murder. I’m confident nuclear weapons are destructive, especially in the hands of violent people. I’m amazed that the most dominant conversation around the conflict in Iran has been about gas prices rather than the millions of people tortured and murdered by the Ayatollah over the past 50 years. We should all feel the gravity of many conflicting emotions about the events that are transpiring. We are praying for every human life and for true peace when the conflict resolves. I will do my best to keep my comments focused on issues that will affect the market and economy.
While we have little quality information to rely on, there are several key premises we should be able to rely upon:
We are presently watching the start of a two-week ceasefire. The basis of the ceasefire agreement is unclear across various sources, and we are already seeing officials talking about where or not it has been broken. We would expect to see some of this in a cease-fire negotiation, but it underscores the reality that, from a market perspective, we must consider the conflict to be ongoing until peace is sustainable for the longer term.
Extended Bull Market and Slowing Economic Expansion
You can measure bull markets (growing stock market) and bear markets (declining stock market) in a variety of ways, and different commentators will mark the start and end of a bull market differently. In short, the stock market has been growing ever since the bottom of the great recession in 2009.
It’s been an exceptional bull market driven by a technological revolution that has changed life as we know it. These tend to last about 17 years before there is a meaningful correction in the markets. This isn’t a rule, of course, but we’re on year 17 and there are a mix of reasons to be excited about the future of the economy and things we should find quite concerning. In both cases, you want to be meaningfully invested in the stock market, because over time, these appear more like blips on the radar than financial catastrophes (they become catastrophic when you try to play them to your advantage. Inevitably, you end up selling at the worst time and buying back in when it’s too late). At the same time, we are becoming more defensive in our portfolios as many industry-specific risks and broader stock market risks increase. The S&P500 (which most people use to represent the “stock market” broadly… we think that’s fallacious, but that’s a conversation for another time), looks like it is beginning to form a rounded top. This tends to happen at the end of these secular bull markets as people begin to become concerned about the prospects of future growth. When we do this type of “technical analysis,” we need to be careful not to give it too much weight because it could mean something, it could mean nothing, or it could look entirely different tomorrow. As we are looking at the broader spectrum of data, it can sometimes be helpful.
The end of this secular bull market also doesn’t necessarily mean an impending stock market crash. There are many scenarios (some of which already appear to be playing out) which could avoid a broad-based market correction. We need to be strategic here, avoiding the major risks while maintaining well thought out investments in businesses that have a real basis for their value (i.e. healthy/growing profits combined with a long history of rising dividends).
Data Indicates Strain on the Economy
Artificial Intelligence
We’re continuing to monitor the investment environment around Artificial Intelligence. In short, we’re still seeing an AI bubble. There is good and bad at this point (which is a slight improvement over only bad). The good news is that we are finally beginning to see AI implemented in ways that can yield significant productivity gains, while at the same time, protecting your own Intellectual Property and private data is becoming easier (I can train and run my own Large Language Model right on my laptop). As I see it, there are things AI will never be able to do, but things that AI can do exceptionally well. The most economically significant development at present is the ability to easily program custom solutions and/or integrations so that information and systems that have been cumbersome and fragmented can be accessed more efficiently across teams. I believe this will be the first wave of AI usage that creates widespread return on investment.
Despite the continued development of AI, the issues with investment in AI related business persist. Valuations (though AI stock prices have decreased, making values a little better than a few months ago), are still off the charts and demand massive new revenue to justify the current prices. The values are driven by a circularity problem with the major AI investors. JP Morgan analyst, Michael Cembalest, explained this issue clearly last October:
“Oracle’s stock jumped by 25% after being promised $60 billion a year from OpenAI, an amount of money OpenAI doesn’t earn yet, to provide cloud computing facilities that Oracle hasn’t built yet, and which will require 4.5 GW of power (the equivalent of 2.25 Hoover Dams or four nuclear plants), as well as increased borrowing by Oracle whose debt to equity ratio is already 500% compared to 50% for Amazon, 30% for Microsoft and even less at Meta and Google. In other words, the tech capital cycle may be about to change.”
Essentially, there are massive investments being made by the big AI companies and reciprocal investments being made into the big AI companies, all without the support of any meaningful profit from the AI-related activities. It’s been massive corporate FOMO (fear of missing out). We still need to see enough revenue coming from AI business to justify investment in AI at the present time. Without that revenue, there is no basis by which we can expect anything but an AI crash.
Finally, the AI hyperscalers have been buying immense amounts of computing power (chips, data centers, etc.). Much of this will need to be replaced in the near future. According to McKinsey & Company, hyperscalers need to generate an additional $750 billion by 2030, just to account for the depreciation of this equipment. The combined profits of the hyperscalers are approximately $450 billion at present. These companies that are experiencing extreme values from the circularity issues also have a massive impending financial hurdle to overcome. Either the profits start showing, or the prices must come down much further so that they reflect these companies’ actual values.
Again, every business is not in crisis. We own many in our portfolios that are wildly profitable and are valued fairly (or even cheaply). We believe that now, more than any time in the past ~15 years, careful, intentional, long-term investment in profitable, dividend paying businesses matters. This simply can’t be accomplished by “index” investment, market timing, or many other common approaches. We are working hard to keep our client's portfolios profitable and prepared.
Hi everyone! This is my first time sending out an annual market review, and I am excited to share it with you all. As we leave 2025 and enter 2026, we all at CoCreate are feeling energized and hopeful for what’s to come.
Financial markets do not move in straight lines, and 2025 was no exception. While the year had its ups and downs, it also offered valuable lessons about patience and long-term thinking. In this review, we will take a closer look at the key events and major themes of the year, and what we believe matters most moving forward.
As we move into 2026, our focus remains on being thoughtful stewards of your investments. In a year shaped by uncertainty and change, we believe careful decision-making matters more than quick reactions. Markets will always react to headlines, but long-term success comes from staying grounded, patient, and intentional.
Rather than chasing trends, we emphasize diversifying your investments among businesses that are well run, have highly profitable goods and services that people want, and that pay you cash in return for your investment. This approach helps protect portfolios during periods of fluctuation while positioning them to grow over time.
At the end of the day, markets will continue to evolve, headlines will come and go, and uncertainty will always be part of investing. Our role is to help you stay grounded through it all by making thoughtful decisions, staying flexible when needed, and keeping your long-term goals in the center stage. By focusing on what we can control and being wary of what we cannot, we can look forward to the next year with clarity and confidence.
I have gone into more detail below and would be happy to answer any questions you may have.
I hope you have all had a wonderful close to your 2025, and I’m looking forward to meeting with you and having a great 2026 together.
- Emma Shaw
Inflation stayed in the spotlight throughout 2025 as investors and policymakers tried to figure out if rising prices were truly beginning to come under control. The most common way to track how quickly prices are increasing is by looking at the Consumer Price Index (CPI), which measures the cost of everyday items like food, gas, housing, and medical care. When CPI goes up, it means things are getting more expensive, and when CPI goes down, it means price increases are starting to slow.
At the start of 2025, CPI inflation was around 3%, which is higher than the Federal Reserve’s long-term goal of 2%. By the end of the first quarter, inflation cooled to around 2.4%, which was a positive sign that pricing pressures were starting to let up. However, progress was not linear, and CPI moved back up to roughly 2.7% by mid-year and hovered close to 3% again by early fall before going back down below 2.7%.
The graph above tracks CPI inflation over the course of the year. The line moving down means inflation is slowing, while the line moving up means inflation is picking back up. This back-and-forth pattern we can see explains why inflation continued to feel frustratingly “sticky,” even when some areas of the economy improved.
But the uneven path of inflation in 2025 is not a complete surprise, inflation rarely dissipates quickly, and expecting a smooth decline is not totally realistic. It’s normal for progress to stall or even reverse temporarily, especially when wages and housing costs remain elevated.
For investors, this backs up the importance of remaining patient and not overreacting to shorter-term data. The stabilization process is complex, made up of many various interlocking elements that move at different paces.
This graph depicts the U.S. inflation rate over the past three years. The broader trend still points towards gradual improvement, and we can navigate the uncertainty by remaining diversified, focusing on fundamentals, and avoiding emotional decisions based on fleeting headlines.
Throughout 2025, central banks, led by the Federal Reserve, took a cautious approach to interest rate decisions. After raising interest rates aggressively in prior years to fight inflation, policymakers shifted towards a slower, more thoughtful strategy.
Interest rates deal with the cost of borrowing money. When rates go up, loans become more expensive and spending tends to slow. When rates go down, loans become cheaper and spending increases. One of the Federal Reserve’s duties is to adjust rates to help keep inflation under control while also supporting economic growth.
Since inflation moved up and down during the year, expectations surrounding possible rate cuts were inconsistent. At times, investors expected rates to fall sooner, but when inflation readings came in higher, the Fed signaled it was willing to wait to make a move until they had a more complete picture.
Federal Reserve Chair Jerome Powell repeatedly emphasized that decisions would depend on clear progress in the data, not on what markets hoped would happen. The Fed needed tangible proof that inflation was improving.
On December 10, the Fed lowered interest rates by 25 basis points, which equals 0.25%. This was the third rate cut of the year. These small cuts suggest growing confidence that inflation is moving in the right direction, but again, these things take time and rate cuts do not bring change overnight.
Even as inflation started to cool, borrowing money remained expensive throughout much of 2025. Mortgage rates remained high, adding to the slower activity in the housing market and affecting affordability for buyers and refinancers. Higher monthly payments made homes less affordable, and fewer people chose to refinance their existing mortgages. This kept many buyers on the sidelines and reduced overall housing demand.
The chart above tracks the 30-year fixed mortgage rate, which is the most common home loan in the U.S. The line shows how mortgage rates moved throughout the year. When the line goes down, borrowing becomes slightly cheaper. When it stays high, monthly payments remain a challenge for buyers.
Although mortgage rates declined some towards the end of the year, they remained well above the low levels we’ve seen in other years, finishing around 6.15%. While this drop offered some relief, rates were still high enough to limit affordability for many households.
Higher interest rates also affected businesses. Companies faced higher financing costs, which made them more cautious about expanding, hiring, and investing in new projects. For consumers, borrowing became more expensive across credit cards, auto loans, and personal loans, making everyday purchases harder to finance and encouraging households to be more selective with spending.
Mortgage rates will take longer to come down, even if the Federal Reserve continues to cut interest rates. While rate cuts help lower short-term borrowing costs, mortgage rates are influenced by more than just Fed policy. Meaningful relief for homebuyers will require steady improvement in inflation and economic stability over time.
Interest rate movements had a broad impact on markets in 2025. Bond prices moved as rate expectations shifted. When interest rates stay high, existing bonds lose value, but new bonds offer higher yields, meaning better income potential going forward.
Stocks also experienced periods of volatility throughout the year. Higher interest rates make borrowing more expensive for companies and reduce the value of their future earnings, which can put pressure on stock prices. As investors adjusted to these conditions, markets reacted more sharply to economic data and rate expectations.
Despite short term swings, the higher-rate environment reinforced the importance of diversification. Balanced portfolios tended to perform more steadily, as income-generating assets played a larger role and helped offset equity volatility.
Economic growth in 2025 was more resilient than many early forecasts suggested. While higher interest rates were expected to significantly slow down activity, overall GDP growth remained positive, though more moderate than in prior years. GDP is a simple way to measure the health of the economy. It represents the total value of all goods and services produced in a country over a certain period. On the one hand, the U.S. economy continued to expand at a steady pace rather than experiencing any sharp contractions, showing its ability to adapt to tighter financial conditions. On the other hand, AI investment was responsible for approximately 92% of GDP growth in 2025 and tariffs appear to be costing about 1% of GDP.
As we can see in the graph above, which measures U.S. GDP throughout 2025, the slower pace of growth suggests the economy is settling into a healthier balance. Instead of growing too fast or slowing down too much, businesses and consumers adjusted their spending and investment decisions at a more sustainable pace.
The job market remained relatively stable throughout the year, though hiring slowed compared to the rapid pace seen in recent years. According to the Bureau of Labor Statistics (BLS), total employment continued to grow, particularly in areas like health care and service-related jobs. The unemployment rate, which measures the number of people actively looking for work but unable to find it, edged slightly higher but remained near normal historical levels. This leads to a cooling job market rather than a major slowdown. As I’ve mentioned before, employers just became more selective with hiring as interest rates stayed high and economic growth softened. One notable change was a 9.2% decline in federal government employment, as hiring slowed and some government roles were reduced. This contributed to the overall deceleration of job growth.
Consumer spending in 2025 remained stronger than expected, despite the higher interest rates and prices that continued to impact people’s budgets. Solid employment and steady wage growth allowed many households to keep spending, especially on everyday needs, which helped support overall economic growth. However, when it came to discretionary purchases, consumers were much more cautious.
This U.S. Retail Gas Price graph highlights a positive for consumers, and a possible factor as to why people were able to keep spending. Gas prices fluctuated during the year but declined towards the end of 2025, finishing just under $3 per gallon. These lower gas prices could have helped free up budgets and allow for more spending elsewhere.
However, this long-term chart tracking egg prices tells a different story. While prices naturally rise over time due to inflation, the sharp increases in recent years stand out compared to historical trends. Eggs are a basic household staple, so rising prices here highlight how higher everyday costs have become more noticeable for consumers (if you’re spending $311 on eggs, you must be buying the Costco-size package).
Consumer spending in 2025 was less about excess and more about adaptation, which we’ve seen is a common theme in the overall market. Instead of cutting spending dramatically and abruptly, people adjusted how and where they spent their money. Lower fuel prices helped offset higher costs elsewhere but persistent increases in everyday items, like groceries, kept consumers cautious. From the start of the year, people felt a lot of hesitation as the economy sent mixed signals and pulled sentiment in different directions. Despite the concerns, the economy proved to be more resilient than many initially had expected.
2025 was a year of adjustment and adaptation. Market reactions were shaped by big policy shifts, political headlines, and changing expectations surrounding inflation and interest rates. While there were times of volatility, investors spent much of the year dealing with uncertainty and navigating the complex economic environment. Several key events and themes stood out and played a vital role in shaping market behavior.
In early April, on a day coined “Liberation Day”, the President announced broad tariffs on imported goods. The announcement triggered sharp and immediate market reactions, stocks fell quickly as investors tried to assess the potential impacts on inflation, global trade, and corporate profits.
As the year progressed, markets stabilized as people received more clarity about how the tariffs would be implemented and which industries would be most affected. While uncertainty remained during periods of negotiation, the initial shock faded as expectations adjusted.
Ongoing global trade tensions and the influx of new tariff policies added another layer of unpredictability. Rising trade barriers and high-profile negotiations influenced expectations for economic growth and international investment.
At times, discussions about scaling back harsher policies helped restore market sentiment, but renewed tensions would harm confidence once again. The shifting dynamics made long-term planning more difficult for businesses and investors.
Inflation continued to cool compared to prior years, but pricing pressures remained a central concern for investors, policymakers, and the everyday American. Even as progress was made, inflation did not drop quickly or smoothly.
Market reactions were often influenced more by headlines and policy signals than by long-term fundamentals, however this is not surprising nor rare. Short-term swings are natural, but the constant changes in policies emphasized the influence of these swings.
The rapid rise of artificial intelligence became a defining theme of 2025. Companies connected to AI saw massive increases in valuation as investors rushed to gain exposure to next “best” thing. Much of the AI investment came from the AI industry itself. We’ve discussed AI in previous articles and will be continuing to unpack the risks and opportunities.
But concerns about an “AI bubble” emerged, as people began to grow wary of the super high stock prices that did not seem to be in line with AI companies’ financial situation, leading to even more volatility within the industry. Moreover, there is an abundance of evidence that those implementing AI are NOT yet seeing a return on their investment.[1] We have been careful to limit our exposure to the risks of the AI industry throughout the year.
Fiscal policy remained a key theme in 2025, including changes to tax policy and ongoing debates over government spending.
New legislation extended and modified tax provisions for businesses and individuals, but the effects of “The One, Big, Beautiful Bill” were uneven across industries, with some sectors benefiting more than others.
The 43-day government shutdown that began in October 2025 and finally ended mid-November added to the ambiguity. While the shutdown was resolved, it brought even more short-term volatility and disrupted government services and personnel.
[1] https://mlq.ai/media/quarterly_decks/v0.1_State_of_AI_in_Business_2025_Report.pdf;
CFO Outlook for 2026: Tariffs, Hiring, Prices, and AI Impact | Richmond Fed
