Monthly investment portfolio brief

What you need to know

2025 was a banner year for global markets despite the steep selloff in April, highlighting the importance of staying invested according to your longer-term strategy.
International stocks stood out, dominating the leaderboard with annual returns above 30%, while the S&P 500 still delivered solid returns of over 17% for the third straight year.
We believe the stage is set for another constructive year ahead, unlocking opportunities across regions, market caps, and sectors.
To navigate 2026 with confidence, we believe doubling down on diversification is the most compelling move—balancing timely positioning with healthy discipline.
What stands out, in our view, are U.S. large- and mid-cap stocks, along with cyclical international equities, which we recommend overweighting.

Portfolio tip
Portfolio overconcentration could impact the ability of a portfolio to achieve its performance objectives. Rebalancing helps maintain alignment and avoid surprises in a portfolio's performance.

Equity and fixed-income market performance

Source: Morningstar, 12/31/2025. U.S. large-cap stocks represented by S&P500 TR Index. International large-cap stocks represented by MSCI EAFE NR Index. U.S. mid-cap stocks represented by Russell Mid-cap TR Index. U.S. small-cap stocks represented by Russell 2000 TR index. International small- and mid-cap stocks represented by MSCI EAFE SMID NR Index. Emerging-market equity represented by MSCI Emerging Markets NR Index. U.S. investment-grade bonds represented by Bloomberg US Aggregate TR Index. U.S. high-yield bonds represented by Bloomberg US HY 2% Issuer Cap TR Index. International bonds represented by Bloomberg Global Agg Ex USD TR Hgd Index. Emerging-market debt represented by Bloomberg Emerging Market Agg Index. Cash represented by Bloomberg US Trsy Bellwethers 3Mon TR Index. Past performance does not guarantee future results. Market indexes are unmanaged, cannot be invested into directly and are not meant to depict an actual investment. Chart description

Where have we been?

The final quarter's gains capped a year of resilience and growth. Steady economic momentum, solid corporate profits, and fresh central bank rate cuts powered markets in the fourth quarter, offsetting headwinds from a record-long government shutdown, persistent inflation, and a cooling labor market in the U.S.

Markets dipped toward month-end, ultimately delivering mixed asset class returns in December. Even so, the final quarter's broad gains capped a year marked by strong returns across global markets, despite tariff-driven volatility in the first half of 2025. The takeaway? Staying disciplined when uncertainty strikes matters. Your longer-term strategy remains your most reliable, steady guide.

In a banner year for markets, international stocks stood out. International developed- and emerging-market equities dominated December's leaderboard, echoing the trend that defined 2025. Fiscal stimulus and easing monetary policies helped drive their annual returns beyond 30%, nearly double the top-performing U.S. asset class. AI-driven optimism gave tech-heavy regions an extra push, propelling emerging-market equity decisively into the year's top spot, returning over 33%.

For U.S. investors, the falling dollar amplified returns from international stocks, particularly within developed-market stock exposures. For example, international developed-market large-cap stocks returned about 21% in local currency terms but over 31% in U.S. dollar terms—the widest gap since 2003—demonstrating the powerful tailwind dollar weakness provided in 2025.

U.S. stocks delivered another strong year, even if they trailed international peers. The S&P 500 index, our benchmark for U.S. large-cap stocks, recorded an annual return above 17% for the third consecutive year. Impressively, its three-year annualized return stands at 23%—notably exceeding the 10-year average of about 15%, underscoring the strength of U.S. large-cap stocks in recent years.

Tech and growth sectors led the charge, with some generating around 40% average annual returns over three years. Though, all sectors were solidly positive, demonstrating broad gains. U.S. small- and mid-cap stocks, despite lagging all other stock asset classes over one- and three-year periods, still delivered double-digit annualized returns over both timeframes.

Bond markets had a strong showing in 2025. The Federal Reserve cut rates three times in the second half of 2025, including one in December, to support a softening labor market. These moves—alongside easing policies from other central banks—helped lift bond markets.

Benefiting from their higher yields, lower-quality bonds outperformed higher-quality bonds. However, even U.S. investment-grade bonds delivered an above-average annual return as interest rates drifted lower over the year.

What do we recommend going forward?

To navigate 2026 with confidence, diversification will be key. Tech sectors have delivered outstanding performance in recent years. While AI's potential remains exciting, chasing performance has not proven to be a winning strategy. What's more, tech's strong run has led to increasingly concentrated markets—a risk that could spill into portfolios if unmanaged.

Importantly, as we outline in our 2026 Outlook, we believe the stage is set for a constructive year ahead, unlocking opportunities across regions, market caps, and sectors—making diversification a key strategy.

To position effectively, consider complementing tech and growth exposure with a combination of domestic and international investments, including value and cyclical parts of the market, anchored by with the mix of stocks and bonds most closely aligned with your goals. When supported by disciplined rebalancing, global diversification can help avoid overconcentration and keep your portfolio focused on what matters most.

Stocks stand out as a key opportunity—we see attractive potential domestically, internationally, and within sector allocations. With a constructive backdrop supported by the U.S. tax bill, looser monetary policies, tech innovation, and the prospect of accelerating earnings growth across markets, we view stocks favorably.

Accordingly, we recommend overweighting stocks relative to your portfolio's longer-term target allocation while maintaining a healthy mix of timely positioning to further avoid overconcentration. Consider overweighting:

U.S. large- and mid-cap stocks. They can help portfolios capture exposure to the AI theme and cyclical sectors with room to catch up, particularly given our expectation for a supportive economy, the Federal Reserve to lowering interest rates another time or two in 2026, and broader earnings growth.
Cyclical international stocks. Policy tailwinds and resilient global growth are likely to provide a boost to emerging-market equity and international developed small- and mid-cap stocks. Emerging-market equity also tends to do well during Fed rate-cutting cycles and can help portfolios capture tech exposure in global markets with favorable valuations.
Industrials, consumer discretionary, and health care U.S. stock sectors. These sectors are likely to benefit from steady economic conditions, further innovation and buildout of AI capabilities across industries, fading policy risks and favorable valuations.

Consider the role of fixed-income in your portfolio, managing allocations appropriately. Bonds still matter, despite our underweight view. They stand out for investors seeking income, greater portfolio stability, and diversification benefits when paired with stocks. In today's environment, we recommend fixed-income investors:

Balance maturities neutrally. We expect the 10-year Treasury to remain largely within the 4%-4.5% range in 2026, providing solid income potential, though volatility may rise as markets digest inflation data, labor trends, and shifts in monetary policy expectations. Therefore, consider a balanced mix of short-, intermediate-, and long-term maturities, targeting neutral allocations when compared to a benchmark.
Invest worldwide. While U.S. bonds are core to a fixed-income portfolio, adding international exposure can help manage interest-rate and credit risks more globally. Consider neutral allocations to emerging-market debt, a diverse asset class that offers a yield advantage relative to investment-grade bonds.
Put excess cash to work. With additional rate cuts by the Federal Reserve likely to push short-term rates lower, holding too much cash comes with opportunity costs. Consider putting excess cash to work in allocations that have become too underweight to unlock greater long-term return potential and more closely align your portfolio with your financial goals.

We’re here for you

2025 was a stand-out year by many measures, rewarding disciplined investors. As exciting as the returns were, the rearview mirror is limited in what it can do in helping you find the opportunities that stand out with your portfolio, particularly when it comes to making progress toward your goals. Talk with your financial advisor about the attractiveness of diversification and the potential to broaden the horizons of your portfolio.

If you don’t have a financial advisor, we invite you to meet with an Edward Jones financial advisor to explore the potential of 2026 – a year where AI and innovation matter, but so will diversification.