January 2026 Market Commentary

• The Federal Reserve cut rates by 25 basis points in September, October, and December 2025, ending the year with Federal Funds Rate at 3.5-3.75%, with two more cuts choreographed for 2026
• The S&P 500 is trading at expensive levels relative to its historical 20-year forward average multiple, while smaller-cap U.S. stocks, international equities, and value stocks show more attractive valuations
• Donoghue Forlines increased exposure to the DF Tactical 30 ETF for mega-cap concentration and shifted fixed income holdings toward high-yielding credit (bank loans and high yield bonds) while reducing higher-quality, lower-yielding positions

Market Summary: January 2026 Commentary

Key Performance Highlights

Financial markets delivered strong returns in 2025 across most major asset classes, with particular strength in Q4. Notable exceptions included U.S. Dollar weakness, while gold posted exceptional gains. Global equity markets remain fairly valued to expensive relative to 20-year historical averages, though smaller-cap U.S. stocks, developed international equities, and emerging markets show more attractive valuations.

Fixed Income and Monetary Policy

The Federal Reserve implemented three consecutive 25-basis-point rate cuts in September, October, and December 2025 after a pause since late 2024, bringing the Federal Funds Rate to 3.5-3.75% by year-end. This accommodative stance supported fixed income performance despite earlier volatility from concerns over Trump tariff policies and potential inflation impacts. The Fed is choreographing two additional rate cuts in 2026, though acceleration in growth may pause further action if inflation concerns resurface.

Investment Strategy Adjustments

Fundamental Portfolios: Donoghue Forlines increased equity exposure in Global Tactical Portfolios, particularly concentrating on mega-cap stocks through the DF Tactical 30 ETF. Fixed income allocations were reduced, with remaining positions emphasizing high-yielding credit in bank loans and high-yield bonds while cutting higher-quality, lower-yielding positions.

Rules-Based Strategies: Both momentum and dividend strategies remained fully invested throughout 2025 despite market volatility, delivering strong performance. These strategies maintain sector-neutral positioning while screening for companies with free cash flow.

2026 Outlook

The investment team expresses optimism for 2026, citing Trump's pro-growth policies including individual tax relief and corporate tax incentives as potential catalysts for economic growth and corporate profits. However, they acknowledge markets are richly priced and corporate earnings must deliver. The firm maintains a bullish stance while prepared to reduce risk if trends reverse.