Current market environment performance of dynamic, risk-managed investment solutions.
By Will Hubbard
This Christmas, I will be enjoying a little humble pie for dessert. As we close out 2025 and look ahead to the new year, it feels like a fitting way to reflect on a market environment defined by confidence, uncertainty, and the ways risk can build when conditions look favorable.
At the start of the year, I referred to 2025 as the “year of the commodity trading advisor,” with a focus on improving risk management, preparing portfolios for future volatility, and acknowledging that—excluding the COVID period—we are firmly in the later stages of a long bull market cycle. The goal was never to predict a downturn but to think more carefully about how risk should be managed as markets mature. Looking back now, I was right and wrong at the same time.
A year of mixed signals
That sentiment, in many ways, captures how 2025 unfolded. It was a year defined by periods of optimism followed by moments of uncertainty—confidence interrupted by caution.
Early in 2025, trade tensions escalated rapidly, triggering some of the most volatile market days we have seen in decades. Geopolitical stress persisted, with ongoing conflict in the Middle East and continued strain between the United States and China, particularly around technology exports and Taiwan. Investors also faced renewed concerns about the debt ceiling and a temporary government shutdown.
At the same time, artificial intelligence continued to dominate headlines and market performance. The Federal Reserve moved toward rate cuts while simultaneously acknowledging a softening labor market, even as inflation remained above long-term trends.
As we close out 2025 and look ahead to 2026, it is natural for investors to ask what comes next. Markets are near all-time highs, economic data remains broadly positive, and there is significant optimism surrounding innovation, particularly artificial intelligence. On the surface, conditions look favorable.
It is precisely during periods like this when discipline matters most.
When confidence is high, risk often builds quietly
This does not mean a crisis is imminent, nor does it mean long-term investment plans should be abandoned. But it does mean acknowledging that risk often accumulates during periods of confidence, when strong performance can make vulnerabilities easier to overlook. When those risks eventually surface, they can do so abruptly and with little warning. Preparing is far more effective than reacting in real time.
As we think about 2026, several areas deserve careful consideration. Market valuations are elevated and, by many measures, approaching levels last seen during the dot-com era. High valuations alone do not cause markets to decline, but they do reduce the margin for error. When expectations are stretched, even modest disappointments—such as slower growth, weaker earnings, or shifts in sentiment—can lead to heightened volatility. Elevated valuations do not make markets wrong, but they can make them more fragile.
Artificial intelligence has also been a significant driver of recent returns, and its long-term potential is real. At the same time, the path forward remains uncertain. Substantial capital is being directed toward infrastructure, data centers, semiconductors, and power generation. History suggests that technological revolutions rarely unfold in a smooth, linear fashion. The risk is not that artificial intelligence will fail to matter but that capital may be misallocated along the way. Implementation risk is often overlooked when enthusiasm is widespread.
Economic growth remains positive but has shown signs of moderation. This is consistent with a late-stage expansion and does not imply an immediate downturn. The Federal Reserve has acknowledged emerging slack in the labor market, which has informed its willingness to ease policy. While monetary policy can be effective, it has limits. Rate cuts do not guarantee uninterrupted market advances, and reliance on policy support alone introduces its own risks.
Taken together, these factors are not reasons to abandon equities or retreat entirely to cash. They are reasons to remain disciplined. They reinforce the importance of understanding how each component of a portfolio works together to provide smoother outcomes and better risk-adjusted returns.
Why portfolio construction still matters
Diversification is not simply about owning many asset classes. It is about owning the right mix of asset classes. During periods of market stress, correlations can rise, and long-only exposures that appeared distinct can begin to move in the same direction. Without careful construction, portfolios can become more vulnerable precisely when protection is needed most.
A disciplined, risk-managed approach focuses on smoothing outcomes and improving risk-adjusted returns over time. That does not mean eliminating volatility or avoiding drawdowns entirely. It means designing portfolios with realistic expectations and an appreciation for how risk evolves as markets change.
A year-end reminder
Reflecting on 2025, I would have hoped commodity trading advisors would have performed better given the volatility we experienced. That is disappointing. At the same time, it was instructive. Periods of strong equity performance and rising confidence are often when investors relax standards, concentrate exposures, and assume recent trends will continue indefinitely. That mindset has historically been costly. Sound judgment is best grounded in facts, not feelings.
As we look ahead to 2026, rather than labeling it the year of a single strategy, it may be more useful to think of it as a year of preparation. While no one can forecast the next market disruption, portfolios can be positioned in advance to manage volatility thoughtfully. Doing so reduces the likelihood of emotional decisions and creates the potential to benefit from market dislocations rather than be harmed by them.
This philosophy extends beyond investing. Preparation plays an important role across every aspect of financial life—from maintaining a comprehensive financial plan to working with advisers who understand your individual goals and help select strategies that take broader economic risks into account.
In that sense, the lesson extends beyond markets. Progress—whether in investing or in life—is rarely linear, and outcomes are often shaped long before they are visible. Preparation, discipline, and patience tend to matter most when results are uncertain.
As Detroit Lions fans know well, success is rarely determined by a single moment. It is built over time through preparation long before the outcome is known. With that in mind, I wish you a Merry Christmas and a healthy, prosperous New Year—and hope that 2026 rewards those who stay disciplined, patient, and prepared.