HM Wealth Monthly Letter 2026

Welcome to the new year. Now that we have 2025 year-end data, let's quickly recap that, then move to January's topics and considerations for 2026. 

Markets in Review: 2025 Returns 

As we close the books on 2025, it’s worth taking stock of how major markets performed. Despite wide‑ranging headlines throughout the year, financial markets delivered notable returns: 

S&P 500: +17.9% 
International Developed Markets: +31.9% 
U.S. Aggregate Bonds: +7.3% 
Gold: +62.5% — the best annual return since 1979 
These outcomes weren’t random. They were the cumulative result of persistent economic momentum, resilient corporate earnings, and a backdrop that favored measured risk-taking. 

No Calendar Reset: Why 2026 Feels Like 2025 

A new year on the calendar doesn’t mean the economic story suddenly resets. Growth trends, inflation dynamics, investment cycles — these forces evolve, often gradually, not abruptly on January 1. 

As we enter 2026, many of the same supports that underpinned 2025 remain intact. That continuity matters. It points toward stability rather than disruption, and that’s important for long‑term investors who tend to do best in environments where fundamentals — not headlines — drive returns. 

The U.S. economy has shown notable resilience. Recession fears circled markets last year, yet growth persisted. Inflation pressures eased, and policy frameworks remained accommodative. That combination helped sustain both confidence and profits. 

Looking ahead, we expect moderate growth, easing price pressures, and policy support to remain in place through 2026 — conditions that reinforce our long‑term planning assumptions. 

Setting Aside the Noise: Short‑Term Headlines vs. Long‑Term Signals 

In an environment rich with media attention and daily data flashes, it’s worth pausing to distinguish noise from signal: 

Headlines are short‑term noise. They reflect what just happened — a surprise inflation print, a geopolitical flashpoint, or a political tweet. These can disrupt sentiment temporarily, but they rarely alter long‑term return drivers. 
Earnings are the long‑term signal. A company’s profit growth underlies its stock price over time. When earnings expand, markets tend to rise sustainably. When they contract, valuations become harder to defend. 
Through 2025, corporate earnings generally met expectations, and that resilience helped markets grind higher despite occasional turbulence. 

Policy Tailwinds: Monetary and Fiscal Support 

Looking into 2026, policy efforts on both sides of the ledger are supportive: 

• Fiscal policy: Higher tax refunds and business investment incentives are likely to buttress consumer spending and corporate capex. These elements help sustain economic activity without fueling excess. 
• Monetary policy: As inflation pressures mellow, the Federal Reserve is anticipated to continue a gradual trimming of interest rates. Lower borrowing costs can ease financial conditions and support investment. 

Together, these policies create a constructive environment — one that reinforces diversification and measured positioning rather than dramatic shifts. 

The AI Investment Landscape: Leadership With Perspective 

Recent research shows the U.S. firmly leading global private investment in artificial intelligence. In 2024, U.S. private AI funding reached over $109 billion — far outpacing China and Europe combined. This dominance is especially pronounced in generative AI, where U.S. investment exceeded the total in China, the EU, and the U.K. by more than $25 billion. 

At the same time, total AI capital spending remains modest relative to past technology waves. Current AI capex sits near 1% of GDP, compared with 1.5–4.5% of GDP in earlier technology booms such as the late‑1990s telecom surge. To reach that prior peak in 2026, capex would need to climb close to $700 billion. 

What this tells us is simple: Leadership in innovation matters, but scale and deployment take time. For investors, that means distinguishing between the enduring growth signals from real investments and the short‑lived excitement that often surrounds new technologies. 
 

Beyond Markets: Greenland and Strategic Considerations 

A media story that captured attention recently involved talk of the United States acquiring Greenland at a notional price of $700 billion. From a pure economic standpoint, such a transaction would be extraordinary — roughly half of the entire U.S. Department of Defense budget. 

Public opinion surveys show limited support for such a purchase, and Greenlanders themselves have expressed opposition. European partners, particularly Denmark, are equally clear in their reluctance to cede sovereignty. 

Yet the discussion reveals deeper strategic themes: 

• Geography matters. Greenland occupies a gateway between North America, Europe, and the Arctic — with infrastructure (like the Pituffik Space Base) that supports NORAD and allied defense interests as the Arctic evolves. 
• Resources are real, but development is slow. Greenland hosts iron, copper, rare earth elements, and more. Yet its infrastructure is minimal, costs are high, and environmental constraints — such as Greenland’s uranium mining ban — complicate rapid development. This pattern echoes other regions (Venezuela’s hydrocarbon story, for example), where potential does not automatically translate into near‑term returns. 
• Geopolitics and investment intersect. China has pursued influence in the region via infrastructure and commercial proposals, but many of these efforts have been blocked on security grounds. In this context, assertions about strategic control often reflect competing interests rather than imminent policy changes. 

For long‑term investors, such geopolitical narratives remind us why diversification, discipline, and fundamental analysis matter more than moment‑to‑moment sensation. 
 

Our Takeaways 

As we move into 2026, our view remains anchored in these enduring principles: 

• Markets reflect fundamentals over time, not headlines. 
• Policy continuity is supportive, not disruptive. (Greenland being an outlier) 
• Innovation cycles take years, not quarters, to meaningfully shift economic paths. 
• Strategic geopolitical stories influence sentiment but rarely alter long‑term return drivers directly. 

We continue to emphasize diversified portfolios, prudent risk management, and a focus on long‑term objectives. In markets as in life, discipline outperforms panic. 

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

A Month of Policy, Politics, Technology, and Perspective 

Every month brings its share of headlines. Some are structural. Some are emotional. Our job is to separate the durable from the temporary and help you focus on what truly matters to long-term capital. 

This past month, four themes stood out: 

1. Trade policy and tariffs returned to center stage. 
2. Markets began to price in midterm election risk. 
3. Artificial intelligence rattled software valuations. 
4. And, in a lighter but surprisingly instructive moment, Olympic hockey reminded us what discipline and patience can achieve. 

Let’s walk through each—and what we believe investors should take from them. 

Tariffs: A Legal Setback, Not a Strategic Retreat 

The U.S. Supreme Court recently ruled against the administration’s use of emergency powers under the International Emergency Economic Powers Act to impose certain global tariffs. On the surface, that sounded dramatic. Markets reacted accordingly. 

But context matters. 

The ruling did not invalidate all tariffs. It only addressed those implemented under one specific legal authority. Sector-specific tariffs on steel, aluminum, and autos—imposed under different statutes—remain intact. And within hours of the ruling, the White House signaled its intention to pursue alternative, congressionally authorized pathways to reestablish much of the tariff structure. 

In other words, the architecture may change. The policy objective has not. 

A temporary 15% blanket tariff under Section 122 of the Trade Act is expected to serve as a bridge while longer-term, country-by-country investigations under Section 301 move forward. These authorities are generally considered more durable legally. 

For investors, the key takeaway is this: 

Trade policy remains a core strategic priority. Legal challenges may reshape the implementation, but they are unlikely to eliminate the direction. 

Markets dislike uncertainty. But uncertainty around process is different from uncertainty around intent. We believe this distinction matters. 

From a portfolio standpoint, tariffs influence inflation expectations, supply chains, and sector dispersion. They do not, by themselves, alter the long-term case for diversified exposure across industries and geographies. We continue to monitor how policy affects earnings power and pricing dynamics—but we are not positioning portfolios based on short-term legal headlines. 

Midterms: Volatility Is a Feature, Not a Flaw 

We are now firmly in the second year of the presidential cycle. Historically, this period has paired solid economic momentum with weaker equity returns and some of the largest intra-year drawdowns. 

That pattern is not a forecast. It is a reminder. 

Markets are forward-looking discounting mechanisms. As policy uncertainty rises—around rates, tariffs, fiscal spending, and the possibility of divided government—volatility tends to follow. Not because the economy is necessarily deteriorating, but because investors are recalibrating risk. 

History shows that voters have stripped power from the incumbent party in nine of the last ten federal election cycles. Markets know this. They will begin pricing it well before ballots are cast. 

Yet there is another side to this story. 

Nearly a trillion dollars of fiscal, monetary, and deregulatory stimulus remains in the pipeline. Rate cuts are working their way through the system. Liquidity conditions have improved relative to last year. Fiscal support remains meaningful as a share of GDP. 

That does not eliminate risk. It does provide a cushion. 

Importantly, since 1938, the S&P 500 has not declined in the 12 months following a midterm election. That does not guarantee outcomes. It does remind us that volatility around elections has historically rewarded patience. 

We are not bearish. We are also not complacent. 

Periods of anxiety are normal in this part of the cycle. Our discipline remains the same: stay invested, rebalance when necessary, and lean into dislocations selectively rather than attempting to sidestep every potential drawdown. Trying to perfectly time policy noise is rarely a durable strategy. 

AI and the Software Selloff: Repricing, Not Ruin 

In early February, software stocks experienced an abrupt and broad sell-off. Advances in AI-driven code generation—particularly “agentic” systems capable of handling complex, multi-step workflows—sparked concerns about the durability of traditional software-as-a-service (SaaS) business models. 

The fear was straightforward: 
If AI can write code cheaply and autonomously, do established software companies lose their competitive moat? 

Valuations, already elevated in parts of the sector, adjusted quickly. 

The ripple effects extended beyond public markets. The S&P BDC Index—a bellwether for publicly traded business development companies and a proxy for private credit sentiment—fell sharply as investors reassessed exposure to private funds with software-heavy portfolios. 

Software has long been a cornerstone of private equity and private credit strategies due to recurring revenue, high margins, and perceived customer stickiness. Yet one underappreciated risk is classification opacity. A healthcare software company might be labeled “healthcare” in one fund and “technology” in another. Concentration risk is not always obvious. 

That said, we believe the most aggressive bear case oversimplifies what makes enterprise software valuable. 

Strong software businesses are more than their codebase. They are embedded in workflows. They have distribution networks, contractual relationships, switching costs, and years—sometimes decades—of proprietary data. AI may compress margins for weaker players. It may enhance productivity for stronger ones. 

Disruption does not eliminate quality. It separates it. 

From an investment standpoint, this is a classic repricing event. Markets are recalibrating expectations. That is healthy. We are focused on durability of cash flows, balance sheet strength, and competitive positioning—not headline volatility. 

Technological change has always produced winners and losers. Diversification remains our primary defense against being overly exposed to either. 

A Brief Detour: Olympic Hockey and the Power of Discipline 

It can be difficult to pause for global events like the Olympics amid busy schedules. The Olympics still have that allure of a time and place where we are able to see the best of the best compete on a global stage. Now, I am not a follower of professional hockey in any way, but like many of you, I have seen (many times, probably going to watch it again this weekend) the 2004 film "Miracle" starring Kurt Russell. This film tells the story of the last time the USA won gold in Men's hockey, 1980. I love this story. The 2026 Gold medal round against Canada was absolutely electric. Once the game started, I couldn't peel my eyes off the TV, even to go make some popcorn and grab a drink.  

The U.S. men’s team defeated Canada 2–1 in overtime, with Jack Hughes delivering the golden goal—securing America’s first men’s hockey gold medal since the 1980 “Miracle on Ice.” 

Canada entered with a storied history and nine Olympic gold medals.  

What struck me most was not the highlight reel. It was the discipline. 

Championship games are rarely won on emotion alone. They are won on preparation, structure, and execution under pressure. The same principles apply to investing. 

When markets are volatile—whether due to tariffs, elections, or technological disruption—the temptation is to react emotionally. But durable success is usually built quietly, through adherence to a process when it feels hardest. 

Patience is not passive. It is an active restraint. 

The Recap

This month’s headlines may feel disconnected—trade law, midterm politics, AI disruption, Olympic competition. But the underlying thread is consistent: markets are navigating transition. 

• Trade policy is evolving, not disappearing. 
• Political risk is rising, as it historically does in year two. 
• Technology is repricing expectations, not ending business models. 
• And discipline continues to matter more than prediction. 

We do not control court rulings, election outcomes, or technological breakthroughs. We do control portfolio construction, risk management, and behavioral discipline. 

That remains our focus. 

Volatility is uncomfortable. It is also normal. Our responsibility is to ensure that short-term noise does not compromise long-term strategy.  

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

A Macro Shock With Real Channels—But Also Natural Limits 

The closure of the Strait of Hormuz is not a marginal development. It is a visible macro shock moving through one of the most critical arteries in the global economy. 

For perspective, roughly one-fifth of the world’s oil and liquefied natural gas flows through that corridor. When that flow is disrupted, the effects are immediate. Energy prices rise. Transportation costs follow. Production becomes more expensive. 

And from there, the transmission broadens. 

Higher input costs pressure corporate margins. Supply chains slow. Inflation—already a concern in many regions—finds a new source of persistence. Bond yields adjust upward as markets reprice both inflation expectations and policy responses. 

This is how localized conflict becomes global in consequence. 

Even large-scale responses, such as the International Energy Agency’s release of strategic reserves, have provided only partial relief. Helpful, but not decisive. The longer the disruption persists, the more pronounced the second-order effects become. 

Yet there is an important counterbalance worth recognizing. 

The Feedback Loop 

Geopolitical shocks often contain the seeds of their own constraint. 

Higher energy prices can strain the very economies involved in or adjacent to the conflict. Political pressure builds. Economic costs accumulate. Over time, these forces can act as a stabilizing mechanism—limiting duration or intensity. 

In other words, the same dynamics pushing prices higher may also work to contain the shock. 

We view this not as a resolution, but as a reminder: markets and economies are adaptive systems. They respond. They adjust. 

History’s Perspective on Geopolitical Events 

It is natural to assume that events of this magnitude should derail markets. History suggests otherwise. 

When we examine major geopolitical shocks—from Pearl Harbor to the onset of the Russia–Ukraine war—the pattern is surprisingly consistent. Over the subsequent 12 months, equity markets have, on average, delivered returns close to their long-term trend—roughly 8%. 

That does not diminish the seriousness of the events themselves. It does, however, reinforce an important distinction: 

Markets price disruption quickly. Long-term outcomes tend to be driven elsewhere. 

Midterm Years: Volatility by Design 

Layered on top of this backdrop is the rhythm of the presidential cycle. 

We are in the second year—a period that has historically combined solid economic footing with uneven market performance and some of the larger intra-year drawdowns. Not a forecast. A tendency. 

Why does this happen? 

Policy uncertainty increases. Questions around interest rates, fiscal direction, trade policy, and the potential for divided government all come into sharper focus. Markets, being forward-looking, begin to reprice risk. 

Volatility follows. 

Not necessarily because conditions are deteriorating—but because expectations are shifting. 

Recent headlines surrounding Iran and disruptions in the Strait of Hormuz are a clear example. New information. Rapid repricing. Elevated uncertainty. 

And yet, there is another side to this pattern. 

Since 1938, the S&P 500 has not declined in the 12 months following a midterm election. That history does not guarantee future outcomes. It does offer perspective. 

Periods of uncertainty have often been followed by periods of stabilization. 

The Federal Reserve: Limited Flexibility 

Against this backdrop, the Federal Reserve faces a more complicated landscape. 

The recent decision to hold rates steady reflects that complexity. Policy is now closer to what economists would call “neutral”—a level that neither stimulates nor restricts growth meaningfully. That positioning reduces flexibility. 

Normally, central banks can look through supply shocks—recognizing that weaker growth and higher inflation may offset one another over time. 

But that approach depends on stable inflation expectations. 

If households and businesses begin to expect persistently higher inflation—driven, for example, by sustained energy disruptions—then the calculus changes. Rate cuts become harder to justify. Policy may need to remain tighter for longer than markets anticipate. 

A narrower path. Less room for error. 

What Matters for Investors 

In periods like this, it is tempting to focus on the immediacy of headlines. The more productive approach is to step back and ask a different question: 

What has actually changed for long-term investors? 

A few things. But not everything. 

• Inflation risks may remain elevated if supply disruptions persist  
• Interest rates may stay higher for longer than previously expected  
• Market volatility may increase, particularly in the near term  

These are meaningful considerations. They influence portfolio construction, risk exposure, and rebalancing decisions. 

But they do not invalidate the broader framework. 

Geopolitical shocks, even significant ones, have historically been absorbed over time. Markets adjust. Economies adapt. Capital finds its way forward. This March has certainly had more than its share of pessimism for the month. Long-term investors may be able to find attractive entry points in companies they may have felt were too expensive just a few weeks ago. 

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management