Best Ideas for 2026

BEST IDEAS for 2026

advisors asset management's

2025 was a year of strong market performance & shifting global dynamics

Expectations for 2026

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Inflation Remain Sticky

Positive on U.S. Equities with Volatility Expected

What is a bond ladder?

TAX-EXEMPT INCOME

Interest Rates

How It Works

Assuming an initial investment of $100,000, an investor purchases five bonds with staggered maturities extending out every two years. The laddered bond portfolio has a combined average annual yield of 3.42% and an average duration of 6 years.

2-Year

4-Year

6-Year

8-Year

10-Year

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2.05

2.65

3.60

4.15

4.65

At the end of year two, the shortest bond matures and the four remaining bond investments are now two years closer to their maturity date. Proceeds from the maturing bond are reinvested back into the 10-year bond. The combined average annual yield of the new laddered bond portfolio is 4.05% and the average duration would remain at 6 years.

Original Ladder

2-Year

4-Year

6-Year

8-Year

10-Year

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2.05

2.65

3.60

4.15

4.65

BOND A $20,000

BOND B $20,000

BOND C $20,000

BOND D $20,000

BOND E $20,000

ladder two years later

BOND MATURED

2-Year

4-Year

6-Year

8-Year

10-Year

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

6.00%

0.00

2.65

3.60

4.15

4.65

5.20

BOND A $20,000

BOND B $20,000

BOND C $20,000

BOND D $20,000

BOND E $20,000

ladder two years later

BOND MATURED

2-Year

4-Year

6-Year

8-Year

10-Year

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

6.00%

0.00

2.65

3.60

4.15

4.65

5.20

BOND A $20,000

BOND B $20,000

BOND C $20,000

BOND D $20,000

BOND E $20,000

Ladder Two Years Later >>

<< ORIGINAL LADDER

This hypothetical example is for illustrative purposes only and does not represent the performance of any specific investment. Bond income is not guaranteed and may be subject to call risk as well as default risk, which increases with lower-rated bond securities.

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Additional Important Information All investing involves risk, and principal loss is possible. Past performance does not guarantee future performance. The indexes referenced in this publication are not available for direct investment. This publication is provided for informational purposes only. This publication is not an offer or solicitation of an offer to buy or sell any product or service. Unless otherwise stated, all information and opinions contained in this publication were produced by Advisors Asset Management, Inc. (AAM) and other sources believed by AAM to be accurate and reliable. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and best interests. All expressions of opinions are as of January 15, 2026 and are subject to change without notice. Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future. All AAM employees, including research associates, receive compensation that is based in part upon the overall performance of the firm. AAM may make a market in or have other financial interests in any given sector or allocation with which this analysis suggests may be benefited from its conclusions. Investors should seek financial guidance regarding the appropriateness of investing in any sector or strategy discussed in this publication and should understand that statements regarding future prospects may not be realized. DEFINITIONS: Correlation is a statistical measure of how two variables move in relation to each other with coefficients ranging from +1 to -1. A correlation coefficient of +1 implies that as one variable moves, the other will move in exact lockstep. Alternatively, a correlation coefficient of -1 implies that if one variable moves, the other moves in the same amount in the opposite direction. If the correlation is 0, the movements of the variables are completely random. Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates. It measures how long it takes, in years, for an investor to be repaid the bond’s price by the bond’s total cash flows. The Magnificent 7 is a term popularized to describe a set of dominant companies, particularly in the technology sector, involved with artificial intelligence, electric vehicles, cloud computing, and digital services. The S&P 500 Index is an unmanaged market capitalization weighted index used to measure 500 companies chosen for market size, liquidity and industry grouping, among other factors.

US equities marched higher in 2025 with market breadth broadening beyond the narrow leadership of the last two years. While artificial intelligence (AI) themed stocks still drove results, the broadening was illustrated by all eleven S&P 500 sectors finishing the year higher, with seven up by more than 10%. US small and midcap indexes also participated, generating gains over 10%. Both developed and emerging market equities surpassed their US counterparts, rising 30%-plus. Fixed income enjoyed a positive year as well, while precious metals (gold and silver) stole the show. The global economy told a more nuanced story. Global growth slowed to approximately 3.2% in 2025 amid rising protectionism. US growth is expected to be 2% for the year, supported by resilient consumer spending particularly from the wealthiest households. US inflation dipped below 3%. Employment remained relatively strong with unemployment ending the year at 4.4% although consumer confidence softened.

Geopolitics added another level of complexity and instability to the year’s backdrop. Donald Trump’s return to the US presidency reshaped the country’s priorities, highlighted by sweeping tariff announcements and the longest government shutdown on record. US-China tensions escalated given trade policy challenges, technology competition and geographic friction. The war in Ukraine dragged on, and Middle East tensions continued to flare despite a fragile peace deal between Israel and Hamas. Pop culture delivered its own drama including Kendrick Lamar’s viral Super Bowl show, Beyoncé’s historic Grammy win, and fanfare around the Wicked movies. Katy Perry generated headlines with a trip to space, Jon Hamm’s dance became a meme, Labubu toys became a craze, and Timothée Chalamet surprised everyone with a rap track. And now that we’ve briefly covered 2025, let’s turn to our 2026 expectations.

Expect Moderate Economic Growth

Inflation Remains Sticky

Interest Rates

Positive on U.S. Equities with Volatility Expected

6 for 2026

Select sectors: Favored sectors include Technology, Financials, Utilities, and Healthcare.

Small- and mid-cap equities: Coupled with a valuation gap, these areas could see pronounced returns in 2026 if they continue to show above-average earnings growth.

Risk-hedged defined outcome strategies: These strategies aim to provide downside protection in exchange for an upside cap on potential returns and can act as another powerful portfolio diversifier.

Moderate duration: We favor higher-quality bonds and a shift outward to moderate duration in both the taxable fixed income and municipal markets. Over the longer-term yield is normally the dominant source of return in fixed income; we see a world of 3% on cash, 4% to 6% on investment grade fixed income, and 9% to 10% on private credit.

Active management: With our expectation of continued volatility in 2026, we favor actively managed strategies with tenured managers.

Continued uncertainty in global geopolitics (China, Russia, Middle East, Latam, Greenland).

Given the historically high level of valuations, short-term markets may become reconnected to longer-term value expectations.

Diversification: Given the last three years of robust returns for the S&P 500, particularly the Magnificent 7, we favor diversifying into growth-at-a-reasonable-price and value-oriented equities, dividend-payers, international, and thematic strategies where there is a solid landscape of support – think defense, cybersecurity, and energy infrastructure. We also favor diversification into less correlated areas of the market including the private markets of infrastructure, private credit and real estate.

Bottom Line:

Remain patient, keep asset allocations focused on resiliency, quality, value and income generation. We do not believe what worked the past 10 years is necessarily the right formula for the next 10 years in this new regime.

Record liquidity can be seen in frothy equity pricing. The higher level of optimism may begin to cannibalize future growth at some point. To offset this, we tend to see higher levels of merger and acquisition (M&A) activity that may be cynically masking lower growth metrics. For those that suffer this blessing, massive stock buy backs will likely be needed to help boost the growth needed to support fundamental metrics.

Record liquidity can be seen in frothy equity pricing.

The higher level of optimism may begin to cannibalize future growth at some point. To offset this, we tend to see higher levels of merger and acquisition (M&A) activity that may be cynically masking lower growth metrics. For those that suffer this blessing, massive stock buy backs will likely be needed to help boost the growth needed to support fundamental metrics.

Bond market’s lack of price discovery likely misprices the asset.

With historically low interest rates and inflation lurking, the secular move in rates has generally obscured poor credit selection over the last 40 years. While several cyclical rate moves are needed to make one secular move, the mere length of time it may take for certain fixed income assets to recover may reverse the massive bond inflows witnessed in the last 12 years. This could shift investors’ expectations, making them reassess their income needs and where to get it.

Federal Reserve’s actions force investors to increase risk.

Should inflation rise as we expect, asset prices may rise to severe levels. Should history be a guide, investors are often forced further out on the risk spectrum, seeking better performing, albeit riskier assets. This could lead an apathetic investor to be caught off guard when the Federal Reserve is forced to ultimately react to an overheating economy by raising interest rates.

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Expect Moderate Economic Growth:

We expect moderate economic growth of 1.75% to 2.0% supported by buoyant spending from historically strong Households (albeit skewed toward the wealthiest consumers), considerable cash on the sidelines, and additional rate reductions in 2026. Deregulation and the continued buildout of infrastructure, technology, and sustainability initiatives is also supportive of economic growth, while the ongoing digital transformation could help businesses innovate and remain competitive on the global stage.

Inflation: Remains Sticky

Tariff impacts, a housing shortage, fiscal stimulus, and low immigration levels crimping labor supply indicate inflation will likely remain sticky around 2.8%.

Expect Moderate Economic Growth

Interest Rates:

In our view, the tailwind of lower rates is mostly in the rearview mirror. Forward guidance and futures pricing indicate two 25 basis point reductions by year-end 2026, however barring a real slowdown, we think “one and done” is a possibility.

Positive on U.S. Equities with Volatility Expected

Following solid performance in 2025, the S&P 500 had momentum entering the new year. Consensus forecasts call for double-digit earnings growth in 2026, nearly twice the historical average, and the Federal Reserve has signaled further rate reductions. As we enter the fourth year of the current bull market, we maintain a cautiously optimistic stance on the cycle’s durability, although expect bouts of volatility given the plethora of uncertainties that remain.

Jacob Johnston, CFA Deputy CIO

Cliff Corso CEO & CIO

Matt Lloyd Chief Investment Strategist

Significant company-to-company entanglements within the AI landscape has the potential to create volatility over the next few years as winners and losers become clearer and the promise of AI moves toward financial reality.

Higher correlations between stocks and bonds due to inflation resetting to a 2.5%+ regime.

While uncertainty will likely remain a constant companion, we believe the outlook remains positive with both structural and cyclical factors pointing toward further growth and investment opportunity.

As we peer into 2026, we remain optimistic on markets but believe it will be key to differentiate from the previous playbook of relying on concentrated positions in the major indices. We anticipate investors need to be disciplined about finding ways to reduce volatility, with a focus on quality and being deliberate about allocations.

5 Important Risks:

We would be remiss not to mention why we remain cautious within our positive outlook:

A meaningful decline in consumer spending and weakness in jobs could risk a slower economy. In other words, job stability and real wage growth are key to our view.