The final quarter of 2025 brought no clarity to the economic outlook for 2026. The view was muddied by the longest US government shutdown in history, the delayed delivery of economic data, concerns private credit debt was threatening the banking system, and a ballooning debt bubble tied to financing of AI data center buildout. The employment picture continued to weaken with consumer sentiment surveys showing potential job loss being a top concern. For the past 3 years, 7 to 10 stocks have been responsible for almost half the return of the S&P 500 index.  In the fourth quarter only two of those stocks showed continuing strength. 

The Federal Reserve identified weakening employment as the problem in the fourth quarter, and not inflation.  The FED cut its overnight lending rate by another .25% while indicating rate cuts would be delayed going into 2026. Inflation at the end of 2025 was expected to be 2.9%. The FED stated that tariff related price hikes had worked their way through the economy and inflation was moving toward their 2% target. While some consumer products have seen price increases, there is disinflation in the services industries. At the FED’s January meeting Chairman Powell announced that the focus had again returned to inflation, but an eye would be kept on employment.

The final read on US GDP for the third quarter showed the economy growing at an annual rate of 4.4 percent. That number was driven by consumer spending and AI related capital expenditures.

The bad news was that the top 10% of the population wealth wise, was responsible for half of the consumer spending. The bottom 90% moved more toward discounts and sales. AI data center buildout accounted for 60% or more of the commercial construction in the US in 2025.  That indicates a real slowdown in commercial construction not related to AI.

The top performing investments for 2025 were silver and gold. Central banks were the biggest buyers of both metals. The use of silver for industrial purposes skyrocketed and at the same time silver production diminished. For the past 5 years more silver was used for industrial purposes than was mined.  Some countries, such as China, are now prohibiting the export of silver.

As we go into 2026 consumer sentiment has turned negative.  Consumers are very concerned about the employment outlook despite claims by FED chairman Jerome Powell that employment is stable. Please keep in mind that the FED has been historically wrong 100% of the time. 

Potential troubles ahead include weakening employment, escalation in hot zones such as Iran, Ukraine and Taiwan, and credit market risks. At the December 2025 FED meeting it was announced that quantitative tightening had ended. Beginning in December, the FED began buying forty billion dollars monthly in short duration treasuries to build reserves in the banking system. Sounds like the resumption of QE or quantitative easing. That indicates concern on the part of the FED.

Gold and silver have become overweight positions in the portfolio. I will begin taking gains in both over the coming weeks. I have also begun trimming stock positions to build a cash cushion. The emphasis will continue to be a diversified portfolio that weathers a market downturn.