“Paper money always eventually returns
to its intrinsic value – zero.”
─ Voltaire
Voltaire’s axiom about paper money, while true, is less relevant during periods where government spending is disciplined, government debt levels are reasonable, and a country’s citizenry is largely pleased with the economic status quo. Unfortunately, none of these fundamental factors reflect reality in the United States today, so concerns about the fate of paper money have naturally become heightened. In 2025, the price of gold increased 62.5%, while the price of silver increased 138.6%. The markets are questioning the true value of paper money here in the United States.
In addition to precious metals, asset classes across the board generated positive returns in 2025. Stocks were generally up, with emerging markets delivering a total return of 34.2%, outperforming developed markets by 2.4%, and developed markets outside the United States delivering a return of 31.9%, outperforming the S&P 500 Index by 14.0%. Bonds finally enjoyed a decent year, with the Bloomberg Aggregate Bond Index up 7.3%, but the annualized return on bonds over the past five years remains abysmal at 1.0% even after 2025. Bitcoin and the dollar index both lagged, returning -5.45% and -9.4%, respectively.
Before sharing our predictions for 2026, let’s take a moment to assess our 2025 predictions. Overall, we estimate our batting average last year was in the .600 range, which we deem to be reasonably good.
Starting with our incorrect predictions, we predicted that the war in Ukraine would end, that inflation would re-accelerate, that tech stocks would underperform, and that the Federal Reserve would implement yield curve control to keep bond yields low. We still expect many of these developments to occur, but our prediction that they would happen in 2025 was clearly incorrect. We correctly predicted that world GDP would grow by more than 4%, and it is currently estimated to have grown in the 5% range, and we predicted that commodities and foreign stocks would outperform U.S. stocks, which they did, and that gold would outperform U.S. stocks by more than 10%, which it did. We also predicted that the price of Fartcoin would crash, which it has, although we were surprised to see that Fartcoin’s market cap remains well over $400 million.
As specifically stated in our past annual prediction letters, we write this note as a thought piece to have some fun and to share our thoughts on the future. With that said, we have no crystal ball, we will always make some incorrect predictions, and we view our primary job as finding high-quality, undervalued investments, not accurately predicting the future.
Moreover, we keep our client portfolios diversified, invest with a long-term perspective, and work hard not to act reflexively based on short-term predictions. Our best work is done when we find fundamental stock-specific mispricings in the market and act upon them. In such cases, when we invest with an adequate margin of safety in the share price, we aim to generate attractive profits for our clients even if one or more of our predictions do not pan out as expected.
With those caveats out of the way, here are our top ten predictions for 2026:
- The U.S. Dollar Declines for the Second Year in a Row.
By the beginning of 2025, the U.S. dollar had enjoyed a multi-year run of strength, which made it very attractive for foreign investors to buy U.S. stocks. A European investor would have realized returns both from the U.S. stock market and from the dollar’s appreciation relative to the Euro. In 2025, currency valuation reversals began, and the dollar declined for the first time in many years. We expect that trend to continue for several reasons. First, the Trump administration has specifically stated that they want the dollar to depreciate to make the United States more attractive to manufacturers moving production back to the United States. Second, the investment landscape in the United States has become increasingly uncertain for investors. Third, U.S. stocks are richly valued and far less attractively priced than those in foreign markets. Fourth, short-term interest rates will likely drop further in 2026 (see prediction #7 below). - The Democrats Win Back Congress.
While the economy has been fantastic for wealthy, asset-rich investors, it has been much more challenging for everyone else. Young people are having difficulties finding jobs, corporations are using A.I. to cut costs, and affordability has become a major concern for far too many people. In addition, it is quite normal for a new President to lose their majority in midterm elections, and we think this year’s midterm election will be no exception. President Trump has suggested that if the Democrats regain control of Congress, they will impeach him again. This prediction seems like a sound one, too, but they are unlikely to convict him without a large Democratic Senate majority. - Trump Will Make More Bold Foreign Policy Moves.
As we write this letter, it’s already too late to make any predictions about Venezuela, but it seems likely that big changes will continue to arrive on the foreign policy front. It could be a major peace agreement between Russia and Ukraine, or the United States deposing other leaders who have been working against the United States and installing a more U.S.-friendly replacement in countries such as Colombia, Cuba, and/or Iran. We take President Trump at his word that he would like to figure out a way for the United States to “acquire” Greenland, and we would note that doing so would require no act of Congress nor acquiescence by the judicial branch. President Trump has proven to be an imperial president, and we think 2026 will be a pivotal year for foreign policy. - The A.I. Bubble Bursts.
The A.I. bubble finally bursts under the weight of its own inflated expectations, bringing A.I. stock valuations back to earth and causing the U.S. stock market to flatline for the year. A.I. will remain an important investment theme, and it will play an important role in shaping the global economy for years to come; however, investors will likely become more discerning about which companies are worthy of their investment. This also means that unprofitable A.I. businesses and those companies relying on accounting shenanigans and debt-fueled growth will be punished by a more disciplined stock market. We also expect investors to pay closer attention to the energy, commodities, and infrastructure needed to build out many more data centers. - Energy Stocks Outperform.
After being one of the worst-performing sectors over the past 3 years, the energy sector breaks out and becomes a top 3-performing sector in 2026. While inflation caused a spike in price among many commodities, and especially precious metals, energy prices remained weak in 2025. We expect energy prices to rise significantly in 2026, driven by strong economic growth, continued expansion of energy-intensive data centers, and anemic investment by energy producers over the past decade. For commodities, the guaranteed cure for high prices is high prices, and the cure for low prices is low prices. We expect low energy prices to begin reverting higher in 2026. - Gold Shines Yet Again.
Gold’s price increase exceeded that of the S&P 500 Index by more than 40% in 2025. Nevertheless, U.S. stocks are historically quite expensive relative to corporate earnings, whereas gold is historically relatively inexpensive relative to the outstanding money supply, which continues to grow at a high-single-digit to low-double-digit rate. At the same time, foreign central banks continue to buy gold aggressively as a foreign reserve asset, while foreign investors will become much less interested in U.S. stocks if the dollar remains weak (see prediction #1 above).
- President Trump Installs a Dovish Chairman at the Federal Reserve.
How dovish? We expect the next Chairperson to lower short-term interest rates to below 3% by year-end to spur mortgage and housing activity, reduce pressure on heavily indebted consumers, and ease pressure on a heavily indebted Federal government. Doing this before inflation declines to below 2%, while perhaps necessary, will stoke inflationary pressures and cause the dollar to decline further against foreign currencies. - Inflation Re-accelerates.
Accelerating inflation was one of our 2025 predictions that did not materialize; we are moving this prognostication to 2026. We expect the official inflation rate (the Consumer Price Index, “CPI”) to rise above 3.5% at some point this year, driven by lower interest rates, higher oil prices, and high levels of deficit spending. Of course, the CPI is a highly manipulated set of statistics, so the real inflation that we feel every day will be higher than the CPI. As we write this letter, President Trump just announced his desire to increase defense spending by a whopping 50%. If accelerating inflation occurs earlier in the year, it will be the nail in the coffin for the Republicans’ midterm prospects, and avoiding this outcome is likely one of the reasons Trump is trying to flood the U.S. oil market with barrels of Venezuelan crude.
- Emerging Markets Outperform.
During years when the dollar is weak, emerging markets tend to do quite well. This occurred in 2025, and we expect investors to increase their exposure to emerging markets in 2026. As a result, emerging-market stocks will likely outperform the S&P 500 Index. - Bonds Have a Difficult Year.
With inflation rising, energy prices increasing, and short-term interest rates falling, we expect 10-year bond yields to rise modestly in 2025, resulting in another poor year for bond investors. We have consistently expected bonds to be the worst-performing asset class of the 2020s, and that has proven true so far. We expect the poor relative performance of bonds to continue in 2026.
We hope to exceed a .600 batting average next year, but only time will tell. Rather than being correct in these predictions, we strive to deliver attractive, risk-adjusted returns for our clients. It is important to note that one year is not a particularly long investment horizon. Our investment approach is long-term and is guided by fundamental long-term factors that take into account the reality that:
- U.S. indebtedness across the household, corporate, and government sectors stands at record high levels. Working off this debt will require time, elevated inflation, low real (inflation-adjusted) interest rates, and debt restructurings.
- The global economy remains in the early to middle innings of a secular bull market in commodity prices that began in 2020. Commodity bull markets typically last a decade or more and do not end until companies overinvest in future commodity production, which has not yet even started.
- U.S. stocks, and particularly the large-cap growth stocks that dominate the S&P 500 Index, remain expensive relative to history and have room to deflate relative to corporate earnings. This deflation could reflect itself in flat stock prices even in the face of a growing economy.
- The dollar remains an expensive currency, even after the decline in the dollar index in 2025. For this reason, we have been expanding our clients’ asset allocations to foreign stock markets.
While our predictions may change from year to year, our investment strategy remains unchanged. We pay strong attention to value, seeking to purchase investments that we believe are temporarily undervalued by Mr. Market. In addition, we pay close attention to the fundamental factors shaping the long-term investment environment, as described at the end of this letter, and we invest accordingly. Finally, we take a disciplined, prudent approach to our client portfolios, placing greater emphasis on the return of our clients’ capital than on the return on our clients’ capital.
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We appreciate your trust, your willingness to entrust us with managing your liquid investments, and your patience. We are committed to earning your trust through disciplined work in 2026.
Sincerely,
Pekin Hardy Strauss Wealth Management
This commentary is prepared by Pekin Hardy Strauss, Inc. (dba Pekin Hardy Strauss Wealth Management, “Pekin Hardy”) for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any security. The information contained herein is neither investment advice nor a legal opinion. The views expressed are those of the authors as of the date of publication of this report, and are subject to change at any time due to changes in market or economic conditions. Although information has been obtained from and is based upon sources Pekin Hardy believes to be reliable, we do not guarantee its accuracy. There are no assurances that any predicted results will actually occur. The S&P 500 Index includes a representative sample of 500 hundred companies in leading industries of the U.S. economy, focusing on the large-cap segment of the market. The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries–excluding the United States. Emerging markets refers to countries whose economies and financial markets are in the process of development and modernization and may be subject to greater volatility and risk than those of more developed nations. Developed markets refers to economies with mature financial systems and relatively stable economic and political environments. The Bloomberg Aggregate Bond Index represents the performance of the U.S. investment-grade, fixed-income market across government, corporate, and securitized bond sectors. Bitcoin refers to a digital asset that uses blockchain technology and is subject to significant price volatility and regulatory uncertainty. The U.S. Dollar Index is a benchmark used to gauge the strength of the U.S. dollar versus major global currencies. The Consumer Price Index (CPI) is an unmanaged index representing the rate of the inflation of U.S. consumer prices as determined by the U.S. Department of Labor Statistics.