Slide 1 & 2: Student of the Market: January 2026
Welcome to the January 2026 edition of Student of the Market. As we turn the page on another eventful year, this presentation will explore the key trends shaping today's investment landscape. We'll examine how stocks, bonds, and the broader economy have performed, and what these developments mean for investors navigating both opportunities and risks in the current environment.
In the following slides, we'll cover a range of timely topics- including the remarkable three- year run for U.S. stocks, the realities of market volatility, the ongoing evolution of the technology sector, and the critical role of diversification. We'll also discuss the dynamics of economic expansions and recessions, and review how bonds have contributed to portfolio stability, especially in the face of recent market disruptions. Throughout, our focus will be on providing context, historical perspective, and actionable insights to help investors in 2026 and beyond.
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Slide 3: U.S. Stocks Up 15% Three Years in a Row
Starting on slide 3 U.S. stocks up 15% or more 3 years in a row, so three consecutive years of 15+ percent gains- 2023, 2024, and 2025. This is only the eighth time since 1926 that we've seen such a streak. This is only the 8th tie since 1926 that we've seen such a streak. Historically, after these streaks, the following year's returns have averaged 12.3%, with four out of seven instances delivering double- digit gains. However, there have been years of negative returns, reminding us that markets can be unpredictable. For investors concerned that the market's strong run may be losing momentum, this history can offer some reassurance. However, it's essential to keep perspective- resist the urge to chase recent performance and instead stay focused on their long- term objectives.
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Slide 4: Stocks Rarely Finish Around Their Average
Moving on to slide 4, Although U.S. stocks have averaged about 10% annually, calendar- year returns rarely match this average. Over the past century, stocks have landed in their 8%–12% long- term average range just six times during a calendar year. Most years are either much better or much worse than average, highlighting the importance of setting realistic expectations and preparing clients for market variability. 2025 saw a strong +17.9% return, well above the average. This kind of volatility is a normal part of the investing journey- and it's the price long- term investors pay to capture the rewards that stocks can offer. By remaining patient and maintaining a long- term perspective, this mentality can help investors to withstand these inevitable market fluctuations.
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Slide 5: Stock Market Volatility
2025 truly was a year of contrasts. In the first half, tariffs, policy uncertainty, and economic concerns fueled market volatility. As the year progressed, those worries faded and volatility stabilized. The S&P 500 saw 13 days with swings + or - 2% trading days or greater, mostly in March and April. Historically, periods of heightened volatility- like 2008 during the global financial crisis (we had 72 days that were + or – 2% on the S&P) or even in 2022 amid inflation and an interest rate shock (46 days)- have coincided with market weakness, while calmer stretches have often brought stronger returns.
This pattern highlights a key lesson for investors: economic uncertainty tends to increase the frequency of large market moves, but staying invested through turbulent periods can be critical. Reacting emotionally to short- term swings can undermine long- term results; patience and discipline have shown to be essential for successful investing.
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Slide 6: Technology Stocks and Valuations
Technology stocks continued to lead the market in 2025, propelled by robust earnings growth. Notably, tech sector valuations edged lower, so while tech remains a market leader, prices are still not at their all- time high and got slightly cheaper last year, which I think would surprise folks. Trailing P/E ratios for tech stocks have moderated, reflecting a healthier environment compared to past bubbles.
Looking ahead, tech sector earnings are expected to grow by high double digits in 2026, compared to roughly low double digits for the S&P 500. This means valuations, while not cheap, are supported by strong current and projected earnings. Historically, periods marked by Fed rate cuts and no recession have been favorable for technology stocks, and we believe that backdrop appears to be in place for 2026.
For many investors, the key is to balance the pursuit of growth opportunities with valuation discipline- emphasizing fundamentals and not just momentum.
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Slide 7: Diversification – Mutual Funds & ETFs vs. Individual Stocks
Slide 7, we shift gears and look at mutual funds & ETFS vs. Individual stocks. Diversified stock mutual funds and ETFs are essential tools for managing investment risk, yet a rising market can sometimes obscure the risks inherent in individual stocks. When markets deliver extended periods of strong returns- like the past three years with gains above 15% annually- stock investing can appear deceptively easy. However, the data tells a different story: while losses among stock mutual funds and ETFs are exceedingly rare (just 2 out of more than 2,300 lost money over the last 3 years), nearly half (42%) of individual stocks declined over the same period. Across multiple time frames, many funds have consistently limited losses compared to individual stocks. Encourage investors to diversify using mutual funds and ETFs, as this approach may reduce the risk of significant losses and helps to achieve more stable, consistent returns.
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Slide 8: Economic Expansions and Recessions
Slide 8 we look at the current economic expansion, at just over five and a half years, is still young by recent standards. Since 1982, expansions have averaged more than eight years, while recessions have typically lasted about one year. This shift reflects the transformation of the U.S. economy- from a boom - bust manufacturing model to today's more resilient, service- and technology- driven landscape. Innovations like just- in- time inventory and, more recently, the rise of AI have contributed to longer periods of growth and fewer abrupt downturns. The expansion prior to COVID- 19 was the longest on record, and if not for the pandemic, it likely would have continued.
This context helps advisors explain to clients why economic cycles matter and reinforce the importance of patience - staying disciplined through both expansions and contractions is key to long- term success
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Slide 9: U.S. Bonds Outperformed Their Average in 2025
In 2025, U.S. bonds delivered a +7.3% return, outperforming their long- term average of +5.0%. Bonds have often provided returns close to their historical average, offering stability- especially during periods of stock market volatility. The recent 2022 bond market was a dramatic outlier, with a 13% loss, the worst year for bonds in a century of investing history. This underscores the critical role bonds play in managing risk and smoothing out portfolio returns, helping investors weather both typical market cycles and rare disruptions.
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Slide 10: Long- Term Bond Returns and Interest Rates
And finally on slide 10 we look at long- term bond returns and how they are strongly influenced by the level of interest rates at the start of the investment period. Since 1926, U.S. bonds have averaged 5% average annual returns, with higher returns typically occurring in decades when interest rates were elevated. Periods like the 1940s and 1950s saw lower bond returns (1.8% and 1.3% respectively) as rates reset from historic lows- a pattern that has recently repeated in the 2020s, though this cycle interest rates adjusted higher much more quickly back then they did in the 40's and 50's, in our view paving the way for improved future bond returns much more in line with the average.
Advisors can help clients understand this relationship between interest rates and bond performance, setting expectations so investors have a clear sense of what to anticipate from their bond and fixed income portfolios.
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Closing
In closing, as we reflect on the trends and lessons from the past year, it's clear that markets continue to offer both opportunities and challenges for investors. The remarkable run in U.S. stocks, the normalization of volatility, the ongoing evolution of the technology sector, and the resilience of the U.S. economy all underscore the importance of maintaining perspective and discipline. While history can provide valuable context, it also reminds us that markets are inherently unpredictable- making it essential to focus on long- term goals rather than short- term outcomes.
Diversification remains a cornerstone of sound portfolio construction, helping to manage risk and smooth returns across changing market environments. Bonds have once again demonstrated their role in providing stability, even as they too experience periods of disruption. And as economic cycles evolve, patience and a clear understanding of the forces shaping markets will continue to serve investors well.
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Thank you for joining this edition of Student of the Market. As you guide clients through 2026 and beyond, remember that staying informed, setting realistic expectations, and emphasizing long- term discipline are the keys to navigating whatever the market may bring. If you have questions or would like to discuss how these insights apply to your portfolios, please don't hesitate to reach out to your BlackRock representative or visit us on the website. Thanks everybody.
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