What’s in Store for Markets in 2026?

Welcome to "The Informed Investor," where we break down the latest financial headlines, bringing in research and insights to help you separate the news from the noise. Hey, thanks, everybody, for tuning in, and welcome to the second season of "The Informed Investor." It is a show brought to you by Dimensional Fund Advisors, a global asset manager bringing financial science to investing, and today's topic is going to be around the headlines we all read during the holidays, as we think about our investments in those headlines and predictions, how should we be thinking about them going into the new year? So that's what we are going to tackle today, I'm Mark Gochnour, I'll be joined today by Jake DeKinder and Dr. Wes Crill, and guys, this is always, I'll say, a fun part of the season because we get to take a look at some predictions, we'll give our thoughts on 'em, and then, shoot, 12 months from now, we'll come back and revisit all this. And we'll look at why the majority of 'em are wrong, is what we'll look at, probably. Probably, some will be right, I'm sure. I love how you said, "Second season," it's kinda shocking we didn't get canceled in the first season. Why do you say that? I don't know. This is content you can't find anywhere else. That's right. This is as good as it gets. It is a unique perspective, I will say, I think, compared to what's out there in the marketplace. All right, you guys have some favorite headlines, I've got some here, I'm gonna start out here, in mine, I'm gonna take a little bit different tone here in the sense that I'm going to do a little bit of a contradictory look, meaning, hey, I read a headline that says this, and then, I'm gonna read something that's just totally opposite, and then, what do I do as an investor when I have two different ways here on a particular topic? So let me start here, I'm gonna start with the overall market. First headline, "How the Stock Market's Rally Can Keep Going in 2026- and What to Buy Now," and the second one, "The Bear Case for 2026." Let's take a look at oil prices. "Expect 'Dramatically Higher' Oil Prices in 2026," or the other view, "Oil and Gas Prices Expected to Stay Significantly Lower Through 2026." And then, of course, we gotta touch on Bitcoin. "Can Bitcoin Reach $250,000 in 2026?" Or the other one, "$10,000 Bitcoin Price Predicted as Crash Fears Swirl." All right, so what do I do as an investor when I read things that are going two different directions? Jake, I'll start with you. Well, I think it's... One, I think it's challenging, two, I think what you're actually looking at is why markets actually work right there, I think everybody's got different opinions on what the future's going to hold and the market is where we come together to express those opinions, the thing that jumps out to me about a lot of those headlines is if you come in with a sort of preconceived view of what's going to happen, the way the world's gonna work, the way that markets are going to work, you can find a headline that supports your view, and I think the challenge that an investor must have is come in with a completely open mind and read some of these to get information, but be very careful sort of gravitating just towards the ones that might support your bias coming into it. Yeah, all those headlines are trying to connect sentiment with expected market returns, and, you know, you can make a perfectly reasonable case that some of those pieces of news, if it's concerning or whether it's, you know, more optimistic, like, you can make the case that this would be good for markets, the challenge is it's likely that this is known to the rest of the market as well so the market has already set prices with these things in mind, so really, the name of the game will be finding something about the future, good, bad or indifferent, that no one else knew, and then, you can make a very compelling headline about where the market's gonna go, but, you know, absent that, I think these are probably gonna end up a lot like the predictions we've talked about in previous shows, where, you know, what they said the market was gonna do very rarely bore any resemblance to what the market actually did. Well, I like what he said there too just sort of about it, when you read the headlines, and then, if you actually dig into the articles, a lot of the arguments they put forth are completely logical, they're well-thought-out arguments, the problem is you don't know what's gonna happen in the future. Yeah, absolutely. One thing here that you reminded me of as you were talking there, Jake, it goes back to a gentleman named Dan Wheeler, and he started the advisor business here at Dimensional in the late 1980s, and prior to Dimensional, in Boise, Idaho where I grew up and he was living, he did sort of a market summary at the end of each week there on the local news, and one of the things he would like to do is he'd say, "Okay, let me read you why the market's gonna go up," and he'd read three or four things, and he'd say, "Okay, let me read you things..." "Three or four reasons why the market's gonna go down," and he'd read those, he's like, "Pick whichever one you want, because I don't know," and it kinda goes back to what you were saying there, Jake, which I think is really important for the audience, is human nature for us, we're gonna be anchored to something, like, if we have something on our mind, we're gonna find what sort of appeals to us in these headlines, so be very careful about that as an investor when we read these things. All right, Wes, let's come to you, do you have a favorite you wanna highlight? Yeah, I had a few that were kinda interesting, we'll start with, "Brace for a Swift 20% Drop in the S&P 500 If Recession Strikes in 2026," that one's kinda funny for a couple of reasons, one is they're couching this in something that they're not saying is gonna happen, but if it does, you're gonna have a market downturn, of course, we know even when a recession does arrive, a lot of times, you end up do having, you know, positive market returns even during the course of that recession, but I think it's also portraying this 20% drop as, like, a unicorn or just a really poor event, I mean, we've seen going back to 1927, 30% of calendar years have had at least one 20% decline during the course of the year, so if that does come to pass, it's not like you're rewriting history at that point. That's a really good point, I mean, reminding yourself that the stock market is volatile many years... I mean, in general, the stock market is volatile, right? So when you're talking about a 20% decline, now, we're not saying that necessarily it would be down 20% for the year, we're just saying from some point, you're gonna decline 20%, and it happens about a third of the time, so good reminder here that, yeah, it's a headline-grabbing number, but it's actually not that interesting. Well, while we don't like volatility, we're pretty used to it, really, as an investor, because it happens very frequently as you guys just highlighted. If you're a stock market investor, you have to be used to volatility, that's why you're getting paid the premium to a large extent. I mean, that's a little bit of what we talked about in that previous episode when we talked about this idea of a fire drill, right? Prepare yourself for it, and by the way... And if it does happen to drop at some point during the year by 20%, it also doesn't mean you're gonna have a negative year 'cause it could rebound from there. All right, you mentioned one, potentially markets going down 20%, I'll call that a scary headline, I'm gonna read another scary headline here, all right, this is... This came out in December of 2025, "U.S. Housing Market Poised to Crash 'Worse than 2008.' A 50% Plunge Could Start in 2026." Okay, that's really scary, really concerning as an investor, but I'm gonna couch it with the other way too, sometimes, there's some really exciting headlines out there that are really positive, one here on gold, "Why Gold Prices Could Soar Another 20% Next Year," so some are designed to be really, really nervous, some are designed to be very positive, I think getting the emotions of the investor. I mean, that's how you sell, right? I mean, go back to when you had to sell newspapers and sell magazines, you needed headline-grabbing articles, now, it's a different form in terms of where you consume this stuff at, but if you write boring articles about, "Hey, here's sound financial planning, buy-and-hold works really well, stick to your plan," you're not selling anything, nobody's clicking on your stuff. I know that firsthand, I've seen my readership compared to some of the other news media outlets out there, so I know that really racy headlines are gonna sell. Jazz it up a little bit, man, come on. I'll see what I can do. All right, Jake, do you have a favorite? Yeah, I got one here that is gonna take a little bit of a different angle on sort of your point-counterpoint, "Every Wall Street Analyst Now Predicts a Stock Rally in 2026," and I like this one because I find it hard to believe that every single analyst actually predicts a rally in 2026, but it reminds me of, sometimes, you'll either read an article or you're tuned on the news, and they'll say, "Everybody was a seller in the market today," or, "Everybody was a buyer in the market today," I mean, that's honestly the dumbest comment that you could possibly make because if that was the case, nothing would get done in the markets, right? Remember, there has to be a buyer for every seller and a seller for every buyer, and that's a good reminder here about these articles that we're reading, right? Is that just because this group of people has this view of what's gonna happen in 2026, I promise you, you can go and find the articles that take the exact same side of the argument... Or exact opposite side of the argument. Well, one of the things I liked about what you read there and we're just talking about is this idea that... Two things, I guess, jump out to me from that one, the first one is if you look at probabilities, historically, we've talked about this, 70% of the time, markets are up, so that's a pretty good prediction if you're going to 70% chance historically, so that's a safe one, but the other one too is in aggregate, if the market thought prices were gonna drop, you know, say six months from now, they're gonna drop today, right? So that's a huge belief system here at Dimensional, is the stock market is priced for a positive expected return every day, otherwise nobody would be investing, so it's not surprising to me a lot of these predictions and a lot of these analysts say, "Hey, I think there will be a positive return," because that's how prices are... Or that's how stocks are priced. No, it's true, and so many of the headlines we've been talking about are equating what the market's gonna do with economic conditions, and we've talked in the past about how hard it is to know the real-time health of the macro-economy, and even when we look at prior recessions, it wasn't always the same sort of economic indicator that was predictive of that, I mean, sometimes, it's things like GDP growth, sometimes, it's, you know, unemployment levels, but it's not always all of them all the time, and I think that's something for people to consider when they're reading these headlines is no one knows exactly what's gonna happen to the economy, and even if you did, you still might not get your prediction on the market correct. Well, there's another one that I've got here, which actually, I think, brings up a good point, this one says, "Why Japan's Stock Market Can Keep Rising," and Japan did have a good year in 2025, but one of the things that's cited in there is the debt-to-GDP ratio, and we've unpacked this a number of different ways, and we've looked at it across a lot of different countries, and it's hard to get sort of a strong relation between the level of debt-to-GDP and what's going to happen in the stock market in that country, and it was interesting, if you dove into that article, it sort of took both sides of the argument of, "Well, maybe it's a good thing, maybe it's a bad thing, maybe markets are gonna discount it, maybe they're not gonna pay attention to it," but again, to Wes' point, we've looked at a lot of these, it's really hard to draw a relation between this economic indicator or this data point and what's gonna happen in stock markets, and he said at the beginning, which is there's nothing new there, people know that Japan has a high debt-to-GDP ratio, so what new information are you giving me that's gonna provide a direction on where the market's going to go? Yeah, it's a real about-face, for many, many years, when Japan had a debt-to-GDP of over 200%, people said, "Well, that's why their stock market return has been poor," and then it posts... You know, I think MSCI Japan was up more than 20% in 2025, it's like, "Oh, no, it's not a big deal. We're wrong on that one." All right, we talked about sort of the catchiness of a headline, I'm going to read one here that got my attention and I dove into it, and this is more around stock picking one, "These 2 AI Stocks Will Be Worth More Than Apple by Year-End 2026." I'm like, "Whoa! I gotta check this out," because if you look at the end of 2025, Apple was the second-largest company here in the U.S. by market capitalization, it was right at $4 trillion, so I'm like, "Which one of these companies is just gonna, boom, and take over Apple?" So you read the article and guess who these two stocks were. Microsoft. Yes. Alphabet. Alphabet, yes. Wow. And you guys knew, 'cause you remember, I told you these answers. Well, we're stock pickers. But you think about this and you think, "Oh, it'll be some quantum computing, something-something, up-and-comer," but if you go back to Alphabet, that was the third-largest company at the end of the year at $3.8 trillion market cap, and Microsoft was the fourth at $3.6 trillion, of course, NVIDIA was the largest, but it was interesting to me, such a catching headline, and then, you read it, it's like these companies are all kinda right there in terms of their values. But you clicked on it, you had to know. I clicked on it. You had to know. I had to know. Even bought a subscription just to read the article, right? You know, this idea of shuffling at the top of the market, by the way, is not, like, a revelation, I mean, we've seen this, you know, through time, when the companies that were the largest in the U.S. stock market didn't always stay there, I mean, sometimes, they did, but not always, and so, that's not exactly a bold prediction to say, "Oh, you know what? This company is gonna, you know, rejigger a little bit in terms of its ranking." Well, it's a good reminder, right? When you become one of the big companies that everybody reads about, what's happening to your stock price? It's gone up more than the rest of the market, and that's one of the cool things I like about that analysis you cited is that it's not to say that these companies are expected to fall off a cliff, but what you do see is a lot of these companies, after they become the big boys and everything that, you know, you're reading articles about, going forward, on average, they tend to have returns that are in line with the market. The hunter becomes the hunted... Yeah, that's right. And I like what you said about stock picking there, you know, one of the things that I like to do, and I've done this for the last, like, 10 years or so, is the beginning of the year, you can always find articles that say it's a stock picker's market, and I actually like that article, and I'm serious and here's why, is because it's a completely true statement, I mean, in any given year, the market return is really generated by a handful of stocks, so it's not that is it a stock picker's market, it's a question of can you actually pick 'em consistently, and we know the results on that. Yeah, if you can, you would do it all day long, but in the absence of that, you wanna diversify as much as you can. Right. I like... That ties into one of the other headlines I thought was funny, which is, "Stocks Will Continue to Broaden Beyond the Mega Caps in 2026," and so, that's almost antithetical to, I think, what they would consider a stock picker's market, where if it's more and more stocks driving the return, of course, some of this is probably a reaction to the fact that a couple years ago, most of the stock market's return was dominated by the Mag 7, less so in 2025, but still to your point, this is not unheard of, it's usually the case that most of the market's return is driven by a handful of stocks, and so, this idea that it's gonna be just broadly applicable across all stocks may not pan out that way. Hey, what do you make of the market sort of broadening out in terms of the returns? You know, we sort of, like, had maybe a little bit more of the return driven by a smaller number of stocks, last year, it broadens out a little bit. I mean, when you see something like that, is it just...? I think it's just... It's the context of the point of comparison, you know, in 2023, what was unusual is that the very best-performing stocks were also some of the largest, and so, because of their size, because of their returns... I mean, in 2023, I don't remember the numbers exactly, but the Mag 7 increased their collective market cap by more than 70%, that's pretty unusual for companies that are that large to be growing that quickly, but you look back and you see it was based on a lot of things that were effectively windfalls for their businesses, they exceeded investor expectations, when you do that, you're gonna have strong returns, and so, I think the change since then is maybe just, you know, expectations catching up with reality for those companies. That's a good reminder, I mean, heck, how many...? We've seen strong results for a lot of those big companies, and yet, even when you get the strong results, you may see the stock price fall because those expectations are so high for a lot of those firms. Yeah, absolutely. Jake, you mentioned Japan... I did. And read an article about that one, so I wanna go outside the U.S. here and read a headline, "Global Stocks to Edge Higher in 2026 But Lag This Year's Strong Run." All right, here's what I wanna highlight around that one, is it's almost, like, a disappointment that it's not gonna be what it was in 2025, but 2025, stocks outside the U.S., I'd say they were above 30%, I believe, so I'll still take a return below 30%. That's still a heck of a year. It just has this idea that, well, maybe things aren't as good there, and then, there's one here about Canada, "Canadian Stocks Seen Outperforming U.S. Stocks in 2026 on the Economy." They outperformed the U.S. in 2025 as well, which surprised a lot of people considering the tariffs on Liberation Day and the impact on the economies, particularly around Canada relative to the U.S. there, so you just really never know about which country's gonna do what in any given year. Look at Canada, look at Mexico, look at China from last year in terms of country returns relative to the U.S., incredibly strong, and yet, you've got three countries that definitely were tied up in some of the tariff stuff that was going on, so again, there was that argument of it's a logical story, all of the tariffs are gonna come in place, it's gonna hurt these countries, and then, you get to the end of 2025 and you look at the returns, yeah, it didn't play out that way. Yeah, there was a lot of news headlines about the tariffs and the potential lingering impact there, and I think that's another one where it's really challenging to say exactly how it's gonna impact different businesses, I was listening to a car audio podcast the other day, I know, very geeky, but they were talking about just the impact that it's very clearly had on the prices of the underlying components they're selling, but what they were finding was a lot of dealers who were importing these products into the country were eating the cost associated with the tariffs and they were doing so because, you know, one, they didn't wanna impact their relationships with the people who were selling their products, but also because they don't expect this to stay around for the long-term, having this high of a level of tariffs, you know, wouldn't be sustainable over the long haul, maybe that's the case, maybe that's not, but I think that's one example of how, you know, the impact you think it's going to have on companies' profits and market prices is maybe not as clear-cut as the news headlines would have you believe. Did you say, "Car audio?" Car audio, yeah. Are you into that? A little bit, yeah. You got, like, two 12s in the back? No, it's so funny how the demographic for this kinda podcast does tend to be people who were loading up their trunks with subwoofers in the mid-2000s, having all the rattles and things, I was driving a Ford Probe so that thing was rattling everywhere, and now, it's just sort of nostalgia, a walk down memory lane. I'm surprised it didn't shake the bolts out of the car and kept going. Loosened quite a few. I like this, on this podcast here, we learn something about each other, you're like an onion, man, just keep peeling back the layers. Yeah, wait 'til, like, season four, you're gonna find out truly how depraved my proclivities are. Hey, Wes, you'd like to talk about bonds, interest rates, you got a headline for us on that one? Yeah, there were a couple of 'em, well, let's just go with one, "Interest Rates Will Fall in 2026," very declarative, "But Will Bond Yields Fall Too?" So again, setting up a little bit of uncertainty there, like this notion that interest rates are gonna fall, at least when it comes to the federal funds rate and rate cuts in the future, I think that's pretty well-accepted by the market, the last time I checked, there was, like, more than 90% chance based on fed funds futures pricing that we'll see cuts in 2026 at some point before the end of the year, but that doesn't necessarily mean all treasury yields are gonna follow suit, I think that's something that was a very powerful insight from the data, which is in months where you had a fed funds rate cut, the treasury yield... 10-year treasury yield actually went up about a third of the time, so, you know, again, will interest rates go down? If you're talking about the feds rate, that seems likely, but will that impact the rest...? Or how will that impact the rest of the bond market? That's very difficult to say for sure. Well, you know, and I think... I know what's going through your head right now, is if you take that, and then, you port it over to stock market returns, you know, if you look at months when you get a decrease in fed funds, months when you get an increase in fed funds, or months when you get no change, all three of 'em are positive returns in the stock market, and so, you probably would be like, "Yeah, I probably wanna make sure I stay invested during that." Yeah, and very similar monthly average returns there, yeah. Jake, do you have any last favorites here as we wrap it up? This one's kind of interesting, "The Job Market in 2026 Will Suffer from 'Uncomfortably Slow Growth' in the First Half But Reverse Higher Later in the Year," I like that, 'cause it's not one prediction, it's two predictions, right? "Here's my prediction for six months and here's my prediction six months from now." Giving a term structure to the predictability, I love it. Hey, I'll give 'em credit too, it's tough to go out on a limb, especially with two predictions, so, you know, they're giving it a good shot at it. I love it. All right, I'm gonna set up maybe some future topics here with this headline, we won't dive into it now, but it's an interesting one here, so this is about private markets, so, "Private Markets Will Be Key to Overcoming 60/40 Headwinds in 2026," so two things there, we did do an episode earlier in 2025 around private markets, so the audience can go find that one, I think it'd be a good topic to come back to, talk about private credit, we're hearing a lot of that in the headlines right now, but also 60/40, how do we think about a 60/40 portfolio as an investor? It always seems to sort of get beat up as if there's better ways to do it, but we haven't found really better ways to do it than 60/40. Yeah, people have been shoveling dirt on 60/40 since I started at Dimensional 15 years ago. There used to be that study that we would look at that would look at, like, these large endowment returns, and I used to always take that study in the average return and run it next to, like, a 60/40, and there was so many years where 60/40 smoked it. So we'll come back to that one. All right, I'm gonna wrap up here with three thoughts kind of around the headlines and some of the different topics that we got into, the first one here, always keep in mind as an investor, stocks are priced for a positive return going forward, right? Keep that in mind, number two, as you think about these predictions, and like you said, Jake, these are from smart, well-educated, thoughtful people, the arguments are very, very thoughtful, it's just things change, life changes, the future's uncertain, we don't know what's necessarily gonna happen, and so, prices will adjust to whatever happens in the future, so predictions are tough because we don't know the future, and then, lastly, and Jake, I've heard you say this before, and I really like it and wanna wrap it up with this comment, don't invest your money based on the headlines. Did I say that? You said it once and it stuck with me, so I like it. It was implied. It was a classic. So that's your classic, don't invest your money on headlines, do you have a classic as we wrap up, Wes? I am a classic, so I think that's enough for me. All right, with that, everybody, thank you for joining us here on "The Informed Investor," and listen, keep those ideas in mind as we go through 2026, there's gonna be a lot of things that we don't even know that's gonna be happening throughout the year here impacting our investments, and we'll be coming about and talking about there... Talking about those items throughout 2026. Thanks for joining us, have a great day.