Welcome to a New Year edition of FAQs and RAQs!
Here we tackle client questions—some asked Frequently, others Rarely.
FAQ – What’s the Market Outlook for 2026?
This question is asked so frequently that we're repeating it from last month, but coming at it form a different angle.
As Yogi Berra said, “It’s hard to make predictions, especially about the future.” Most Wall Street forecasts are just extensions of current trends, but here’s our best guess for the year ahead...
Two factors drove stocks higher in 2025:
- Strong spending on Artificial Intelligence infrastructure
- Hopes for Federal Reserve rate cuts
We believe these remain the key dynamics to watch in 2026.
- If one of these plays out, the market could have another positive year.
- If both occur, 2026 could look a lot like 2025.
- If neither happens, a bear market is possible (or perhaps likely!).
Our expectation? At least one will materialize. Large tech firms seem committed to AI spending, and there’s political pressure on the Fed to cut rates.
Other issues that are common in the news—government finances, geopolitical risks, and sticky inflation—are worth monitoring, but we don’t expect them to be the main drivers in 2026.
FAQ – What changes do I need to make to my personal finances in the New Year on account of recent tax law changes?
There are many dynamics to keep in mind, but here’s an easy win for many people: Start saving your charity tax letters in 2026!
For years, those letters had little practical value for taxpayers taking the standard deduction. But under the new tax law, even those using the standard deduction may once again be able to deduct some charitable giving.
Tip: You may need to request a letter. To save on postage, many nonprofits no longer mail year-end giving summaries.
Baird does not offer tax advice. Please consult your tax preparer about your specific situation.
RAQ – When should I rebalance my portfolio between stocks and bonds?
There are two common practices: periodic rebalancing and threshold rebalancing.
Periodic rebalancing means adjusting your portfolio on a set schedule, e.g. quarterly, annually, etc. (a timely question for the New Year!). Its main benefit is discipline: buying when the market is down, potentially before a rebound. The drawback? You might reduce equity exposure prematurely during a bull market.
Threshold rebalancing happens when allocations move beyond set limits, e.g. plus or minus 10% from target. Its potential advantage is allowing more participation in a bull market before trimming stocks. The downside: you could miss buying opportunities in a downturn if thresholds aren’t breached.
In practice, there’s no single “right” approach. It’s what’s best for your situation. In the portfolios we manage, we typically rebalance opportunistically rather than follow strict rules, provided allocations stay within long-term targets.
Have a question?
Drop us a line at carlsongroup@rwbaird.com. We’d love to hear from you!
All investments carry risk, including loss of principal. Past performance is not a guarantee of future results. Baird does not offer tax advice.