A few years ago I got to hear JPMorgan CEO Jamie Dimon give a talk at a conference in Hong Kong, and he told a story about taking over as head of the CEO Roundtable, which sent out an annual survey to CEOs for their predictions about the year ahead.
Dimon realized that no one had ever gone back to see how valuable or accurate these predictions were—or if they had, they’d buried evidence of the inquiry because the answer was that the collective predictions of the CEOs of the largest companies in the world were "absolutely terrible."
With that said, let me launch into my predictions for 2026… no, not really.
But now that I’ve been doing a fair amount of media after we launched three new ETFs, I find it remarkable nearly every time I’m asked for a prediction.
It’s a fool’s (lowercase f) game, especially when making annual market predictions. The outcomes that matter most are decided over decades, not years, and by a very small number of long-term winners that short-term forecasts rarely help investors stick with.
In order to make a knowledgeable prediction about the market you’d need to have an insight into two things:
Even if you get #1 right, anticipating the second is like spitting in a typhoon.
Take, for example, some Schroeder’s research from this past October.1
It bears remembering that the market is made up of a bunch of companies, and those companies individually, as well as thematically, perform differently from each other. For the first nine months of 2025, the Magnificent 7 companies did very well, which may seem fitting for some of the most profitable entities ever created. But hey, what’s this? The other three of the top categories were constituted of companies that are losing money, or in the case of the best-performing segment of the market, generating zero revenue. Profitable companies, as well as the non-big tech S&P 500, all lagged significantly. It seems that there were two themes that investors bought in 2025: artificial intelligence…and sheer, unadulterated hope. Profitable model citizen companies need not apply.
Practically speaking, in my view, large cap portfolios’ capacity to beat the S&P 500 were likely highly correlated to a single factor: whether they were overweight or underweight Magnificent 7 stocks.
Because the U.S. markets are defined by a nearly historic level of concentration at the top, with the largest 10 components of the S&P 500 accounting for about 35% of its total market capitalization, it seems there is a pretty substantial risk to being underweight the largest companies. But by the same token, the current Shiller CAPE (cyclically adjusted price to earnings) ratio of the U.S. market is more than 40.2 This only happened once before, in 1999. The market returns for the next decade were negative.
This leads to quite a dilemma for asset allocators. The U.S. stock market is nearly historically expensive. It is nearly historically concentrated. Recently the largest companies have outperformed, and deservedly so. But if we believe (as I do) that this extreme level of concentration increases the market’s vulnerability to a narrower set of risk factors, we need to recognize that there may be only two paths to reverse this risk. Either smaller companies will grow faster, or the largest companies will decline.
From my perspective, what historically has been true of the market is that it has been very good at its job of (eventually) rewarding the most consistently profitable companies. It turns out that in the past, over certain periods of time, a very small percentage of all stocks over history generated almost all of the returns. Meb Faber’s 2008 study entitled "The Capitalism Distribution" found that between 1983 and 2006 that 64% of the companies that were members of the Russell 3000 underperformed the index, with nearly one in five losing more than 75% of their value, and two out of five having a negative lifetime return.3
Source: “The Capitalism Distribution” by Meb Faber
This JPMorgan chart shows the same thing from an overlapping timeframe, and the optics are stark.4
The implications here are pretty stark. While so much of investing discourse is about short-term, or annual performance, for me the true key to outperformance was in a disciplined approach toward finding those companies that investors believe deserve to outperform and then holding them for the long term—through thick and thin—without interruption. We all have heard about the precept that investors who make fewer market decisions tend to outperform, but the power law nature of the market drives this home: I believe your primary job as an investor should be to find the companies that you feel have the capacity to become market titans, buy them, and then make sure you do not interrupt their journey. It means that most of your decisions can have a negative outcome, just so the big ones have enough magnitude.
Put another way, a category-5 hurricane is manifold more powerful and destructive than give category-one hurricanes. In most years, there are likely to be a number of companies whose shares return more than 20%. Over the long term, however, there are far fewer names that consistently outperform year-in, year-out.5
All of this is why I feel annual predictions are at best futile (and at worst a bit destructive) because a focus on short-term returns can nearly always have a negative impact on long-term returns. Why focus on trying to predict the inherently unpredictable when your time is better spent thinking about things that won’t change very much? Far better to build up your own tolerance to unpredictability and volatility (both psychologically and financially), so that when uncertainty comes, you will have the luxury of not having to worry about it so much.
While this is an argument against worrying about annual predictions, it is not at all an argument against stock picking. Far from it. We’ve talked about how the current CAPE for the U.S. is above 40 and that’s never boded well anywhere, and while this is true and it’s a massive risk factor, it also depends upon an unwise comparison of the 2026 U.S. economy (heavily intangible-asset based) to that of, say, 1980 (tangible asset-based), and they clearly are not the same.
In fact, this divergence is at the very core of the Foolish investing philosophy.
To benefit from the corporate aristocrats that turn out to grow 20+ percent for a decade or more, a long-term view of where the economy is going and which companies have the best chance of benefitting, with a reduced emphasis upon short- or intermediate-term volatility, can be absolutely key. It requires being tolerant of misses along the way, of treating your portfolio more like a vineyard—nurtured over multiple years—than a cornfield, annually plowed under and planted anew.
So while we see some pretty big risk factors facing the U.S. markets in 2026, in truth, there are always big risk factors facing markets. Perhaps the most consistently unobserved one is that the incumbents are always under attack by the next wave of innovators. That’s where we, as always, will be spending our time.
I close this newsletter with a word of gratitude. We are endlessly grateful for the faith you have shown in our team at Motley Fool Asset Management in helping you and your clients reach your financial goals.