Happy New Year!
We are changing things up a bit here at nVest this year, and I wanted to start by introducing you to the first major change: a quarterly letter from me (the CEO and for most of you, your primary financial advisor) that will be more substantive and (I hope) provide a clear picture of how the markets and economy are evolving and what we are doing for your investments and financial plans in response to those changes.
I’ll also share more information about things we are working on in the company behind-the-scenes to continue to improve your experience as a client.
Because this is a new format, I’d greatly appreciate your feedback, so that we can continue to refine and improve!
(I should also forewarn you, with this letter being the first of its kind, I cover a lot of ground from the prior year to get us “up to speed”. Future letters will generally be much shorter. I appreciate your indulgence in this first edition.)
Econ and Market Recap of 2025
2025 had a lot of uncertainty, particularly in the last quarter of the year. After a couple of years of strong outperformance, AI-related tech stocks started seeing significant pull-backs [1], as did cryptocurrencies and other related tech stocks [2]
Meanwhile, inflation-sensitive stocks and commodities had a very strong year, as well. Gold rallied all year (up approximately 65%)[3], with silver ramping up late in the fall and into December (up approximately 144%)[4].
But while markets have enjoyed a bit of euphoria until recently, the economy continued to give us increasing warning signals.
Corporate bankruptcies reached levels not seen since 2010 (post-Great Recession era) [5]. Unemployment rose to 4.6% in November—a level that has often been associated with recession risks[ 6]. Delinquencies on consumer debt—personal, auto, and student loans—have risen to very elevated levels[ 7]. And FHA-backed mortgage delinquencies rose to around 11% in late 2025 data, and continue to climb [8].
How can this be? How can the stock market perform so strongly in some areas, while many American families face financial pressures?
Our economic thesis since 2021 has been this: inflation has impacted the majority of Americans, but in very different ways. While asset holders (those owning things like stocks, real estate, gold, etc.) have benefited from those price increases, individuals and families (and many small businesses) have suffered real financial setbacks.
The result has been what is known as a bifurcated or “K-shaped” economy. Economic conditions have benefited asset owners but challenged people who rely primarily on wage income to meet expenses
In short, wealth inequality has widened, with asset owners gaining while many wage earners have faced greater difficulties. Or, in laymen’s terms: the rich are getting richer while the poor are getting poorer.
The major concern I have for the markets is that consumer spending from the broader population is the primary driver of economic growth. As spending power is constrained for many households, we may see further signs of strain, particularly on small businesses.
The concern from where we at nVest watch the world is that stocks continued rallying despite these major economic headwinds.
But it wasn’t a broad-based rally, where all 11 sectors of the economy benefited equally.
In fact, it was largely driven by a handful of tech companies focused almost exclusively on AI [9].
It also wasn’t driven by broad investor participation. Record amounts of cash—around $7.7 trillion—remained on the sidelines in money market funds throughout the year [10], and gold and silver had strong rallies.
You can’t have defensive assets like cash and gold reaching high levels while risky assets like stocks and cryptocurrencies do the same. Not without some significant inconsistency in investor behavior.
The answer lies in the huge amount of leverage (debt) that fueled parts of the equity and crypto markets. Margin debt reached approximately $1.21 trillion last year—one of the highest levels on record [11].
So it wasn’t a broad rally across the economy, and it wasn’t driven by the majority of investors putting new capital to work. It was concentrated buying, often with borrowed funds, in a select group of tech stocks.
In the nearly 20 years I’ve done this as a professional, the market dynamics in 2025 raised the most serious and consistent concerns.
A major concern for me, since at least 2022, has been the reliability of some government economic data. For example, month after month, initial employment reports from the Bureau of Labor Statistics often show strong hiring, yet these are continuously revised downward – often by millions of jobs – in subsequent reporting [12]. The jobs being touted every month turn out to be nonexistent more often than not.
The recent inflation statistic is another example: after disruptions from the government shutdown affected data collection, the administration highlighted the latest inflation measure (2.7%) as evidence that inflation had moderated. It was supposed to be proof, in fact, that inflation was no longer a concern for America.
However, many of the components used to calculate the Consumer Price Index did not get measured during the shutdown, and were simply assumed to be unchanged during that time. That may have seriously understated the inflation reading. This made the figure less reliable for analysis, but the markets responded positively anyway [13].
If we can’t’ trust the data, how can we effectively tell you that the economy really IS doing as well as the government says it is? Simply put, I cannot, especially when we try to verify the data with other, third-party sources (like surveys of actual households and small businesses). Those results tell us a very different picture – one of struggle and slowdown.
Let’s talk about AI
As we’ve shared with you in private meetings all year, we have been concerned for quite some time that valuations around AI stocks (and cryptocurrencies, for that matter) had become elevated. That view has become more widely accepted on Wall Street in recent months.
We have viewed these asset classes as overvalued for some time, some to truly absurd levels. The market capitalizations of some tech companies grew larger than the entire stock markets of many countries. Nvidia (NVDA), for example, at its peak had a valuation exceeding the GDP of many developed nations [14].
Whether the long-term potential of AI is significant or not is separate from the question of current valuations.
What concerned us as fiduciaries was that, very similarly to cryptocurrencies, AI stock prices appeared to be driven substantially by hype, hyperbole, and overly optimistic projections of demand for future projects. We questioned whether the ambitious promises from CEOs of companies like Oracle, OpenAI, Nvidia, and others could be fully realized in the near term.
In most cases, there is, quite simply, no possible way.
Let’s start with the energy demands of AI: the United States currently lacks sufficient grid capacity to support all the data centers projected in the coming years, which markets had partially priced in.
Estimates for large-scale AI buildouts have suggested energy needs equivalent to the output of multiple nuclear reactors for individual projects or companies [15].
In fact, pursuing full-scale AI data center expansion with our current energy capacity could create only forced blackouts and upward pressure on electricity costs for households and businesses.
However, we do not believe this is a near-term problem. In fact, despite the rhetoric, widespread adoption of AI appears to be slowing, even as companies hype AI-enhanced services. We’re seeing fewer enterprises committing to large-scale implementations after initial enthusiasm. An MIT study from mid-2025 indicated that a high percentage (95%) of corporate AI projects were not delivering any measurable returns on investment, with many (up to 30%) at risk of being scaled back or discontinued [16].
Company managers have responsibilities to shareholders and cannot indefinitely fund initiatives without seeing returns. After failing to find ways to use this new tool profitably, many companies are now reassessing their AI commitments.
2025 also saw growing public discussion around AI’s impacts, including concerns about job displacement, increased software costs for unwanted features, and frustration trying to distinguish real from AI-generated content. Fact-checking for AI research can take as long (or even longer) than doing the research with humans, and AI “hallucination” remains a real problem. Adoption rates for paid premium services remain low.
I say all of this not to dismiss potential future applications of these tools; rather, similar to the Dot-Com era, enthusiasm appears to have outpaced near-term realities.
For most of 2025, we believed AI-related stocks had become significantly overvalued and that a price adjustment would be healthy. That adjustment began in late 2025 and may continue.
Another issue with the tech rally is that as these companies grew dramatically, they heavily influenced major market indexes. The S&P 500, for example, saw a substantial portion of its returns—around 60% or more in some analyses—driven by a small group of tech companies[ 17]. This concentrated performance lifted the overall index significantly. A reversal in those stocks could have a drastic negative impact on those same indexes.
This is why, for the majority of our clients right now, we have maintained limited exposure to the tech sector. We won’t avoid it indefinitely, but we prefer to wait for more reasonable valuations. At that point, we will look to selectively include quality tech opportunities in strategies.
Economic and Investing Outlook for Q1 2026
We expect a continued moderation of economic growth into the first half of 2026. With it, we anticipate softer performance in a number of sectors (and their associated stocks):
- Technology
- Real Estate
- Financials (Banks and Insurance Companies)
- Consumer Discretionary (the things you can cancel until your personal finances improve)
- Cryptocurrencies
- Manufacturing
- Transportation
I should note that “moderation” doesn’t mean the same thing for every industry. Some sectors may experience more significant short-term adjustments than others.
When the economy moderates, investors often seek relative safety in companies and sectors that provide essential goods and services. These are where most of our clients have been positioned (in risk-appropriate amounts):
- Consumer Staples (toothpaste, toilet paper, groceries, etc.)
- Energy (we must keep filling our gas tanks, plus AI is adding some demand to our existing grid)
- Utility Companies (we must keep the lights on)
- Healthcare (doctor visits and prescriptions must be maintained if we need them)
- Precious Metals
- Commodities that are sensitive to inflation
- Inflation-Sensitive and intermediate-duration bonds
As the economy stabilizes and enters a recovery phase, those clients in our SECTORr Strategy (that’s most of you) will see us rotate industries and alternative assets in portfolios to align with historical performance patterns across economic cycles. This approach draws from extensive academic research and back-testing.
One final note: if I can reflect on our Economy-focused approach (which we began in 2022): changes in economic trajectory often emerge very early and subtly. It’s a little bit like, “slow at first, and then everything all at once”.
Until things are screaming, it is common for markets to be tone-deaf and slow to respond until the obvious can no longer be denied. I underestimated how long market enthusiasm could persist despite many clear signals of a slowdown.
In the future, we will remain mindful that markets can extend periods of optimism (and even euphoria) even when valuations appear significantly over-stretched. When economic warning signs appear in future cycles, we may allow for a bit more time to “run with the herd” before shifting fully to defensive positioning.
2026 Improvements in Investing Strategies
I wrote so much about the markets and economy above, that I thought a quick review of our investing strategies would be in order. Below are brief descriptions of our investing models, including links to read more about each. In all instances, your risk tolerance, time horizons, and investment objectives are incorporated into your strategy.
1) Complete Customization
Clients with complicated needs or “legacy” assets (like stocks and bonds you’ve owned for years) typically have custom portfolios created by their financial advisor.
Customization is also vital anytime we need to carefully monitor your account for tax sensitivity or risk mitigation is a primary focus. To get it right, customization can sometimes require more assets than a pre-made model, so we usually don’t customize a portfolio until it has $100,000 or more in it.
2) SECTOR Strategy (Model-based)
Our SECTOR strategy is focused on monitoring economic changes in the United States and adjusting your allocation of stocks and bonds accordingly.
It is an actively-managed investing approach. It ignores market sentiment and “fad” investments and instead uses back-tested academic research to invest you in those parts of our economy that have historically done the best during this phase of the economic cycle.
The majority of our clients currently use this strategy, which we implemented in early 2022. You can read more about how this strategy works in this PDF.
3) FACTOR Strategy (Model-based)
Factor-based investing means that we use a rules-based approach to decide when to add a little more risk to a strategy, and when to shift a little more to safety. It is actively-manged but doesn’t move wholesale into new investments very often (which makes it more tax-sensitive for accounts that require it.)
This strategy takes into account both economic conditions and global market sentiment. It is a worldwide strategy (as opposed to the SECTOR, which is entirely US-focused).
This strategy is new as of the fall of 2025, and is now available to our clients who want a more strategic, global approach that, like the pendulum on a grandfather clock, swings a little toward or away from riskier assets when conditions warrant. You can read more about the Factor Strategy here.
4) Add our pre-selected Stock Selection to your strategy
Starting in 2026, we are very excited to allow our clients (with an appropriate risk tolerance) to add a small percentage (5-15%) of pre-selected individual US stocks to their existing portfolio / strategy. Although past performance is never a guarantee of future returns, back-testing this addition has shown significant improvements in the returns of both our SECTOR and FACTOR strategies with minimal increases in overall portfolio risk.
These stocks are selected using a rules-based system that looks for quality growth in the company itself (not its stock price), hoping to capitalize on a stable company with good managers, being innovative in their markets, and is poised for internal growth over the next 6-24 months.
Individual investments like stocks can be very volatile. Please read this PDF to learn more about how this program works, and ask your financial advisor for more details.
5) What about Crypto?
I could write a book on this controversial subject.
To make it short (bless you for reading this far already), we DO allow some Bitcoin (but only Bitcoin) in a discretionary Customized portfolio in risk-appropriate amounts, using only SEC-approved (and regulated) mutual funds and ETFs.
We do not currently utilize crypto in our investment models and at least this quarter of 2026, have no plans to do so. That position may change as prices moderate.
Goings on Around nVest
This quarter, we’ve got a lot happening:
1) JOB MARKET WEBINAR: Watch our current webinar on the US Job Market (and why it’s so hard to find a job if you’re looking). This webinar was recorded in December and includes up-to-date stats and strategies about the current state of employment in the US.
2) TAX PLANNING WEBINAR: In February, we’ll roll out our Tax 2026 Webinar – stay tuned for details.
3) TEXAS VISIT: I will be in HARLINGEN, TEXAS for a short visit January 15-20 for individual client meetings. If you are in the area and would like an individual appointment, for any reason, you may schedule it by clicking here.
4) NEW PROCESS FOR ANNUAL REVIEWS: Instead of asking all of our clients to try to book a meeting in January for their Annual Review Appointment, you will be receiving a request based on your original anniversary date as a client of nVest Advisors. Please watch your email as that time approaches!
5) HOLIDAY: Our office is CLOSED in honor of Martin Luthur King, Jr. Day (December 19).
That’s all this time! Thanks for your indulgence – this first letter was a long one. We will keep refining as we go.
Have a wonderful first quarter of 2026. We’ll be messaging you all privately soon!
Jeremy Torgerson
CEO, nVest Advisors LLC
Footnotes
[1]: AI tech pullbacks late 2025 https://www.cnbc.com/2025/12/25/2-extraordinary-artificial-intelligence-ai-stocks/
[2]: Crypto Q4 pullback https://investingnews.com/crypto-market-update/
[3]: Gold up ~65% in 2025 https://www.bullionvault.com/gold-news/gold-price-news/gold-silver-2025-record-price-123120251
[4]: Silver up ~144% in 2025 https://www.bullionvault.com/gold-news/gold-price-news/gold-silver-2025-record-price-123120251
[5]: Corporate bankruptcies highest since 2010 https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/7/63-us-corporate-bankruptcies-in-june-set-up-2025-for-highest-pace-since-2010-91441423
[6]: Unemployment rate 4.6% in November 2025 https://www.bls.gov/opub/ted/2025/unemployment-rate-4-6-percent-in-november-2025.htm
[7]: Elevated consumer debt delinquencies https://www.newyorkfed.org/newsevents/news/research/2025/20251105
[8]: FHA mortgage delinquencies around 11% https://www.mba.org/news-and-research/newsroom/news/2025/11/14/mortgage-delinquencies-increase-in-the-third-quarter-of-2025
[9]: Tech concentration driving market returns https://www.reuters.com/business/us-tech-valuations-stretched-further-earnings-contribute-less-2025-11-25/
[10]: Money market funds ~$7.73 trillion https://www.ici.org/research/stats/mmf
[11]: Margin debt ~$1.21 trillion record high https://www.advisorperspectives.com/dshort/updates/2025/12/15/margin-debt-finra-new-record-high-november-2025
[12]: Downward revisions to BLS employment data https://fredblog.stlouisfed.org/2025/08/revisions-to-bls-employment-data/
[13]: Government shutdown impact on CPI (2.7% reading) https://www.bls.gov/cpi/additional-resources/2025-federal-government-shutdown-impact-cpi.htm
[14]: Nvidia market cap exceeding GDP of many nations https://companiesmarketcap.com/nvidia/marketcap/
[15]: AI data center energy needs equivalent to multiple nuclear reactors https://www.rand.org/pubs/research_reports/RRA3572-1.html
[16]: MIT study on high percentage of corporate AI projects failing ROI https://fortune.com/2025/08/18/mit-report-95-percent-generative-ai-pilots-at-companies-failing-cfo/
[17]: Magnificent 7 / tech stocks driving ~60%+ of S&P 500 returns https://www.fool.com/research/magnificent-seven-sp-500/
