The Real Message from Today’s Markets: A Clear-Headed Look at Volatility
The first quarter of 2026 has already brought its share of headlines: shifting Fed expectations, persistent inflation concerns, and stock market swings that can test even disciplined investors. Beneath the noise, though, the data tells a more nuanced story.
Drawing from JPMorgan Asset Management's latest Guide to the Markets, we want to share what we believe the numbers are saying, why volatility remains a normal aspect of investing, and how a clear plan can help you navigate uncertainty without losing focus.
Reframing Volatility as Information, Not Alarm
It’s natural to think that market swings mean something is broken. In reality, they’re just indicators that expectations are adjusting.
Shifts in market expectations around growth, inflation, or rates can trigger abrupt price moves. This is how markets process new information. It's not a flaw in the design—it's the design working as intended.
Historical data confirms this pattern. Since 1980, the S&P 500 has experienced an average intra-year decline of 14%, yet still delivered positive annual returns in 33 of those 45 years. Pullbacks happen regularly and volatility is normal. What we encourage clients to consider is whether their existing framework allows them to evaluate changes rationally rather than react emotionally.
Drawing from the Data
JPMorgan's analysis of 2025 economic conditions reveals resilience:
- GDP growth remains positive. Third-quarter 2025 real GDP grew at 4.3% annualized, driven primarily by consumer spending (2.4% contribution) and a significant boost from net exports (1.6% contribution). While residential investment declined slightly, the broader economy continued expanding. Growth expectations for 2026 remain in the 2.0-2.3% range.
- Inflation is cooling, but unevenly. Headline CPI inflation stood at 2.7% year-over-year as of December 2025, down from the 9.1% peak in June 2022. Core inflation (excluding volatile food and energy prices) measured 2.6%. We’ve seen real progress, but inflation has been slightly higher than the Fed’s 2% target, which keeps the Fed cautious.
- Labor markets are normalizing. The unemployment rate reached 4.6% in November 2025, up modestly from recent lows but still well below the 30-year average of 5.5%. Payroll gains have slowed to an average of 53,000 over the past two months, but wage growth continues at 4.6% annually. The labor market isn't overheating, but it's not breaking either.
All in all, these figures aren’t suggestive of an economy in distress. Instead, we’re seeing an economy transitioning from post-pandemic extremes toward more sustainable patterns.
Federal Reserve Policy: Clarity Through Context
As of year-end 2025, the current federal funds target rate sits at 3.50%-3.75%. Current market expectations suggest the Fed will bring rates down gradually to approximately 3.00-3.25% by the end of 2026.The Fed itself forecasts 2026 GDP growth of 2.3%, unemployment holding near 4.4%, and core PCE inflation declining to 2.5% by year-end.
This is less of a dramatic shift than an intentional recalibration. The Fed is navigating two objectives: allowing the economy to grow while ensuring inflation doesn't reignite, a balancing act that requires patience from both policymakers and from investors.
In practical terms, we believe this means interest rates will likely remain higher than the ultra-low environment of the 2010s, but not exceedingly high. Fixed income assets now offer yields that make them viable components of balanced portfolios again. The 4.32% yield on the Bloomberg U.S. Aggregate Bond Index, for example, suggests potential forward five-year returns near 4.31%—a meaningful improvement from the near-zero yields of recent years.
Valuations and Return Expectations
Elevated valuations don't automatically signal trouble, but they do raise the bar for future returns.
The S&P 500's forward price-to-earnings ratio sits at 22.0x, approximately 31% higher of its long-term average of 16.8x. This figure reflects strong corporate earnings and investor confidence, but it also means expectations are high. If earnings growth doesn't meet those expectations, multiples could compress, creating headwinds even if underlying businesses remain healthy.
Concentration adds complexity. The top 10 companies in the S&P 500 now represent 41.1% of total market capitalization, but only 32.6% of earnings. Their forward P/E ratio of 29.0x significantly exceeds the 19.3x multiple on the remaining 490 companies. In simple terms, this concentration means index performance is heavily influenced by only a few organizations, which increases both opportunity and risk.
Fixed income valuations have also shifted. The yield-to-worst on the Bloomberg U.S. Aggregate Index of 4.32% offers reasonable return potential over the next five years, but rising from historically depressed levels. Investors who built portfolios when yields were near zero now face a different risk-return equation.
The Power of a Clear Plan in Changing Markets
At Ducere, we prioritize a disciplined long-term investing strategy over short-term market timing. History tells us that investors who exit during downturns and re-enter during recoveries consistently underperform those who stay invested. The best days in the market often follow the worst days, and missing even a handful of strong sessions can dramatically reduce long-term returns.
A well-constructed financial plan helps make volatility tolerable. When your portfolio is designed around your specific goals, time horizon, and risk capacity, you’re better positioned to weather short-term swings without derailing long-term progress.
By well-constructed, we’re referring to three critical elements: diversification, tax efficiency, and ongoing rebalancing. Diversification spreads risk across asset classes that respond differently to the same economic conditions. Tax-aware decision-making helps ensure more of your returns stay working for you. Finally, regular rebalancing keeps your allocation aligned with your objectives rather than drifting toward what performed best recently.
Moving Forward with Confidence
Markets will continue to experience highs and lows, some of them sharp and dramatic. Rather than react to every twist, we help clients maintain plans that work across different environments, stay diversified enough to weather unexpected events, and keep focused on goals that matter more than quarterly returns.
If you'd like to review how today's markets fit into your long-term plan, let's talk. We'll walk through what's happening, what it means for your specific situation, and how to move forward with clarity rather than anxiety.