When History Becomes a Less Reliable Guide.
Markets finished 2025 at or near record highs, but the underlying signals were anything but straightforward. Our year-end letter looks beyond headline index returns to examine a market shaped by sharp crosscurrents—strong performance, uneven leadership, and investor behavior that often appeared out of sync with the broader economic backdrop.
A central theme of the letter is sentiment. Historically, deeply depressed consumer confidence has tended to be constructive for long-term investors, often appearing near market lows and periods of improving forward returns. Today, however, the backdrop is more complicated. We are not aware of a modern period in which consumer sentiment has remained this weak while equity markets have continued to advance for a prolonged stretch—making it difficult to rely on history alone as a guide.
Adding another layer of complexity, the American Association of Individual Investors sentiment survey shows a sharp rise in bullishness, a measure many investors view as a contrarian indicator. The coexistence of deeply negative consumer sentiment, rising investor optimism, and elevated market levels creates a setup that resists simple interpretation.
The letter examines what this unusual combination may be signaling about expectations, risk, and opportunity as investors look ahead.