The keys to equity market success in any given year are almost always easy to see after the fact. Figuring things out in real time, however, is another matter.

Last year was arguably an exception. The Trump administration had, and still has, I think, two main goals:

–the political/cultural objective of stemming immigration from elsewhere in the Americas and removing immigrants who are already here. Because GDP growth comes from having more workers and from productivity gains (better education/better machinery) shrinking the workforce reduces the potential GDP growth. Dumbing down the education system has the same effect, I think, although with a much greater time lag.

–1970s-style economic stimulation by lowering the short-term interest rate. As we saw back then (and as Trump, the real estate investo,r lived through) this tends to create inflation that reduces the real value of fixed-rate debt instruments. Foreign central banks, holders of immense amounts of US government debt, understand this very clearly. Their immediate reaction was to hedge their dollar exposure, causing a substantial decline in the world value of the US dollar.

So, the key to success in 2025 was pretty simple: arrange an equity portfolio so that costs for constituent companies were in dollars and revenues in foreign currency.

2026 won’t be so easy, I think.

This is partly because at some point the market pendulum will swing from focusing on concept to emphasizing valuation. My sense is that this is already happening now–that the lowest-PE stocks are having a day in the sun, without much regard for the base currency for costs vs that for revenues.

A second is the reputational damage being done to the US brand by what appears to me to be the use of military violence simply for the sake of violence. Critics argue that this is being done to shift attention away from the administration’s refusal to follow Congressional direction to release the Epstein files–and the subtext of Trump’s possible involvement. But, whatever the rationale, I think the reputational black eye this is creating has foreign multinationals hesitating to acquire US brand names and distribution networks.