TheChek News Flow

Contraction in US and cooling Chinese demand are expected hurdles for market

Electric vehicle sales are set for their slowest annual growth since the pandemic upended the global economy in 2020, as the shift away from the internal combustion engine confronts new hurdles.

A cooling in red-hot Chinese demand, weaker growth in Europe and a contraction in the US market will see EV sales rise 13 per cent to 24mn in 2026, down from an estimated 22 per cent increase last year, according to research firm Benchmark Mineral Intelligence.

The Trump administration’s ditching of tax incentives for EVs, the EU’s watering down of a ban on petrol cars that was due to take effect in 2035 and a slowing in China’s breakneck pace of growth will shape the fortunes of the industry this year, say executives and analysts.

The more moderate outlook follows several years of explosive China-led demand that had appeared to herald the rapid demise of petrol-based cars, which have powered the auto industry’s profits for more than a century.

Mark Wakefield, managing director at consultancy AlixPartners, said: “We have headwinds in China, which has been the engine of growth, and there’s probably more to come on softening of European regulations.”

US sales will tumble 29 per cent to 1.1mn vehicles this year after reaching a record 1.5mn in 2025, according to Benchmark. Sales in Europe are forecast to climb 14 per cent to 4.9mn following an estimated 33 per cent increase in 2025.

In China, the largest EV market, sales are expected to hit 15.5mn, up from 13.3mn in 2025, according to Benchmark’s forecasts, which include full EVs as well as plug-in hybrids.

Although still a double-digit pace, the projected growth in China is below that recorded in the five years to 2025, when sales, including those of plug-in hybrids, soared from about 1.1mn to more than 13mn.

Chinese manufacturers, led by BYD, helped spur sales at home and in Europe last year, through the rollout of cheaper models that undercut legacy European and US carmakers.

BYD replaced Tesla as the world’s biggest electric-car maker in 2025, according to figures released this week, as the Chinese group made inroads in Europe and other overseas markets.

This year executives expect a continued pick-up in sales of hybrids and plug-in hybrids, which have grown more popular as inadequate charging infrastructure puts consumers off buying fully electric vehicles. 

“Both markets (in the US and Europe) are learning that partial electrification is as interesting as full electrification,” said Ford chief executive Jim Farley.  

In a sign of the upheaval in the US market, Ford last month disclosed a $19.5bn charge after ditching a series of EV models, including its flagship F-150 all-electric pick-up truck, to focus on more profitable hybrids and ICE-based vehicles. 

Farley said EVs’ share of the new car market in the US could fall from about 10 per cent last year to 5 per cent in the near term.

In contrast to the US, most executives expect the Chinese market to expand in 2026 but more slowly than in recent years, when Beijing backed the EV industry with generous subsidies and tax incentives in a bid to turn it into a global champion.

UBS predicts sales in China — of both full EVs and plug-in hybrids — will climb 8 per cent this year.

Although Beijing has rolled back support for the industry, this week the government extended its trade-in subsidy policy, which includes discounts for EVs, into a third year.

Chinese sales could still benefit from wider stimulus measures intended to boost domestic consumption as well as local government investment in charging infrastructure.

Executives say that the prospect of a tougher year means carmakers must continue to adapt their line-ups during the shift from petrol engines.

Markus Haupt, chief executive of Seat-Cupra, the Spanish mass-market brand owned by Volkswagen, said that the group needed to keep its product line-up flexible during the transition but added: “We are convinced that the future is electric. We need to decarbonise mobility.”

Analysts predict further gains for bullion after 64% rally last year

The gold price is set to extend its historic rally to hit fresh highs in 2026, although analysts expect the metal’s advance to slow after a year of stunning gains, according to a Financial Times survey.

The price of bullion, which soared 64 per cent in 2025, will rise by nearly 7 per cent to reach $4,610 per troy ounce by the end of this year, according to the average forecast of 11 analysts.

Many of the factors behind bullion’s blistering rally in 2025 are expected to remain intact this year, said analysts, including buying by emerging market central banks and investor demand for haven assets.

The most bullish prediction was for $5,400 per troy ounce — implying a gain of 25 per cent — from Nicky Shiels of refinery MKS Pamp, who said other analysts’ estimates had been “persistently too timid” in recent years.

“We are only in the early innings of the debasement cycle,” she said, a reference to how some investors are shifting assets into gold as a hedge against the US dollar, which weakened sharply last year.

Gold hit a record high of just under $4,550 per troy ounce in intraday trading on Dec 26, propelled in part by the US blockade of Venezuela. It has since fallen back slightly, amid a volatile end to year for precious metal prices.

With many analysts’ attributing gold’s rise to investor flows, Lina Thomas of Goldman Sachs said there was “significant upside” to her forecast of $4,900 for the end of the year “in a scenario where there’s additional investor diversification”.

She added that investors’ allocations to gold remained low and estimated that for every 0.01 percentage point by which US investors increase their portfolios’ allocation to bullion, the price would rise by around 1.4 per cent.

Investors and analysts largely failed to foresee the ferocity of last year’s rally, on average predicting a price of $2,795 by the end of 2025, compared with the $4,314 at which it closed the year. The survey reveals a large divergence between the most bearish and most bullish calls, with $1,900 separating the highest and lowest forecasts.

The gold price is becoming “harder to predict”, said Peter Taylor, head of commodity strategy at Macquarie Group, because it has been driven largely by investor sentiment and has become disconnected from supply and demand fundamentals.

Taylor, whose forecast of $4,200 for the fourth quarter of 2026 — implying a small fall over the course of the year — is among the most bearish, added he expects “we will see more macro news stability.”

Other bullish analysts point to central bank buying as a key booster for prices. Natasha Kaneva of JPMorgan expects central bank purchases of around 755 tonnes during 2026. Although slightly lower than previous years, that could still push prices towards $6,000 by 2028, she said.

At the same time, a number of analysts are taking the view that gold could fall this year.

The most bearish forecast comes from Rhona O’Connell at StoneX, who said prices could drop to $3,500 in a market that is becoming “overcrowded”.

“The majority of the tailwinds for the price have already been taken on board,” said O’Connell. “My feeling is that, barring a black swan event, there probably is not another wave of this investment to come.”

She highlighted the upcoming court decision on Federal Reserve governor Lisa Cook, who is contesting efforts by President Donald Trump to fire her, as a potential driver of the price in the near term. A ruling in favour of Cook, which would be viewed as supportive of the central bank’s independence, could weigh on gold, she said.

Natixis’s Bernard Dahdah pointed to bearish factors such as declining jewellery demand and the eventual end of the Fed’s rate cutting cycle, which is expected next year. He forecasts gold prices will average $4,200 during the fourth quarter of this year.

“At current price levels, we are already seeing signs of demand destruction within the jewellery sector, and central bank demand has also slowed down,” he said. “We think 2026 will be a year of price consolidation.”

Recent credit blow-ups underline the need to pay attention to practical warning signs

Credit markets have been hit by a series of high-profile blow‑ups in the past three months. The episodes prompted Jamie Dimon, the chief executive of JPMorgan, to warn of “cockroaches” lurking in the financial system, pointing to the private credit market in particular.

This has led many investors to question how safe the asset class really is. Yet when appropriately executed, senior secured lending in private markets remains a compelling asset class, offering attractive risk-adjusted returns with collateral providing meaningful downside protection.

The challenge is that we may be late in the credit cycle, with a flood of new capital entering the private market. In this environment, investors should be far more selective about which deals they back. The central question is how to avoid the next disaster akin to the recent collapse of US auto parts group First Brands and Texas subprime auto lender Tricolor.

As I argued in my book, The Credit Investor’s Handbook, the answer lies in systematically identifying “red flags” in a borrower’s financial statements and then pursuing rigorous, sceptical due diligence.

Financial statement analysis has become something of a lost art in today’s era of rapid capital deployment in the credit markets. A red flag does not automatically disqualify an investment, but, for a top-tier manager, it should trigger rigorous due diligence and uncomfortable questions that demand clear answers from the company. The objective is straightforward: either satisfy yourself that the concerns are manageable or walk away. There are numerous practical warning signs, but here are a few that vigilant investors should look out for:

• A material increase in “receivable days” — the time it takes for a company to collect cash from its customers — can be a major red flag. It may indicate that the company is inflating reported sales through tactics such as “dealer dumping”, where excess inventory is pushed on to distributors regardless of actual end-market demand.

• A declining order backlog is a clear warning that current reported sales growth may be unsustainable or misleading.

• Significant fluctuations in foreign exchange rates can distort financial performance. This can make multinationals appear to be growing when the business could actually be shrinking if its performance was assessed using a constant currency rate over a period.

• Aggressive serial acquisitions can be used to mask underlying deterioration in the organic core business.

• Inventory mismanagement can also hide weakness. A manufacturer might overstate profits by overproducing inventory to artificially reduce per-unit costs, quietly building dangerous stockpiles in the process. Investors should closely monitor “inventory days” to ensure production remains aligned with demand.

• A reduction of certain operating expenses can be another warning sign. Management teams under pressure to hit short‑term targets can cut research and development or advertising to manage near‑term earnings. They can also intentionally understate bad debt expense or improperly capitalise routine operating expenses.

Not every anomaly is fraudulent, but red flags are identifiable, provided investors are actually looking for them.

Beyond the financial statements themselves, there are qualitative and structural warning signs. First Brands is a textbook example. Apart from questions over its debt and acquisition-fuelled growth, the company’s founder Patrick James had a documented history of two legal battles over fraud allegations, including a 2009 lawsuit that claimed he inflated accounts receivable and inventory figures. James has denied the allegations in the two cases, which were both ultimately dismissed after settlements were reached.

First Brands also used special-purpose vehicles to keep debt off its balance sheet — a tactic used by Enron that should have set off alarm bells — and relied heavily on a form of financing known as reverse‑factoring where lenders accelerate payments to a company’s suppliers and recoup the money later. These arrangements may have obscured the true extent of its leverage. Any one of these features warranted serious scrutiny.

The lesson from First Brands and the other recent failures is that discipline is key to successful credit investing. In an asset class that has grown by seven times since 2008 to about $1.7tn and is growing rapidly, the pressure to put money to work can overwhelm the patience required for proper analysis.

The tools for spotting problematic credits have not changed: read the financial statements closely; interrogate the business model and capital structure; investigate the backgrounds of key executives and never allow the lure of double‑digit yields to override healthy scepticism.

Ed Mule, my mentor and the co‑founder of Silver Point Capital, frequently reminds our team that the best way to become a great credit investor is to conduct postmortems on deals that went wrong. First Brands offers precisely that kind of case study — a reminder that the most expensive lesson is the one you refuse to learn.

Barron’s consistently favored equities over bonds for income in the past decade, and we’re sticking with that bias in the new year.

Just when income investors were ready to give up on the bond market, it went and had its best year since 2020. The outlook is good for 2026, too, despite some growing risks.

How troublesome has the bond market been? Many investors were abandoning the historical 60/40 mix of stocks and bonds coming into 2025 after several tough years for the fixed-income side of that strategy. But the blend generated about 15% in 2025 as the S&P 500 index returned nearly 20%, and bonds, as measured by the broad iShares Core U.S. Aggregate Bond exchange-traded fund, returned 7%.

Income investors had plenty of other choices, as well. One highlight: a long-awaited revival in international equity markets, where dividend yields are a multiple of the 1% yield available on the S&P 500 and broad indexes returned nearly 30%.

In the U.S., most dividend strategies trailed the S&P 500. The Vanguard High Dividend Yield ETF returned 16%, while the $70 billion Schwab US Dividend Equity ETF turned in just 5%. Electric utilities returned 16%, helped by the data center boom, while real estate investment trusts were notable laggards, rising just 4%.

Looking ahead to 2026, yields are generally good—not great—in stocks and bonds. Within fixed income, investors can get 3% to 5% yields on municipals, 6% to 10% on junk bonds, 10%-plus on private credit loans held by business development companies, 6% yields on preferred stock, 5% yields on mortgage securities, and 3.5% to nearly 5% yields on Treasuries.

Within the stock market, there are yields of 3% or more on a range of stocks, including pipelines, REITs, telecoms, consumer staples, and pharmaceuticals. That’s something, particularly given the S&P 500’s historic low yield.

Barron’s consistently favored stocks over bonds for income in the past decade, and we’re sticking with an equity bias for 2026.

Bond yields aren’t bad, but they don’t offer much more than the inflation rate, now running just under 3%, especially after taxes. Yield differentials on high-grade corporate bonds relative to Treasuries are under one percentage point, near 25-year lows. The gap for junk bonds is less than three points.

We prefer energy pipelines and REITs, which were laggards in 2025 but now look appealing, with dividends of 4% or more and the potential for 10%-plus total returns. That could stack up well versus the S&P 500 after the index’s three straight years of outsize returns.

Consumer, drug, cable, and telecom stocks also are out of favor and have 3% to 7% yields. They’re nice bond substitutes with upside if artificial intelligence and tech falter in 2026 and investors get more defensive.

Don’t forget cash. There’s nothing wrong with holding money-market funds or Treasury bills, now yielding about 3.5%. Berkshire Hathaway Chairman Warren Buffett loves cash and carries over $350 billion at the company, favoring Treasury bills over bonds.

There are several wild cards for 2026—inflation, the Federal Reserve, and the economy. The Fed is expected to cut short-term rates twice in 2026, and inflation, as measured by the consumer price index, is forecast to run at 2.5% to 3%. Any surprises could change the outlook.

As Barron’s does annually, we rank 12 sectors for 2026, beginning with the most appealing, and discuss the prospects for each. We had a good record in 2025. We favored international dividend payers as our top choice, and they handily beat the 11 other sectors. We correctly favored electric utilities and mortgage securities but were too upbeat on pipelines and REITs.

Here’s our assessment of the best places to find income in 2026.

Dividend-paying stocks had a mediocre 2025 but still offer bondlike yields and appreciation potential, making them an ideal choice for income investors.

There are hundreds of ETFs and mutual funds focused on dividends, but two of 2025’s underperformers are worth a look: Schwab US Dividend Equity, which now yields almost 4%, and ProShares S&P 500 Dividend Aristocrats, which invests in companies with 25 consecutive years or more of annual dividend increases and yields 2.5%.

Buying companies with an impressive dividend record has generated strong results over time, but the ProShares fund has had a single-digit return for two straight years, well behind the market.

The larger holdings in the ProShares fund include lithium play Albemarle, Cardinal Health, and Nucor, the largest U.S. steel maker, while the Schwab fund is led by drug stocks Merck and Amgen, as well as Coca-Cola and PepsiCo. All four yield about 3%.

Another approach is to buy the 10 highest-yielding stocks in the Dow Jones Industrial Average at the end of each year. That venerable approach did well in 2025, returning 18% through Dec. 26, three percentage points ahead of the Dow industrials. Barron’s isn’t aware of any fund that follows the strategy, but the Invesco Dow Jones Industrial Average Dividend ETF weights the 30 stocks in the benchmark by their dividends, with Verizon Communications, which yields 6.8%, and Merck, with a 3.2% yield, on top.

Pipeline stocks don’t have much exposure to oil prices, but crude’s 15% drop to less than $60 a barrel still sent a chill through the sector. The Alerian MLP ETF returned 6% in 2025, and individual stocks like Energy Transfer finished the year in the red.

The stocks, however, offer monster yields, dividend growth, and improving balance sheets that enable more stock buybacks. Rob Thummel, a senior portfolio manager at Tortoise Capital, which invests in pipeline operators, sees 10%-plus total returns in 2026 driven by 5% average dividend yields and comparable dividend growth.

Investors have favored Williams Cos. and other pipeline companies exposed to the growing market for natural gas, a key fuel for the electricity-powered data centers. But with most pipelines now housed in simpler corporate structures, investors can find more yield in master limited partnerships, which generate a K-1. Thummel likes Energy Transfer and MPLX, two partnerships with 8% dividend yields. MPLX recently boosted its payout by 12%.

For fund investors, the partnership-oriented Alerian MLP ETF yields 8%, while the Global X MLP & Energy Infrastructure ETF, which limits its MLP exposure to 25%, yields 5%. Closed-end funds like Tortoise Energy Infrastructure and ClearBridge Energy Midstream Opportunity offer even higher yields.

Real estate investment trusts were the worst-performing sector in the S&P 500 in 2025, with the Vanguard Real Estate ETF returning just 4%. This year could be better.

J.P. Morgan Securities REIT analyst Anthony Paolone recently wrote that investor sentiment isn’t great, but the stocks “are relatively cheap with reasonable growth.” He sees 10% total returns, driven by a nearly 4% annual dividend and growth in funds from operations, a key REIT cash-flow metric, of about 5%.

One positive is a disconnect between shares of cheaper public REITs relative to private-market values. That is driving take-private deals like Alexander & Baldwin, which is due to be purchased by a Blackstone fund. More deals could come in 2026, writes Piper Sandler analyst Alexander Goldfarb.

Apartment REITs like Equity Residential and AvalonBay Communities trade below private-market values and now yield about 4%. They could get a boost if investors abandon private REIT funds for public markets, which generally are cheaper, more transparent, and have better balance sheets.

Goldfarb favors SL Green Realty, the leading Manhattan office REIT, which is benefiting from the strength in Midtown rents. Barron’s named SL Green a top pick for 2026 among 10 stocks.

After a decade of badly trailing the S&P 500, international stocks finally had a great year. The run overseas may not be over, as increased fiscal spending and deregulation, particularly in Japan, stand to boost economies and markets.

International stocks could also get a lift from a weak dollar, which increases returns to U.S. investors in foreign companies, and which President Donald Trump seems to favor. The dollar fell 10% against the euro in 2025.

Overseas stocks are cheaper than in the U.S., and they yield more than their American counterparts because of a preference among international investors and overseas corporate management for dividends over buybacks.

The European stock market yields an average of 3%, and Japan, 2%, while international high-dividend ETFs like iShares International Select Dividend and Schwab International Dividend Equity yield even more, at 4% to 5%.

Barron’s highlighted the United Kingdom as a good spot for dividends a year ago, and that market is up over 30% in dollar terms. Some remaining British high-yielders with liquid American depositary receipts include BP at 6%, Shell at 4%, and British American Tobacco at 5.8%.

Few sectors of the market are as unloved as cable and telecom.

The cable story unwound in 2025 as high-speed internet access, the industry’s most important product, faced intensifying competition from AT&T’s and Verizon’s fiber rollout, wireless internet access from T-Mobile US and others, and Elon Musk’s Starlink.

The wireless industry oligopoly of AT&T, Verizon, and T-Mobile has also grown more competitive as a new Verizon CEO seeks to boost its subscriber base. For income investors, the main plays are Verizon with a nearly 7% dividend yield, as well as AT&T and cable leader Comcast, each paying 4.5%. “Competition remains intense,” writes Morgan Stanley analyst Benjamin Swinburne. The stock-market underperformance, however, “has created more-attractive entry points for investors.” Swinburne favors AT&T, though Verizon is cheaper.

Barron’s recently highlighted Comcast as one of its 10 top stock picks for 2026 due to its low valuation—it trades at seven times 2026 projected earnings—and an ample dividend. It could also benefit from the potential spinoff of its valuable NBCUniversal media, TV, and theme-park business following a smaller spin of CNBC and other cable properties into Versant Media Group at the start of 2026.

Private credit is probably the most controversial area of the fixed-income markets—and investors get paid for it by investing in publicly traded business development companies.

The $1 trillion of loans to private junk-grade companies often carry 10%-plus yields at a time when many public junk bonds yield just 7%.

There have been some credit cracks in private credit in recent months, though proponents point to what they consider to be strong underwriting standards and ample historical returns.

Lower interest rates, which mean less income from the floating-rate loans that BDCs make, have forced many to reduce their dividends, something that is likely to continue in 2026. Yet tough times mean bigger yields. The VanEck BDC Income ETF, which offers broad exposure to large BDCs, was down 15% in 2025 but now yields over 11%.

Investors should focus on BDCs that invest in senior secured loans, the highest-credit-quality assets in the sector. And it’s best to buy one of the many BDCs trading at a discount to net asset value, which offers a cushion. One option: The Morgan Stanley Direct Lending fund, which has nearly all of its assets in senior secured loans, yields over 11%, and trades at nearly a 20% discount to its NAV.

Boring no longer, electric utilities are at the nexus of the AI boom, and they are ramping up capital spending to meet growing demand. They’re a lower-risk way to play data center growth—and get a nice dividend.

The sector, as measured by the State Street Utilities Select Sector SPDR ETF, returned about 16% in 2025 but now trades for under 18 times projected 2026 earnings, a wider than usual discount to the S&P 500. The ETF yields 2.8%, but many individual utilities yield in the 3% to 4% range.

The bull case is that earnings growth is accelerating, with many regulated utilities targeting high-single digit earnings growth, better than most consumer staples. A potential problem, however, is affordability: The spending boom led to a 7% rise in consumer electricity costs in the past year, and political backlash threatens to curb returns on new projects and earnings growth.

Among regulated companies, J.P. Morgan analyst Jeremy Tronet favors Entergy, which is projecting 8%-plus annual earnings growth through the end of the decade, as well as Xcel Energy, CMS Energy, and NextEra Energy, which owns Florida Power & Light.

Nuclear plays like Constellation Energy have been the sector’s biggest winner, but they trade at a premium at closer to 30 times forward earnings and carry dividend yields of 1% or less.

Most fixed-income markets benefited from tightening yield premiums relative to Treasuries in 2025, and that went for mortgage-backed securities, too. The result: returns of more than 7% from ETFs dedicated to the asset class.

Agency mortgage securities from Fannie Mae and Freddie Mac, which benefit from an implied government guarantee, dominate the market with more than $6 trillion outstanding. They now yield about 5%, against more than 5.5% a year ago. The yield gap is now about one percentage point above the 10-year Treasury yield, a quarter-point tighter over the past year.

Even with lower yields, Russell Brownback, deputy chief investment officer of global fixed income at BlackRock, favors the mortgage market over U.S. investment-grade corporate bonds that have even tighter spreads.

The largest ETF, the $39 billion iShares MBS, yields about 4%, while the Simplify MBS ETF has a higher yield at about 6% but less appreciation potential. The $31 billion DoubleLine Total Return Bond fund, run by longtime mortgage specialist Jeffrey Gundlach, has a 5.2% yield, thanks to riskier positions in higher yielding nonagency securities.

The huge and overlooked sector deserves a closer look, given attractive returns on debt issued by countries like Brazil and Mexico.

Emerging market countries issue debt in dollars and local currency. The dollar bonds carry much lower yields since they eliminate currency risk.

The $1.5 trillion of hard-currency debt—mostly dollar-denominated—has generated returns comparable to the U.S. junk market, according to Janus Henderson. Returns were in the double digits in 2025, making emerging markets a top-performing fixed-income sector.

BlackRock’s Brownback calls the sector one of the most attractive areas of the global bond market. Mexican and Brazilian five-year dollar debt now yields about 6%, while local currency debt can yield over 10%.

The traditional knocks against emerging markets are profligate spending, unstable currencies, and inflation risk, but many developing countries show more financial restraint than the U.S., where the deficit totaled $1.8 trillion in the latest fiscal year.

“Strong debt management and responsible monetary policies have provided EMs with room to cut rates, while local yields remain elevated,” write analysts at VanEck.

The largest ETF, iShares J.P. Morgan USD Emerging Markets Bond, now yields about 5.5% while the VanEck J.P. Morgan EM Local Currency Bond ETF yields about 6%.

The $350 billion market is popular with many individuals due to its reasonably high dividends, now averaging about 6%, that usually are favorably taxed.

Banks account for about half of the market, but they have cut back on issuance as capital requirements eased, according to UBS preferred stock analyst Frank Sileo. He notes that utilities have become big issuers, as they fund large capital-spending plans.

Retail investors favor preferreds with $25 face values that trade like stocks on the New York Stock Exchange. Issues include the JPMorgan 4.20% series M and the Wells Fargo 4.25% series D, which yield about 6%. The iShares Preferred & Income Securities ETF, devoted to these preferreds, yields about 6%. The First Trust Institutional Preferred Securities & Income ETF also yields nearly 6% and offers access to the $1,000 face value preferred market geared mainly to institutions.

Strategy, which issued $8 billion of preferreds in 2025, was the big new player in the market, as it raised money to fund Bitcoin purchases. Barron’s wrote favorably about the preferred, which carry yields of 8% to 12%, arguing that they amount to cheap Bitcoin-backed securities. Strategy has since built a $2 billion reserve, funded by equity sales, to pay some $800 million of annual preferred dividends.

Individuals love municipal bonds, but there isn’t a lot of appeal in the sector today.

Munis with five- to 10-year maturities and top-grade Triple-A ratings yield 2.5% to 2.75%. That’s roughly two-thirds of comparable Treasury yields, which means little after-tax benefit, given a top federal tax rate of 37%.

There is better value in long-term munis that yield 4% to 4.5% among high-grade issuers, but they carry interest-rate risk and tend to have unfavorable redemption features that reduce upside potential.

The $41 billion iShares National Muni ETF, which invests in long-term bonds, returned just 4% last year, while the $83 billion Vanguard Intermediate-Term Tax-Exempt ETF returned 5% and now yields about 3%.

High-yield munis, which often have 5%-plus yields, could do well after lagging behind the investment-grade market in 2025, according to MacKay Municipal Markets. The biggest high-yield muni issue is a $3 billion tobacco bond from Buckeye, an Ohio entity, that yields over 6%.

Treasuries aren’t as dull as they seem, and they have attributes—liquidity, security, and some tax benefits—favorable to income-seeking investors. And with corporate-bond spreads near their tightest levels in 25 years, the case for Treasuries gets stronger.

Treasuries yield from 3.5% on two-year issues to 4.75% on long-term bonds. That’s a wider-than-usual gap that ought to make investors consider 30-year bonds, which can gain value if the stock market or economy sinks. The negatives are mostly macro—U.S. budget deficits and the threat of higher inflation.

Big ETFs, including iShares 1-3 Year Treasury Bond, iShares 7-10 Year Treasury Bond, and iShares 20+ Year Treasury Bond, offer liquidity and low fees. For those most bullish on rates, consider the Pimco 25+ Year Zero Coupon U.S. Treasury Index ETF, which could appreciate 25% if rates fall by a percentage point.

For risk-averse investors, there are increasingly popular T-bill ETFs, which now yield more than 3.75%. The $68 billion iShares 0-3 Month Treasury Bond was one of the fastest-growing bond ETFs in 2025.

Investors can buy Treasuries at regular government auctions through the TreasuryDirect website or through banks and brokers, but selling can be trickier in an opaque over-the-counter market.

Oil prices are already reflecting loads of bad news—and oil stocks have lagged behind the market. Buying them now makes sense in the face of some tailwinds that could commence soon.

For oil, everything that could go wrong has gone wrong. Overproduction has been an issue, with both U.S. producers and OPEC+ nations drilling more than the economy could handle. At the same time, China has boosted its strategic reserves, suggesting weaker demand. A slowing U.S. jobs market has also forced investors to question the demand side of the equation despite consistently higher gross-domestic-product growth. WTI Crude, the U.S. benchmark, has dropped 19% this year to a recent $58. Strategists at Bank of America forecast oil to trade around an average of $60 in 2026, down from $69 in 2025.

You wouldn’t know it from looking at oil stocks. The State Street Energy Sector SPDR exchange-traded fund has gained 8.5% in 2025, including reinvested dividends, less than the S&P 500’s 19% rise but surprisingly solid given crude’s decline. Some of that strength was due to Exxon Mobil, which makes up 24% of the portfolio and returned 17% this past year, while refiners like Phillips 66, Valero Energy, and Marathon Petroleum also provided a boost.

This coming year might even be better. For one, oil prices might not fall much more. Despite recent negative headlines, oil futures continue to find a floor at around $55, a level hit last April and this month. It could be a sign the market expects the oil picture to improve—countries won’t add supply forever and demand could easily brighten—or at least not get any worse. Federal Reserve interest-rate cuts, if they materialize, could also provide a boost, especially if they cause the economy to overheat.

“It’s such a lower bar for oil next year for any type of upside,” says Adam Turnquist, chief technical strategist at LPL Financial, who expects stronger economic growth to be a catalyst for oil.

He’s not alone. Truist Chief Investment Officer Keith Lerner is sticking by his December upgrade of S&P 500 energy stocks. “We’re at a point where even a little bit of good news could go a long way,” he says.

But the fact that oil stocks have done so well in a rough environment could also be a sign that the sector’s makeover is working. No longer simply a bet on the direction of oil prices, the companies now have the balance sheets and free cash flow to buy back shares and grow their dividends, helping investors earn an acceptable total return.

Devon Energy is one example. Its stock is up 16% this year, boosted by cost discipline and savvy M&A. The company also pays a 2.8% dividend, with payments expected to hit $608 million in 2025, or about 20% of free cash flow. That dividend looks set to grow. Management has guided for capital spending to drop by $90 million, to $3.6 billion, next year, which should help its free cash flow rise to the $3.13 billion Wall Street expects and let management keep its promise, made on its most-recent earnings call, to grow the dividend.

It’s proof that energy stocks aren’t just about oil prices anymore—and worth a bet in 2026.

The European Union faced history twice in the waning days of 2025. It went one for two, maybe 0.8 for two.

Critics have been gleefully predicting the European project’s demise since it launched in 1957. President Donald Trump’s administration has amplified the chorus; its U.S. national security strategy declared that the bloc of 450 million faced “civilizational erasure.”

That lent an existential air to two political deadlines: a Dec. 18 EU summit on supporting Ukraine’s war effort as Washington backed away and a scheduled Dec. 20 signing of a free-trade agreement with the so-called Mercosur countries of South America—a symbolic geopolitical counterstrike against U.S. hostility.

The EU’s 27 member states came through for Ukraine, sort of. The bloc proved unable to play its diplomatic ace in the hole: 210 billion euros ($247 billion) in Russian central bank assets frozen within its financial systems.

Continental heavyweights from European Commission President Ursula von der Leyen to German Chancellor Friedrich Merz backed leveraging these reserves for Ukraine’s benefit. They were faced down by Bart De Wever, prime minister of 12 million-strong Belgium, who holds primary jurisdiction over most of the hoard through Brussels-based Euroclear and feared Russian legal retaliation. The EU requirement for unanimous consent was at its best, or worst.

The summit did agree to raise €90 billion for Ukraine in collective EU debt over the next two years. This could well save Volodymyr Zelensky’s defenders as the U.S. 2026 defense budget dribbles out less than $1 billion for them. Backers of the frozen asset solution were still disappointed. “I do not get how European politicians think it is OK to protect Russian taxpayer money while spending their own taxpayer money to support Ukraine,” says Timothy Ash, a bond strategist at Blue Bay Asset Management and a pro-Ukraine blogger.

The Mercosur deal presents a more classic dilemma: Beleaguered manufacturers in Germany and across Northern Europe would gain unfettered access to nearly 300 million new consumers in Brazil, Argentina, Bolivia, Paraguay, and Uruguay. Farmers would face competition from bountiful South American nature.

The EU can approve treaties with member states representing 65% of the bloc’s population. With Poland dead set against it, that means either France or Italy, both home to rowdy agricultural lobbies, would have to sign on. Italian Prime Minister Giorgia Meloni decided that the signing would be “premature,” despite 25 years of negotiations. The two sides will try again in January.

The tortuous political gymnastics don’t bode well for the EU cohering around thornier goals like unified banking, capital markets, and tax policy, pegged as essentials in former European Central Bank chairman Mario Draghi’s landmark report on restoring competitiveness.

They do indicate that European leaders are giving up hope of cajoling Trump back into the special trans-Atlantic relationship, and will stump up for their own security.

That is good enough, for the moment, for investors, who bid up the iShares Europe exchange-traded fund by 30% in 2025, and are optimistic for more in 2026. “We believe euro-zone risk/reward is improving and expect the region to outperform its peers,” writes Mislav Matejka, head of European and international equity strategy at J.P. Morgan.

Bond vigilantes shrugged off the extra €90 billion in debt for Ukraine. Yields on benchmark German sovereign bunds have inched down since the announcement. Old World civilization isn’t extinct just yet.

Non-U.S. stocks look poised for another standout year, fueled by rising earnings and falling interest rates. Where to shop now.

Key Points

International stocks saw surprisingly strong gains in 2025, with equity markets in export-driven countries such as Korea and China outpacing the S&P 500 even after the U.S. imposed the highest tariffs seen in decades. Non-U.S. markets could rally further in 2026, fueled by falling interest rates and rising corporate earnings.

The MSCI AC World ex-USA index returned more than 32% in 2025, nearly double the 18% total return of the S&P 500. Some foreign markets did far better, with the iShares MSCI South Korea exchange-traded fund up 95% and the iShares MSCI Brazil ETF ahead 49%. A weaker dollar helped returns but wasn’t the only driver.

The past year marked the end of a 15-year stretch in which foreign markets lagged behind the U.S.—a reversal that could nudge more U.S. investors to look overseas for growth. In many markets, they will find less richly valued plays on artificial intelligence and electrification and improving economic and financial conditions.

Strategists at J.P. Morgan expect double-digit gains in 2026 across developed and emerging markets, spurred by robust earnings growth, lower interest rates, and fewer policy risks such as tariffs. Bargain-oriented investors such as Warren Chiang, manager of the GMO International Value fund and similarly named ETF, also see plenty of opportunity internationally.

In part, that’s because non-U.S. markets are still relatively cheap. The MSCI World ex-U.S. index is trading for 15.6 times next year’s expected earnings, roughly the same valuation as before its 2025 run. That reflects improving earnings and expanding price/earnings multiples, Chiang says.

The MSCI U.S. index sports a price/earnings multiple of about 23.

Across international markets, there is evidence of an improving backdrop. President Donald Trump’s foreign and trade policies sparked a reset in Europe, where policymakers have pledged significant fiscal stimulus, including an increase in defense spending.

J.P. Morgan’s Mislav Matejka, head of global and European equity, expects 10% to 20% earnings growth for the euro zone in 2026, as earnings benefit from fiscal stimulus and improving financing conditions, tariff risks diminish, and China’s economy shows signs of stabilizing. An end to the Russia-Ukraine conflict would be an added plus.

The iShares MSCI Japan ETF returned 26% in 2025, but investors see more room for Japanese stocks to rise. Japan’s recently elected prime minister, Sanae Takaichi, has business-friendly plans to lower taxes and offer incentives to bolster investment.

China’s economy is still struggling, as evidenced by November’s weak economic data. While Beijing is unlikely to unleash stimulus, recent comments from officials suggest the government has grown more serious about prioritizing a revival in domestic demand alongside a continued push for technological self-reliance. China has invested heavily in artificial intelligence, biotechnology, and other technologies.

Chinese AI stocks outperformed U.S. AI stocks this past year, but investors aren’t fretting about a possible AI bubble in China, says Jitania Kandhari, head of macro and thematic research for emerging markets equity at Morgan Stanley. In China, the stocks’ gains owed largely to rising price/earnings multiples. Shares will look cheap if earnings growth accelerates, Kandhari says.

Chinese tech earnings have bottomed after several years of declines, and recent results from cloud companies suggest reasons for optimism, she says.

While growth stocks have propelled U.S. indexes this year, value stocks have led markets higher in Europe and Japan. GMO’s Chiang says he is still finding cheap companies overseas with good businesses, hefty margins, and significant competitive advantages. His top holdings include Germany’s Deutsche Bank and Spain’s BBVA, and Japanese industrial firms that are benefiting from reordered supply chains and government reforms.

Luiz Sauerbronn, a manager of the $2 billion Brandes International Equity fund, favors luxury-goods companies such as Kering, whose flagship Gucci brand has been hurt by weakness in China and a poor reception to recent collections. That created an air pocket in the stock, which has fallen by nearly half in the past five years, but was up 26% in 2025. Gucci, he notes, has recovered from setbacks in the past. Plus, Kering has a new CEO, Luca de Meo, formerly of Renault, who is trying to repair the company’s balance sheet.

Richard “Trip” Clattenburg, manager of the $ 13.6 billion T. Rowe Price International Stock fund, likes quality stocks, many of which were more expensive, and thus overlooked when the rally in foreign stocks started last year. “There aren’t many times when you get shots at relatively lower-risk, high-quality assets,” he says.

Among Clattenburg’s holdings: Unilever, which has new management, a road map for volume growth, and a 3.6% dividend yield. Clattenburg also owns Japan’s Nippon Sanso Holdings, which makes industrial gases and has a lower valuation than larger rivals such as Air Liquide. He expects the company to get a lift from Japan’s more business-friendly moves, but says the valuation provides a cushion if the global economy starts to sour.

Emerging market stocks still trade at a steep discount to the S&P 500, despite a preponderance of technology stocks in these markets. Within China, investors see opportunity in early adopters of AI. “China is a super-app country; it is harnessing [AI] in media, e-commerce, gaming, and travel,” says Kandhari, who says semiconductor and semi-equipment companies, robotics, biotech, healthcare, and consumer-oriented digital platforms are among the beneficiaries.

Brandes’ Sauberbronn likes the outlook for Alibaba Group Holding, even after the stock’s 75% rally in 2025, noting that near-term earnings are depressed because of the company’s use of large subsidies to spur growth in its core e-commerce business. But the initiative is showing early signs of success. Alibaba also benefits from its strong position in AI with a “full stack model” that provides compute power, a cloud platform, AI models, and applications, he says.

India and Brazil aren’t AI-focused markets and could fare better if the AI trade loses steam. India’s market lagged behind in 2025 due to the negative impact of U.S. tariffs, sluggish economic growth, and investors’ reallocation of assets to China. But T. Rowe’s Clattenburg notes that the government and Reserve Bank of India are both pro-growth. Axis Bank is a private-sector bank that has cleaned up its loan book and should be an early beneficiary of an economic pickup, he says.

Brazil’s market is tilted toward commodities and should continue to benefit as the push for electrification gains momentum. Also, inflation is expected to ease, which means monetary policy could loosen, helping stocks, says J.P. Morgan. Another plus: The Trump administration’s focus on increasing influence in South America could mean more foreign direct investment, and an easing of the 50% tariffs President Donald Trump imposed on Brazilian goods earlier this year.

The Vanguard Total International Stock ETF (VXUS) offers an inexpensive way for U.S. investors to gain broad exposure to international markets, with about a quarter of its assets in emerging markets. Capital Group International Core Equity ETF (CGIC) provides a broad-based strategy, with about half its weighting in Europe and the U.K.

For investors who favor actively managed funds, three options include the $986 million GMO International Equity Fund IV (GMCFX), which has returned an average of almost 25% a year in the past three years, beating 99% of its peers; Brandes International Equity fund (BIEAX), which returned 24% a year in the same span and beat 98% of its peers; and the $16.7 billion T. Rowe Price International Value Equity fund (TRIGX), which averaged an annual return of almost 22% in the same three years, outperforming 86% of its peers, according to Morningstar.

Izzy Englander’s hedge fund recovers after lacklustre start to year but fails to keep pace with some smaller firms

Hedge fund giant Millennium delivered returns of 10.5 per cent to investors in 2025, recovering after a lacklustre first half but still lagging behind many smaller rivals in the “multi-manager” sector.

Izzy Englander’s firm was briefly in the red in the first few months of last year, along with rival Citadel, as markets were rocked by US President Donald Trump’s trade war.

But Millennium, which manages $83.5bn, recovered to gain 2.2 per cent after six months of 2025, with steady returns in the second half carrying it to a 10.5 per cent return net of fees, according to a person that had seen the numbers. Citadel was up 9.3 per cent by December 18, according to another person who had seen the numbers.

The recoveries partly reflect a return to more normal market conditions after Trump backed away from many of his most aggressive tariffs, allowing equity indices to chalk up strong gains by the end of the year. The S&P 500 finished 16.5 per cent higher while the UK’s FTSE 100 gained 21.5 per cent.

Millennium was outshone by many of its smaller rivals in the multi-manager sector, including ExodusPoint, which gained 18 per cent, according to a person that had seen the numbers.

Multi-manager firms have risen to the top of the hedge fund industry over the past several years by operating hundreds of trading teams known as “pods” across multiple asset classes such as equities, bonds and commodities. These hedge funds are known for heavy use of borrowing to juice their returns but also strict central risk management that often forces traders to quickly exit losing positions.

In addition, they charge investors higher fees than traditional hedge funds, by passing through a host of costs such as bonuses and client entertainment directly to investors.

Their model has generally delivered consistent returns over the past decade, satisfying a desire from large investors such as pensions for steady profits.

These firms do not benchmark themselves against equity indices such as the S&P 500, instead trying to make their investors money whether stocks rise or fall. For instance, many multi-manager firms were up in 2022 when equity markets sustained big losses.

Elsewhere, macro hedge funds had their best year since 2008, with Bridgewater’s Pure Alpha hedge fund up 33 per cent to December 29, the most profitable year for the firm since it was founded 50 years ago.

Millennium, ExodusPoint, Bridgewater and Citadel declined to comment.