On behalf of all of us here at Cabot Wealth Network, I wish you a healthy, happy and rewarding new year. We pledge to do our part in making that come true for you by making you a smarter and more successful investor, as we have been doing for individuals like you for more than 55 years.
I sat down to write the story of 2025 for investors. Here’s what I’ve got. It’s not very long.
Uncertainty. This year saw an increase in uncertainty in a variety of ways that affect investors.
Uncertainty is like kryptonite to businesses, cooling plans for capital expenditure and hiring. That trickles into consumer uncertainty – is my job secure if tariffs cause a drop in our business? If I lose my job, can I get another? If inflation continues to rise, can I pay my bills?
While there were a number of causes of this uncertainty, there are a few areas worth discussing: stability and the rule of law, tariffs (and inflation), immigration, support for science, and AI.
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Uncertainties in 2025
The Rule of Law
Stability and the rule of law have been critical elements in what has made the United States economy so successful since World War II, making it easy for domestic businesses to operate and making wealthy people and businesses want to do business in the U.S. This year has seen a downplaying of the rule of law and seemingly a rise in rule by personal fiat.
Businesses and consumers alike aren’t sure exactly what to expect. That is even more true for those outside the U.S. This has raised concerns about the government’s ability to continue to fund our national debt, much of which has been held by foreign parties who have liked the stability and safety it offers.
I’m not saying our country’s commitment to the rule of law has completely changed, but it’s no longer silly to wonder about it. If that concern leads individuals, businesses, and countries to take action, that would have a potentially significant impact on investors, so it is something to watch.
Tariffs
As I wrote earlier this year, tariffs have a legitimate place in the government tool kit. Other than that, tariffs are an added tax that makes the global economy less efficient by raising costs and rewarding domestic producers who no longer have to strive to be the lowest-cost provider. Enabling domestic producers to have a lower productivity rate is inflationary, so costs for everyone go up, and competitiveness goes down.
To be explicit, I don’t like tariffs. As regular readers of my column know, I avoid politics. People pay me for help in being a more successful investor, not for political diatribes. As long as the stock market is functioning, Cabot will be here to tell you the best ways to play it. So my objection to tariffs isn’t political. It is just economics. Tariffs make the economy less efficient, which makes businesses less profitable, which reduces their value. It’s that simple.
Bigger than any tariffs themselves, however, has been their on-again-off-again nature, the moving target of how much the tariffs would be, as well as other trade policies which have been threatened, implemented, modified, discontinued, or all of the above.
Immigration
I suspect support for deporting criminal illegal immigrants is pretty much universal. After that, things diverge. We have many industries that have been dependent on immigrant labor – legal, permanent or otherwise. Such a massive change to the workforce has disrupted many businesses and driven up costs, which get passed along, driving inflation, which increases the sense of uncertainty.
Support for Science
To the extent there’s such a thing as “American exceptionalism,” it has been the result of the stable, lawful business environment I’ve already noted, as well as our inventiveness and ongoing innovation. This has been driven by investments in science education, basic research, and applied research. Those investments have attracted top scientific talent from all over the world to our universities and corporations in what has been a virtuous cycle.
Reduced support for science education, coupled with immigration challenges, will make studying in the U.S. less attractive to top prospective students and therefore make them less likely to settle in the United States after graduation to get a job, do research, or start a company. That could have long-term repercussions for American innovation and competitiveness. How much is hard to tell. The U.S. still looks very attractive to global talent and capital, so a dramatic wholesale change seems unlikely, but we are in an unprecedented period of global adjustment and possible realignment, so don’t be surprised by anything.
The AI Megatrend
If tariffs are the lead story of the first half of 2025, the second half led with AI, AI, and AI. The suppliers of AI-enabling technologies – think Nvidia, Palantir, data centers – have been on a roll. Makers of software and applications are busy developing AI features and functions just to remain competitive. And corporate investment in AI is huge and growing, and starting to produce returns which should continue to grow over time.
I’ve written about the implications for AI driving greater productivity, which in turn will drive greater corporate profits and valuations.
Now for 2026 and Beyond
Unfortunately, “uncertainty” will be at least a part of the story of 2026.
The market seems to have begun to tune out announcements of possible economic and trade policy changes, waiting to see what, if anything, actually materializes. That will reduce the level of uncertainty somewhat.
If the Supreme Court weighs in on tariffs the way they seem to be headed, at least that issue may recede from the headlines and provide some relief from the uncertainty it has caused. That will help farmers and small businesses begin to recover from 2025 and could help bigger corporations move ahead with greater confidence.
I think the immigration issue has largely played out from an investing perspective. There will probably be some wage-related inflation pressure in some areas, and immigration may or may not continue to be a political issue, but I don’t see it continuing to fuel uncertainty in a substantial way.
And, while the handful of stocks that have led the market over the last year may stall or even give up a bit of their gains, there are plenty of other stocks with growth potential. More and more investors will remember that to get some of the profit in the markets, you have to be in the market.
In theory, somewhere down the line, the reduced competitiveness from becoming less attractive to top talent from around the world would show up in lower earnings multiples for stock prices. This would be happening at the same time that AI-driven productivity enhancements would be having the opposite effect. Which dynamic will be greater remains to be seen.
One thing I am sure of – AI will continue to be a defining story for this year. It won’t all be straight up, and AI isn’t immune to experiencing more bubbles and more corrections. But, as I’ve written, AI at this point is much more substantial than the Internet was when the dot-com bubble burst, so I am confident that we will look back on the coming year overall and see AI as a driver rather than a brake on investing success.
In total, I foresee some turbulence – whether it’s bursting bubbles, sector rotations, or politically-driven uncertainty – but I also foresee plenty of opportunities for us to make money. I share the sense among my colleagues here at Cabot – the best team of investment analysts in the industry – of cautious optimism about the market.
And I assure you, we will be working to help you get your share.
QUESTION FOR YOU: How are you feeling about the investing environment? Are there particular concerns you have as we move into 2026? Please share your thoughts with me, and I’ll address them in a follow-up to this article. Email me at support@cabotwealth.com.
For your investing success,
Ed Coburn
President, Cabot Wealth Network
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