Often at this time of year, I’m inspired by Blackstone’s late Byron Wien to reflect on the past year and offer some prognostications for how the year ahead might play out in economic terms.
The Year in Review
By many economic measures, we’ve had a pretty phenomenal 2025. The Fed has orchestrated a soft landing from one of the most extraordinary and disruptive events of the past century: the COVID-19 pandemic. Inflation, while still above the Fed’s 2% target, is back to a manageable level of around 3%, the economy is growing even faster than inflation, and the unemployment rate remains low. Equity markets are at all-time highs, mortgage rates have moderated, and the imposition of widespread tariffs seems to have thus far been less disruptive than many had predicted. The M&A market is robust, capital markets are open, and consumer spending remains strong.
Yet that tells only half the story. Millions of Americans are struggling financially. Notwithstanding the pressing political, constitutional and societal issues that have divided our country, the issue of “affordability” may ultimately determine the outcome of the next election.
K-Shaped Recovery
The K-shaped recovery that followed the pandemic has created a disparity of outcomes that is squeezing the middle class. That’s not good for America. While many low-income households have access to government and charitable support and affluent households are riding massive paper gains in the stock market, the middle is squeezed, earning too much for financial aid but not enough to afford college, purchase a home or take a family vacation. We cannot and should not ignore this perilous dynamic.
In short, the status quo isn’t sustainable. Throughout history, whenever the income/wealth disparity has become too vast, revolution has followed. The election of a democratic socialist as mayor of the worldwide capital of capitalism may be one such indicator that a broader revolution may be on its way.
Financial Markets
As I write this, the Dow is nearing 50,000. Nine years ago we posted a simple question on Twitter: which milestone would we reach first, The Dow Jones Industrial Average reaching 20,000 or the National Debt growing to $20 trillion (at the time, both benchmarks were just shy of those figures). Since then, we’ve seen cumulative inflation of 35%, an increase in the national debt of 94%, and the Dow is up 144%.
Calling a peak in the market is a fool’s errand — even if you’re right, you can be wrong for a long time before the market catches up to your prescience. But it is worth pointing out that aside from a brief dip at the start of the pandemic, we’ve not had a real recession since the Global Financial Crisis of 2007-2009. That was more than 15 years ago, a remarkably long stretch of strong economic performance. The salient questions are thus 1) how much longer we can sustain this bull market, 2) when will the inevitable market correction arrive, and 3) how deep it will be?
The S&P 500 (largely driven by a small number of vastly outperforming technology giants and AI-adjacent stocks) is at near-record-high multiples. And there’s much that could sustain this performance. This year, I once again had the privilege of attending Piper Sandler’s Balance Sheet conference, at which their chief global economist Nancy Lazar spoke of the resiliency of the U.S. economy. She highlighted the benefits of continued deregulation which should drive industry consolidation and profit growth, coupled with a large expected influx of cash in consumer pocketbooks due to tax refunds expected in the first half of 2026. But earnings multiples are also high by any historical measure; many would say the market is priced for perfection.
Crypto currencies show none of the characteristics that were promised — they are not a store of value, they are not a practical medium of exchange, and, due to their correlation with the equity markets, they don’t appear to be a market hedge either. Mostly, they seem to be a mechanism for betting on risk. The explosion in popularity of sports books and prediction markets (both favorable euphemisms for gambling) also suggest that we’re living in a moment where speculation is the prevailing theme. When the market inevitably corrects, the volatility in these markets will crush many investors, with all the knock-on economic effects you’d expect. You simply can’t destroy that much paper wealth without it having a real impact on the economy.
Recently, more focus has been placed on so-called stable coins. While they may have more utility than cryptocurrencies and some practical purpose in facilitating global trade, by my math there aren’t enough short-term T-Bills to back these coins at scale, and even T-Bills have embedded duration risk, making it difficult to envision how stable coins would practically supplant our existing digital currency, the U.S. dollar. For now, it seems like stable coins are a convenient excuse for intermediaries to capture the yield that depositors would otherwise earn if they kept their cash in their own bank accounts.
Positioning Your Portfolio
How does one position their portfolio amidst such uncertainty? My mother’s advice that she shared with me from a young age was that you should never invest money that you’re not willing to lose entirely. Does that mean that the stock market could fall by 100%? Highly unlikely. But through a combination of earnings and multiple compression, it could very well correct by 40%. In that moment, if you don’t have the fortitude to remain focused on your long-term strategy and instead you panic and sell, then you’ll fall victim to the folly of many retail investors and time the market in the worst way possible. In short, I think what my mother meant is that you must have the physiological fortitude to not care if you lose all of your investment so that you can remain fully invested and ride the ups and downs of the market, staying true to your long-term goals. This is one way in which having a financial advisor can be exceedingly helpful: to provide you with context and steady your hands when the emotions of the market risk overtaking years of rational planning. It’s another reason why, according to Capgemini, the average high net worth household in North America keeps a surprisingly high 25% of their liquid assets in cash. By holding a large enough cash cushion, you can withstand the inherent volatility of public markets and the illiquidity of private investments and position yourself for long-term success.
Perhaps a different way of interpreting this is that you need to align your risk appetite with your time horizon. As I wrote recently, for highly affluent households, their investment time horizon may be nearly infinite. As a result, bucketing your assets into two pools — one for use in your lifetime and one for use of future generations — could make a lot of sense. For those who feel less confident they will outlive their assets, it’s important to match your liquidity needs with your investment strategy. Recessions typically last around 18 months. As long as you have sufficient cash reserves to fund your lifestyle during a period of prolonged job loss or income diminution, you should be confident in remaining invested while you ride out the storm.
Our Focus on Cash Remains Steadfast
U.S. bank deposits now top $18 trillion. The Wall Street Journal has previously reported that Americans are missing out on hundreds of billions of dollars of interest income largely because their money isn’t in the highest-yielding accounts.
At Max, we’re continuing to invest in delivering the best cash management solution in the industry. We will soon launch a refreshed and redesigned user dashboard, more sophisticated performance reporting tools, support for more banks, and expanded FDIC insurance coverage. We also have planned several other initiatives that will expand Max’s reach. Stay tuned for further announcements in the first half of 2026.
We remain committed to our core mission: helping depositors keep their cash safe, liquid, and earning as much as possible in their own FDIC-insured bank accounts.
Whatever the year ahead brings, I wish you and your families good health, happiness, and continued success in 2026.