Investment Insights

Markets continued to rally through the fourth quarter of 2025, leading to a positive year across assets. The total return for the S&P 500 was 2.3% during the fourth quarter, while global equities also rose with the MSCI World returning 2.8%. The benchmark 10-year US Treasury rate (UST10) was rangebound in the quarter, starting at 4.15% and ending at 4.17% (up +2 bps). Looking at other indicators for the third quarter, the US dollar index (DXY) (+0.5%) remained stable in 4Q25 but has resumed its decline in the first few weeks of 2026. WTI oil (-7.9%) declined, while gold (XAU, +11.9%) continued to rally and reached new all-time highs. Gold is up another 20% in the first few weeks of 2026.

The fourth quarter was characterized by the U.S. government shutdown starting on October 1, which was ultimately resolved and led to government re-opening as of November 12. The U.S. economy took the shutdown in stride, with GDPNow estimating real GDP growth of 4.2% for the fourth quarter as of this writing, which is well above the economic consensus forecast.

The Fed cut rates by -25 bps at its December meetings, bringing the Fed funds rate to a range of 350-375 bps, but held rates steady in its first FOMC meeting of 2026. Fed Chair Powell is under investigation by the Department of Justice, and President Trump decided to nominate Kevin Warsh as the new Fed Chair. We note that core PCE (inflation) remains well above the Fed’s 2% target, with the most recent monthly reading at 2.8%. Although there has been almost no additional progress in reaching the Fed’s inflation mandate, we acknowledge signals of labor market weakness are also of concern. Even though the two sides of the Fed’s mandate are in opposition, we expect a more dovish Fed Chair to take over once Fed Chair Powell’s term ends in May. Markets are pricing in 1-2 additional rate cuts this year. We also expect the Bloomberg Aggregate Index will finally surpass its 2021 peak sometime in 2026, after a historic 5-year drawdown driven by higher Treasury rates.

As we enter 2026, we note that 2025 was another positive year in both equity and bond markets. Looking ahead, we expect volatile and unpredictable markets whipsawed by geopolitical events and investor sentiment. We emphasize that while U.S. GDP growth remains solid, equity valuations are high. The S&P continues to flirt with new all-time highs, approaching 7,000. Given that we are generally constructive on the economy, we look for equity markets to see a broadening out in performance for 2026. For example, small caps have rallied by 7.5% through the first few weeks of the year, compared to a 2% total return for the S&P 500 year-to-date. It is too early to call the full-year, of course, but with elevated levels of index concentration, the momentum in the S&P is very reliant on a handful of mega-cap tech names. We reiterate our view that well-diversified equity portfolios represent a better long-term strategy than concentrating solely on large-cap growth.

Portfolio Changes

Following the conclusion of the quarter, our Investment Committee adjusted the investment allocations and underlying fund selections for several strategies. The Investment Committee adopted a more pro-growth stance, trimming in U.S. Value and adding to EM equities. For fixed income, securitized assets were added, while trimming Global Agg, to gain exposure to similar credit quality, shorter duration, and higher yield.  The Investment Committee also approved a modest allocation to “real assets” to serve as a modicum of inflation-protection, given the lack of further progress form the Fed in reaching its inflation goal. Industries such as utilities, real estate, and infrastructure are critical and supply constrained, with the ability to adjust pricing in-line with inflation. Amerant has continued its partnership with global investment management firm BNY Mellon for consulting services on the advisory portfolios, and any changes in the portfolios that are approved by the Investment Committee will be implemented at our discretion going forward.

Summary Market Views

In the table below, we update our Amerant Market Views, which represent our investment team’s tactical views based on investment valuations and macro trends. As a reminder, these are not client-specific recommendations, and clients should always consider their long-term financial goals and objectives when determining their asset allocations.

We made adjustments to our views on equities, moving from neutral to slightly overweight on U.S. Large Cap Growth. While we remain wary of concentration in the mega-cap tech stocks, our move reflected strong earnings, stabilization of trade policies and economic expectations, and broader market participation beyond mega-cap tech equities. So this change was based on a broader growth story for the U.S. economy, despite our concerns about concentration in mega-cap tech. We also introduce an overweight tilt on EM equities   for the first time.

The allocation to real assets was accompanied by a reduction in the equity income style bucket within the portfolios.

As for fixed income, we reduced our overweight allocations to investment grade while increasing our allocation to emerging markets debt. We maintain our overweight on securitized debt, given the deb’t attractive yield relative to its credit quality. Our more constructive position on EM debt rests on our view of attractive carry and positive geopolitical momentum should benefit this asset class.

This information is being provided for informational and educational purposes only to support our general market commentary. It should NOT be interpreted as investment advice regarding any specific security or investment strategy. See the disclosures at the end of this presentation for additional important information.

What to Expect for 2026  

In last quarter’s note, we were grappling with a lack of macro-economic data given the long government shutdown. With the resumption of government data, we have seen a stabilization in both the labor markets and inflation indicators. Markets have been focused on productivity gains from AI-led investments. We remain cautious that the elevated level of capex for AI build out will translate into tangible progress in the near term, and look for broader participation across industries for market leadership. Overall the economy is healthy, but vulnerable to external shocks given the high starting level of valuations. For fixed income, we see risks as balanced and believe this asset class is best for investors looking for income, rather than capital appreciation, for the year ahead with higher baseline rates generating carry.

Notes: Asset class performance is in USD and refers to the following indices: Equities: US Large Caps (S&P 500), Emerging Markets (MSCI EM), Europe (MSCI Europe), Japan (MSCI Japan). Fixed Income: 10-Yr. US Treasuries (BofAML US Treasury Current 10-Yr.), Emerging Markets Sovereign (USD) (EMB ETF), Emerging Markets Sovereign (LCL) (LEMB ETF), US High Yield (BofAML US HY Master II), US Investment Grade (BarCap US Aggregate Bond). Source: Morningstar. (1) Strategy returns net of mutual fund expenses and Amerant Investments standard management fees.

On these tables, you can see index and strategy returns for each quarter of 2025 and the full year performance.

The fourth quarter of 2025 experienced strong positive returns in U.S. equities and more modestly positive fixed income returns. For the year-to-date, asset class returns are broadly positive.

For the fourth quarter, returns were positive across all strategies. Large-cap equities and EM equities were both positive contributors to returns. The Income strategies continue to emphasize distribution income and maintained a strong performance for the fourth quarter. All the funds included in the portfolios are hedged back to the U.S. dollar, driving underperformance relative to unhedged portfolios as the dollar fell materially in 2025. As always, we will communicate any changes in our views and positioning going forward.

⁽¹⁾ Returns may vary. Past returns are no indication of future performance. Returns up to February 2020 are based on A shares, which were used on the portfolios up to that month, net of the then standard AMTI 1% management fee. Returns from March 2020 to June 2021 are based on I (or similar) shares, which have no 12b-1 fees, net of a standard AMTI 1.25% management fee. Returns starting July 2021 are based on I (or similar) shares, which have no 12b-1 fees, net of a standard AMTI 1% management fee.

For the one year through 3Q25, the Income Portfolio returned 2.8%, the Income & Growth Portfolio returned 5.6%, and the Growth Portfolio returned 11.5%.  The longer-term performance figures remain positive across all strategies.

As always, we take the trust you have placed in us very seriously. In our day-to-day operations, we continue to follow current events and the reactions of the markets closely, and we stand ready to adjust your portfolios accordingly.

To obtain more detailed information on our market views or the performance of your advisory portfolio, please contact your investment consultant at Amerant Investments by calling (305) 460-8599.

Sincerely,

Amerant Investments, Inc.

https://www.amerantbank.com/