February 2026 – Newsletter

February 2026 – Newsletter

WHAT YOU’LL FIND INSIDE:

• ANNUAL LETTER FROM DON
• CALENDAR
• QCD TAX REPORTING CHANGE
• BUCKLE UP AND PARE DOWN
• GET TO KNOW THE TEAM
• CINCINNATI CHILI RECIPE

Core beliefs that guide our planning and investment approach

We are long-term, goal-focused, plan-driven investors. Our core investment policy is to pursue your goals by investing in broadly diversified portfolios of quality equities. We believe that the economy cannot be consistently forecast, nor the markets consistently timed. Additionally, we find no predictable pattern in the way markets react to, or choose to ignore, economic developments.

We conclude from these beliefs that the only way to be reasonably confident of capturing the full premium return of equities is to ride out their frequent, sometimes significant, but historically always temporary declines. We do not react to, much less try to anticipate, economic and / or market events. As long as your long-term goals remain unchanged, so will our plan for their achievement. And as long as our plan remains constant, so will your portfolio (except for annual rebalancing).

We believe that long-term compounding of quality equities is the most important force guiding us toward the achievement of your goals. As the late Charlie Munger said, “The first law of compounding is to never interrupt it unnecessarily. 

Comments on the current economic / financial backdrop

In 2025, the broad equity market completed its third straight year of double-digit returns, driven by a strong economy and significantly increased corporate earnings. The S&P 500 ended the year up 16.39% (source: Raymond James). The consensus of analysts’ forecasts is for even stronger earnings in each of 2026 and 2027 (source: Yardeni Research).

Somewhat surprisingly, company profit margins kept rising, reaching 13.1% in the third quarter of 2025—the highest level in 15 years (FactSet). Many expected higher costs from inflation, combined with consumers pushback on higher prices, to hurt profits. So far, that hasn’t happened.

The most significant weak spot has been the employment picture, which has continued to soften. But even this has a bright side; strong economic growth and a flattish employment situation mean that per capita productivity has been rising strongly. Unemployment may have recently ticked up to 4.7%, but the other 95%-plus of the workforce is putting out significantly increased products / services per hour; that allows companies to raise wages without triggering inflation.

After six straight rate cuts, Federal Reserve monetary policy is 175 basis points looser than it was a year ago, even with CPI inflation still pushing three percent. It seems more than reasonable to expect the lagged effects of all this easing to begin showing up in 2026.

The middle class in particular is set to enjoy tax refunds this filing season which have been variously estimated around $150 billion, or half a percentage point bump in GDP. The main drivers of this are a higher standard deduction and a temporary restoration of the SALT tax deduction cap from $10,000 to $40,000. This could give the economy a noticeable boost in the months ahead. 

It would not be a surprise if much of the positive data above is new to you—except, of course, the part about the slowing labor market, which the media has been reporting nonstop. In our view, much of the economic and financial “news” we see is skewed toward the negative.

The fact remains that a rising equity market may have taken these data into account. Thus, the burning question all year long was “Are we in an AI bubble?” This replaced the previous year’s burning question, “When and by how much will the Fed cut rates?” Which in turn replaced 2023’s, “Will there be a recession?”

There was no recession, which leads us to the point that the universal burning question is often the wrong question, and a distraction to the well diversified long-term investor.

There can be no question that the broad equity market is more heavily concentrated in a few large tech stocks than it’s ever been in our investing lifetimes, and they can’t all be going to win the AI race.  This concentration has pushed the index’s price-to-earnings ratio close to its historical highs.

Our response to this is twofold: 1. Valuation is not, never was and never will be, an effective market timing tool. And 2. Your imminent portfolio rebalancing will address this issue.

All of this suggests that the next major market shock will likely come out of left field—and, like those before it, and those yet to come, it will matter little to us except as a potential opportunity for bargain hunting. 

We are following a plan that has worked in achieving  our goals as investors. We do not accept that “this time is different” regardless of what “this” is. We don’t adjust our strategy to accommodate the fads or fears of the moment. We don’t go to cash during market panics, and we don’t bet the ranch on “new era” miracles.

We wish all our friends and clients a healthy, happy, and prosperous 2026. We’re always here to address your questions and concerns. Thank you for being our clients. It is a privilege to serve you.

Thus, those who made QCD donations in 2025 will receive two Form 1099-R. Please note, the two 1099-R are not a duplicate of one another.

You can easily view and download your tax forms through Client Access:

1. Sign in to Client Access

2. Navigate to My Accounts > Documents > Tax Reporting

Clients who are receiving two 1099 -R forms will also see a notification banner in the Documents section explaining the IRS code change.

Mary Anne: Yes! However we will have eaten dinner before the game. I will most likely be knitting a baby blanket for the April arrival of a great nephew during the game.

Donald: Yes! I’ll order a smorgasboard from Outback, Pizza Hut, Chick-fil-A…it will be a feast!

Krystal: No! I’ll be doing our usual family nighttime routine getting ready for the next week.

420 South Brown Street
Jackson, MI 49203
517-787-4444
517-795-2530 (F)
www.paramountwealth.com