Market Commentary
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
Happy New Year!
Rather than spend a commentary reviewing the year that was 2025, where ten stocks drove the vast majority of market returns, I figured I would spend a little time walking through the strategies we offer and how they are constructed and managed. So, I will get to that in a minute, but first, I want to share a few charts I cover regularly.
So, let's start with December's performance.
Of the indexes we track every month, gold had the strongest finish to the year, up 1.9% in December, while everything else was either up less than 1% or down for the month. Gold, as long-term clients and readers know, was up yuuuge again in 2025, finishing the year at +64.6%!
I, for one, see no letup in gold’s leadership. Consensus expectations are for more rate cuts, a weaker dollar, higher inflation, and a higher deficit, and all of these expectations, should they pan out, would be a wind in gold's sails.
The Top 10 Index was down for the month, mostly due to Broadcom (AVGO), which fell almost 15%. How dumb of a ticker is AVGO for Broadcom, by the way?
Even with it down in December, the Top 10 Index finished the year up 25.6%, beating the so-called Magnificent 7 by more than 3%. The S&P 500 was up 16.4% for the year, and the S&P 500 Equal Weight was up only 9.3%. That wide a difference between the S&P 500 and the Equal Weight version is well above historical averages. In fact, over the past 25 years, you’d have much rather owned the Equal Weight (more diversified) version.
Take a look:
It is only very recently that the S&P 500 has started to catch up to the Equal Weight, and it is all thanks to the S&P 500 having 40% of its value allocated to just 10 stocks. What happens when those 10 stocks fall? Look out!
In fact, you can see an example from just December, where the Equal Weight was up 0.3% and the S&P 500 was down 0.1%. The reason for the difference? Once again, you can blame AVGO.
As another example, in 2022, the most recent down year, the S&P 500 was down 19.4% and the Equal Weight was down 13.1%.
Looking at the S&P 500 technical analysis using the SPY ETF, the market has failed to claw its way back into the channel uptrend, but it has also avoided a total breakdown or even a technical correction while actually making a couple of new all-time highs. At this point, a new uptrend may be developing (the orange line connecting the higher lows since the initial drop out of the channel), and it is encouraging that the 50-day moving average seems to be holding support.
Meanwhile, the Nasdaq 100, as measured by the QQQ ETF, doesn’t look as good—but it isn’t signaling downside either. Rather, it is in a consolidation pattern, with lower highs and higher lows, as shown in the chart below by the purple lines that almost form a triangle. Again, it is encouraging to see the 50-day moving average holding support here. At the end of this consolidation pattern, the price will most likely break out to the upside or break down. As long as it stays above the 50-day, I would lean towards breaking out higher. But we’ll see. I don't have enough confidence to make a big bet on either outcome.
The Buffett Indicator says that stocks are the most expensive they’ve ever been.
Warren Buffett has officially retired from being the CEO of Berkshire Hathaway. Nothing like going out on top!
The dollar is a major driver of all things priced in dollars, from stocks to gold. The dollar is in a long-ish-term uptrend, but that is in jeopardy this year with the Fed expected to cut rates and the government running massive deficits. If this breaks down, as mentioned earlier, look for gold to rally.
The yield on the 10-year US Treasury is the most important “price” in the entire global economy. It is the basis for all sorts of other rates and drives stock prices as the “risk-free” discount rate used in many analyst estimates. The higher this rate goes, the lower stock valuations go, all else equal. I wouldn’t be surprised to see the Fed actually step in and start buying longer-term Treasuries to try to manipulate the 10-year yield lower. In December, the Fed announced that it would once again begin purchasing short-term Treasury securities to keep short-term interest rates in line with its target. They are calling it “reserve management,” but it is really just another form of manipulation, or Quantitative Easing (QE).
As you can see in the chart below, the 10-year yield is higher now than when the Fed began its most recent round of interest rate cuts in September 2024.
GDP is looking strong, and so it is hard to be on recession watch with numbers like these, whether you believe them or not.
The important thing to remember is that when analysts value businesses, GDP serves as the base rate for the average company’s growth. If GDP (aka the economy) is growing at 5%, it is reasonable to expect the average company to grow its sales at 5%, all else equal. Higher-quality companies would be expected to grow faster. This drives stock prices, and therefore the “market of stocks,” higher.
While inflation is still running above the Fed’s stated target of 2%, it has evidently leveled off, and the most reliable projections I have access to are calling for moderate disinflation in the first half of 2026. Interestingly, the last time inflation was reported at or below 2% was all the way back in February of 2021.
And finally, I will share with you something I posted on LinkedIn a couple weeks ago.
Most market commentary right now is about year-end “S&P 500 targets.” That makes for good headlines, but it often misses the more important question: what are we actually paying for future earnings?
Using Bloomberg data, this slide looks at:
Current forward earnings for 2026
Forward earnings one year out (2027)
The 10-year average forward P/E multiple
If 2027 earnings end up around 343 and the forward P/E multiple simply mean-reverts to its 10-year average of 18.83, you get an S&P 500 level of about 6,459 by the end of 2026—roughly 6% below where it trades today. That is not a prediction, and it is not a price target. It is just what the math says if:
Earnings estimates hold (they won’t, they never do exactly)
Multiples drift back toward their historical average (they may not)
Why share this?
To highlight how much of today’s price is “earnings” vs. “multiple”
To show how sensitive returns are to even small changes in valuation
To encourage investors to frame expectations around scenarios, not sound bites
Valuation is a process, not a prophecy. This is one framework used to think about forward returns, risk, and positioning—not a call to be bullish or bearish, but a reminder to stay anchored in reality instead of narratives.
Most people are familiar with the two major investment categories: Growth and Value.
The opening quote of this commentary is from the “Father of Value Investing” and Warren Buffett’s teacher. At the beginning of Buffett’s investment career, he, like Ben Graham, was almost exclusively a “value investor.”
Value investors look for companies trading below their intrinsic value—assets on sale. The company might be out of favor, the industry might be temporarily depressed, or the market might have simply overlooked it. The value investor's job is to calculate what the business is actually worth, buy it at a discount, and then wait (or actively work to catalyze) for the market to recognize that value.
Value investing is mechanically straightforward: you buy low, you sell at fair value, then you repeat the process. It's a disciplined, cyclical approach, but it is inherently transactional. Once a stock reaches your calculated fair value, you must sell. There's no "hold forever" strategy in pure value investing. You own the stock for a period of time, capture the gain as it re-rates toward fair value, and then move on to the next opportunity. This requires constant work: perpetually hunting for the next undervalued asset, executing trades, paying taxes on gains, and redeploying capital.
Interestingly, a good value investment can be either a good or a bad business overall. The quality of the business is sort of irrelevant. All that matters is whether you can buy it at a discount and sell it at close to its fair value. This can be achieved even in a business that is in permanent decline—but it isn’t without risk. Sometimes these investments turn into “value traps,” where the business looks cheap but, over time, profitability declines enough that its intrinsic value also declines, and it turns out the business was worth less than originally thought.
Growth investors are betting on a business's future potential. The company may be unprofitable today, but the investor believes that if execution goes well, revenue will grow consistently, and other investors will pay a higher multiple on that higher revenue, whether profits eventually materialize at a scale that justifies today's price or not. These are often younger businesses in rapidly evolving sectors—think technology, biotechnology, or emerging consumer trends.
Growth investors must correctly predict which trends will dominate, which management teams will execute, and which competitors will survive. Many won't. For this reason, growth investing carries real downside risk. If the thesis doesn't pan out, your capital can evaporate. However, when growth investing works—when you pick the right company early—the returns can be extraordinary. The tradeoff is clear: higher potential returns, but much higher volatility and a much higher failure rate.
In most, but perhaps not all cases, the growth investor is not planning to hold the investment forever. The plan is typically to sell the business when it reaches its peak revenue growth rates, and the market is paying the highest multiple on that revenue, maximizing the return on the investment before growth slows. The capital is then invested in the next growth candidate.
In both cases, Growth and Value, the ultimate objective is to sell the business at the right time to extract a profit.
There is a third broad category that is often overlooked. It’s called Quality.
When I write that my preferred strategy is to “buy world-class businesses when they trade at fair prices and hold them for as close to forever as possible,” I am talking about quality investing.
Quality investing is fundamentally different from growth and value. A quality business is one that possesses a combination of favorable characteristics: durable competitive advantages, strong management, predictable cash flows, and the ability to grow cash profits without requiring excessive capital investment. More importantly, quality businesses exhibit exponential growth in free cash flow. They don't just grow; they compound.
The late Charlie Munger, Warren Buffett’s right-hand man for decades, was instrumental in shifting Buffett’s thinking from that of a value investor to that of a quality investor. Munger famously advised Buffett to focus on buying “wonderful businesses at fair prices” instead of buying “fair businesses at wonderful prices.”
We can all benefit from Charlie’s insight and Warren’s (mostly) successful shift.
The distinguishing feature of a quality business is that it can reinvest its profits and generate returns above its cost of capital. This creates a virtuous cycle. Year one, the business generates $X in free cash flow. Year two, because it reinvested wisely, it generates more than $X. Year three, even more. And so on.
Consider a business with durable competitive advantages—a recognized brand, an entrenched customer base, or high switching costs that lock in clients. Such a company can grow without spending proportionally more capital. They are capital efficient. Our portfolios are full of companies that fit this criteria; one of the clearest examples is The Hershey Company. They consistently grow cash flow without investing incrementally more into the business via capital expenditures.
That is a beautiful thing. Investors can be very confident that this business will continue to generate increasing cash flow over time, albeit with occasional down years, while continuing to invest substantially similar amounts each year to maintain their factories.
Much of the additional cash flow is returned to shareholders via share repurchases and dividend payments.
Importantly, this exponential compounding of annual cash flow is the foundation of long-term wealth creation. Given enough time—a decade or two—a quality business can transform from a reasonably valued investment into one of exceptional value, not because the market repriced it, but because the business actually became more valuable through internal compounding.
Once you've done your homework and validated that a business is genuinely a quality compounder, you should almost never sell it.
This is the inverse of value and growth investing. A value investor buys a stock expecting to exit at fair value, and a growth investor seeks to exit before growth slows. But a quality investor buys a stock expecting to hold it indefinitely—or at least until the business materially changes or no longer qualifies as a compounder.
Think of it this way: if you own a business that's doubling its free cash flow every five years, why would you sell it? The answer is simple—you wouldn't. You'd hold it for as long as those characteristics persist, pretty much regardless of what the share price is.
Refer back to the chart of Hershy's cash flows vs. capital expenditures. Does that look like a business that became less valuable over the past 2-3 years?
Or does it look like a business that consistently becomes more and more valuable over time?
The price of Hershey’s shares has declined 33% from its 2023 highs, mostly due to the incredible rise in cocoa prices, but during that time, cash flows have steadily risen. Meanwhile, cocoa prices have fallen 40% over the past year and may very well be headed back toward their long-term average. Hershey has been able to pass along most of their increased cocoa costs to customers, as evidenced by their continued cash flow growth.
Hershy is a classic capital-efficient high-quality compounder. I want to hold it forever. I care very little about what price the stock trades at in the market on any given day, as long as cash flows continue to rise, and therefore, my intrinsic value estimate evolves higher and higher with the cash flows.
For high-net-worth investors close to or in retirement, the choice becomes clear. You've already accumulated significant capital. What you need is a portfolio of exceptional, growing businesses that will generate increasing income and appreciation for the rest of your life—without requiring constant intervention.
That's why so much of what we do at Elevate is focused on identifying world-class businesses and understanding their intrinsic value so that we can buy them when they trade at a fair price. It's the rare investment discipline that genuinely rewards patience and discipline. And in a world of noise and hype, that simplicity is worth far more than most investors realize.
However, there are times when quality investing is simply out of favor, as has been the case for the past few years. In fact, take a look at this chart:
In 2025, high-quality stocks underperformed the market to the largest extent since just before the dotcom bubble burst. And look what happened almost immediately after—quality went on to outperform by the most ever.
So, the question is: do you have the patience and fortitude to hold on and “do nothing,” knowing that you own a portfolio of some of the highest-quality businesses on the planet?
Quality isn’t the only thing we do at Elevate. Over the past couple of years, as the market has rewarded the biggest companies in the S&P 500 index, we have been tracking and investing in an index of just the ten largest companies. These Top 10 stocks now account for over 40% of the S&P 500 and were up 25.6% in 2025. Someday, this will become a problem, but until that day comes, thanks to passive investing flows, the biggest stocks will continue to attract most of the new money blindly invested into the market every day, week, month, and year, pushing these 10 stocks higher and higher.
The Top 10 index we created is a standard allocation for virtually all the portfolios we manage, in some proportion. The more aggressive an investor you are, the higher your stock allocation and therefore the more exposure you have to these ten companies.
Aside from rewarding the largest companies in the market simply for being large, the market has also been rewarding profitless garbage. I have written about this several times over the past couple of years, and I have also developed a couple of momentum strategies to capitalize on it.
Momentum investing is a speculative strategy based on the principle that securities exhibiting strong recent performance will continue to perform well. When looking for and taking positions in momentum, I do zero fundamental analysis. I don’t care if the business is good or terrible. In fact, sometimes, the worse the underlying business, the better. Momentum is all about technical analysis. We buy things that are going up, just because they are going up. And when they stop going up, we sell them. This gives us complementary exposure to our portfolio of high-quality businesses.
The Top 10 and Momentum strategies are more “factor” exposures than broad investment categories like the Growth, Value, and Quality categories I discussed earlier.
At Elevate, we seek to continuously improve in all aspects of our business. With any luck, in the next few months you’ll see a major upgrade to our website. I tell the team frequently, “When I stop trying to get better, we need to find someone else to manage portfolios.”
A strategy we developed at the end of 2024 was the Elevate Permanent Portfolio Strategy. I am pleased to report that after one year, it has done phenomenally well, exceeding all my expectations.
The Elevate Permanent Portfolio Strategy is an internally hedged, complete, and permanent solution, as the name suggests. It is built to hold forever, through all market cycles and “quads” as we like to call them.
Hat tip to our friends at Hedgeye for this framework.
I don’t expect the Permanent Portfolio to outperform the market on the upside, so it isn’t necessarily a good fit for everyone, especially those seeking to match or beat the market in up years. But I do expect it to earn an adequate return for most investors over time. It is, however, overly simplistic, using just five ETFs. I think it is a great standalone solution for smaller accounts within a larger portfolio.
Recently, I took the next logical step in our portfolio design evolution. I decided to apply the Permanent Portfolio framework to our core Elevate Strategy, and we have been implementing this over the past couple of months. So far, I am pleased with the results.
As a refresher, our Permanent Portfolio strategy is a modernized and optimized version of the timeless portfolio devised by Harry Browne in the early 1980s. It was later detailed in his 2001 book, “Fail-Safe Investing.”
Browne was an investment adviser and a staunch libertarian who might be best known outside of the financial services industry as the Libertarian Party’s presidential nominee in 1996 and 2000. He passed away on March 1, 2006, but his impact is still being felt today.
The original Permanent Portfolio was simple. It targeted 25% each into four different asset classes: Stocks, Bonds, Gold, and Cash. The long-term track record of that allocation shows that the portfolio design has worked exactly as expected. In fact, it worked so well that we are not the first company (not by a long shot) to copy it to some extent. Browne’s ideas and allocation strategy became the foundation for what is currently the world’s largest hedge fund, Bridgewater Associates’ All Weather fund.
Our version of the permanent portfolio is still organized into these four asset classes, or “buckets,” as I like to call them. The key differences are perhaps subtle, but meaningful. Without getting too far into the weeds, here is how we have modified the 4 buckets.
Stocks: Instead of just investing in the broad stock market, we invest specifically in individual quality stocks bought when they are trading at fair prices, the ten largest stocks as a factor, and speculative stocks (including momentum).
Bonds: Instead of investing in the broad bond market, which would include long-term bonds that may not keep pace with anticipated inflation, we instead own the best insurance companies in the world, which are effectively the largest bond portfolios in the world with the best bond portfolio managers in the world—all with the upside of highly profitable insurance operations. For example, the insurance company WR Berkley has a market capitalization of $26.7 billion, and its bond portfolio, as of its last SEC filing, was about $25 billion. They have another $1 billion in stock investments. Property & Casualty Insurance is the best business in the world.
That said, we may also allocate to individual corporate bonds when we find issues that meet our strict criteria.
Gold: While we do maintain a healthy allocation to plain old gold bullion, we also allocate some of this bucket to royalty companies and to Bitcoin. Royalties are the second-best business in the world. These companies finance gold mining and exploration without taking any of the risk of developing a mine. They are incredibly capital efficient and largely unfollowed by Wall Street. For example, Wheaton Precious Metals (WPM) is valued at $55.6 billion and employs 33 people. That’s $1.685 billion per employee! As a comparison, NVIDIA, an amazing company and extremely capital-efficient, is worth $4.4 trillion and has 36,000 employees, or only $122 million per employee.
Cash: Instead of holding long-term U.S. Treasuries or outright U.S. dollars paying nothing, we are holding a combination of short-term Treasuries and short-term corporate bonds.
When I say this portfolio is internally hedged, I mean that, regardless of the prevailing market environment, there is always at least one bucket that performs well relative to the market. Overall, this framework has produced phenomenal results for countless people over the course of decades. It is worth reiterating that it remains the foundation for the largest and arguably most successful hedge fund in the world.
The final piece of the allocation puzzle is that not every investor gets the same allocation across buckets. Depending on your personal willingness, ability, and propensity to take risk, we have designed an internally hedged version of the portfolio for you. That simply means that more aggressive investors will have more in the stocks bucket, and within that bucket, relatively more in the speculative positions, while more conservative investors will end up with relatively more in the Bonds and Cash buckets. Moderate investors will end up somewhere in the middle.
Depending on when you invested with us, you may have different quality stocks in your portfolio than someone who invested with us years ago. As quality stocks become unfairly priced, we don’t sell them simply because they are too expensive to buy, and we won’t overpay for them when we get new money, either. So, for example, someone might have invested with us in 2020 and bought some very high-quality stocks when they were fairly priced during the COVID crash, and we still hold them today. But they are overpriced now, and we aren’t buying more.
Likewise, speculations behave similarly. We may have bought a breakout in a momentum stock weeks or months ago, but there is no technical reason to buy it with new money today. Over time, these situations tend to resolve, and all our portfolios eventually converge. This happens faster with momentum stocks than with quality stocks, though, as we ideally never sell quality stocks.
With all that said, I also want to remind you that we offer the best passively “managed” portfolios you can find anywhere, and they are as inexpensive as they can be, using Vanguard funds. We have models built to suit your personal risk score, and within these portfolios, you will earn a market return for each asset class. Based on our own capital market expectations, the asset classes can and do change over time, and so do their weightings.
For 2026, we are allocating to Large Cap Stocks, Mid Cap Stocks, Small Cap Stocks, International Developed Market Stocks, Emerging Market Stocks, Real Estate, the Aggregate Bond Market, Short-term Bonds, and Inflation-Protected Bonds.
Since these portfolios are passive, we have historically not sought to actively adjust exposures in response to market conditions. However, in response to demand from some investors, we have developed a rules-based trend-following method to actively adjust exposure based on each asset class's current trend. Most of the time, this strategy will be fully invested, but when a given asset class slips into a down trend, we will reduce our exposure in that asset class to a minimum allocation. We don’t anticipate fully exiting any asset class.
The strategy combines the ease of passive investing with a clear, rules-based approach to managing risk. When markets are trending higher, you stay fully invested. When markets turn lower, we reduce your exposure to help protect your portfolio. It’s designed to keep you participating in growth while limiting losses during downturns. No guarantees, of course.
So, that is a lot to keep straight. Let me take a moment to try to tie it all together for you.
We have five strategies.
The first three are:
The Base Camp Strategy
This is the purely passive strategy. We don’t actively trade it or try to limit downside by holding excess cash during bear markets. We rebalance at least annually and otherwise at our discretion. We will likely rebalance at market extremes, for example, if the stock market were down 50%, we’d probably go ahead and rebalance.
The Divide Strategy
This is the passive strategy with the trend-following overlay. We will actively seek to limit downside by reducing asset classes to their minimums when they enter a downtrend.
The Elevate Strategy
This is our actively managed flagship strategy, based on the framework of the internally hedged Permanent Portfolio.
Each of these three strategies is available at every risk level. Each client is assigned a risk score from 1 to 100, with 100 being the most aggressive and 0 the most conservative. For example, if your risk score is 40 and you prefer active management, the Elevate 40 Strategy would be the best fit. If you prefer a purely passive portfolio, the Elevate Base Camp 40 Strategy is the best fit. And if you wanted something in the middle, where you have passive investments actively managed, then the Elevate Divide 40 Strategy would be the best fit.
The other two strategies are:
The Permanent Portfolio Strategy
This is the one I described earlier that is just five ETFs in the aforementioned buckets. It is a great, moderately conservative option for small accounts within a larger portfolio.
The US Treasury Strategy
This is an alternative to cash sitting in a bank account. The objective is to generate a higher return than you could get on cash at the bank by purchasing only US Treasury securities that mature in 12 months or less.
We offer a little something for everyone, and we are well-equipped to build custom-designed solutions for those who don’t find the perfect fit. These strategies, and the buckets within them, can be combined in myriad ways.
I hope you found this commentary both useful and enjoyable. Please tell me what you think - good, bad, or otherwise.
Would you recommend it to people you know? Why or why not? What about our portfolio management and financial planning services?
Click here and let me know!
Until next time, I thank God for each of you, and I thank each of you for reading this commentary.
Clients, I encourage you to click here to access your personalized performance portal and see how your portfolio performed compared to the market's last month.
Shane Fleury, CFA
Chief Investment Officer
Elevate Capital Advisors
Legal Information and Disclosures
This commentary expresses the views of the author as of the date indicated and such views are subject to change without notice. Elevate Capital Advisors, LLC (“Elevate”) has no duty or obligation to update the information contained herein. This information is being made available for educational purposes only. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Elevate believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Elevate. Further, wherever there exists the potential for profit there is also the risk of loss.
