In the fourth quarter of 2025, alternative investments (“alternatives”) on average had solid positive returns comparable to U.S. equity returns but underperforming global equity markets. Investor attention has continued to focus on artificial intelligence (“AI”). Economic data offered a similar profile to the prior quarter: solid growth (gross domestic product, or GDP), a soft job market, and sticky inflation. The Federal Reserve (the “Fed”) lowered the Fed Funds rate by 25 basis points (“bps”) at each of its two meetings during the quarter, leaving the policy rate at 3.75%. Despite rates being 175 bps below their peak, inflation remaining well above the Fed’s 2% target, and various forms of fiscal stimulus set to roll out in 2026, the executive branch has continued to call for even lower interest rates. The sharp move in commodities, gold in particular, might be interpreted as one corner of the capital markets voicing an opinion on the future path of inflation. Countering this narrative is the growing optimism and apprehension surrounding AI, which is expected to boost productivity and corporate profits but could also displace workers, potentially contributing to deflationary pressures. Equity valuations remain at historic extremes, yet investors appear largely unfazed. There is some concern that a significant portion of global growth, the U.S. in particular, is being driven by the outsized capital expenditures related to AI and the energy infrastructure necessary to support it without clarity into the long-term return on investment.

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In this episode, Brian Wesbury discusses his recent testimony on Capitol Hill, First Trust’s economic outlook for 2026, and implications of overvalued markets.

• Net inflows for US-listed ETFs totaled $224.0 billion in December, bringing total ETF assets under management to $13.3 trillion.
  
  
• Equity ETFs had net inflows totaling $173.3 billion in December, bringing trailing 12-months (TTM) net inflows to $902.6 billion. Active equity ETFs accounted for $24.0 billion in net inflows in December, compared to $149.3 billion in net inflows for passive
  equity ETFs. Total AUM in actively managed equity ETFs was $879.4 billion, accounting for 8.4% of all equity ETF assets ($10.5 trillion), as of 12/31/25.
  
  
• Fixed income ETFs had net inflows totaling $38.3 billion in December, bringing TTM net inflows to $432.6 billion. Active fixed income ETFs accounted for $13.1 billion in net inflows in December, compared to $25.2 billion in net inflows for passive fixed income ETFs. Total AUM in actively managed fixed income ETFs were $470.3 billion, accounting for 20.9% of all fixed income ETF assets ($2.3 trillion), as of 12/31/25.
  
  
• Commodities ETFs had net inflows totaling $9.4 billion in December, bringing TTM net inflows to $57.3 billion. Precious metals ETFs (+$8.8 billion) had the largest net inflows for the month.

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Over the past few years, the U.S. equity market has been dominated by a relatively small number of mega-cap stocks, whose concentration in broad market benchmarks has reached unprecedented levels. Against this backdrop, we think it’s important to remember that, if history is any guide, the best performers of the next decade may look substantially different from the last decade as newer market entrants disrupt large incumbent stocks. The “Magnificent 7” themselves illustrate this point, as only three of these stocks (Apple, Microsoft, and Alphabet) were among the top ten holdings of the S&P 500® Index at the end of 2014. Accordingly, we believe investors should consider overlooked growth opportunities that may be lacking from most broad market benchmarks. In our view, one efficient, scalable strategy to gain exposure to such stocks is the First Trust US Equity Opportunities ETF (FPX), which we highlight.

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In 2025, the S&P 500 Index (the “Index”) continued its march higher with a third consecutive double-digit return (17.9%) despite a massive correction in early April 2025 when the Index was lower by 15% (April 8, 2025) for the year at one point. The headlines were all about tariffs, Liberation Day, and Artificial Intelligence but the real story was what always drives market returns. Earnings! And earnings for the Index in 2025 are expected to have grown almost 13% for the year after companies report their fourth quarter results later this quarter. More importantly, earnings projections for 2026 are expected to grow over 15% for the Index. Last year’s exceptional returns were the result of this profit growth and continued multiple expansion.

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Will the stock market finally broaden?  Are valuations stretched?  Will momentum stall for AI-related stocks?  Richard Bernstein provides his perspective on these questions and others, laying out risks and opportunities for investors for 2026. 

At the precipice of a new year, Bob Stein discusses the implications of a probable new Fed Chair, the possibility of a Supreme Court ruling against tariff policies, and the odds for mid-term elections.

Will AI replace—or empower—financial advisors?  Performance coach Kevin Bishopp shares how financial professionals are already leveraging AI tools, potential risks ahead, and new opportunities to thrive in an AI era.

• Net inflows for US-listed ETFs totaled $141.1 billion in November, bringing total ETF assets under management to $12.9 trillion.
  
  
• Equity ETFs had net inflows totaling $98.3 billion in November, bringing trailing 12-months (TTM) net inflows to $850.5 billion. Active equity ETFs accounted for $18.8 billion in net inflows in November, compared to $79.5 billion in net inflows for passive equity ETFs. Total AUM in actively managed equity ETFs was $842.2 billion, accounting for 8.2% of all equity ETF assets ($10.2 trillion), as of 11/30/25.
  
  
• Fixed income ETFs had net inflows totaling $42.9 billion in November, bringing TTM net inflows to $410.0 billion. Active fixed income ETFs accounted for $13.6 billion in net inflows in November, compared to $29.3 billion in net inflows for passive fixed income ETFs. Total AUM in actively managed fixed income ETFs were $456.4 billion, accounting for 20.4% of all fixed income ETF assets ($2.2 trillion), as of 11/30/25.
  
  
• Commodities ETFs had net inflows totaling $2.1 billion in November, bringing TTM net inflows to $46.3 billion. Precious metals ETFs (+$2.0 billion) had the largest net inflows for the month.

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In the 1986 movie Top Gun, a seasoned officer scolds a cocky young pilot who is taking too much risk in the air by saying “... your ego is writing checks your body can’t cash.” We love this analogy for the early November 2025 hiccup in everything Artificial Intelligence (“AI”), as the markets pivoted from applauding each announcement of extraordinary AI spending to voicing skepticism at the enormous cost and uncertain payoff. And it is not just in the equity markets. As leverage increases, investors are more discerning about the debt that is fueling the AI infrastructure build as well. The Wall Street Journal had a recent article detailing the increasing amounts ofdebt from AI-related issuers and noting the widening spreads hyperscalers are being forced to pay as an indication of the rising capital expenditure (“CapEx”) scrutiny.

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