Blog

FEBRUARY 2, 2026 – During the fourth quarter, the HighGround Capstone Fund delivered solid returns and outperformed its benchmark for the period, as well as over the past one, three and five years. Capstone’s long‑term results highlight the strength of a diversified portfolio across changing market conditions.

Here are five key takeaways from our fourth-quarter market update:

1. CAPITAL MARKETS:
• Global capital markets advanced for the third consecutive year, driven by resilient global economic growth that shook off initial tariff shocks, robust corporate earnings, lower interest rates and markets' eventual adaptation to U.S. trade policies through supply-chain adjustments and stimulus effects that ultimately supported rebounds in equities.
  
  
• The ICE U.S. Dollar Index fell 10.7% in the first half of the year—its worst six-month performance in over 50 years—before staging a partial recovery with a modest ~1-3% gain in the second half, ultimately closing the year down approximately 9.4%. This sharp weakening stemmed primarily from heightened policy uncertainty surrounding tariffs and trade tensions, Federal Reserve rate cuts that narrowed yield advantages, persistent large fiscal deficits raising concerns about long-term sustainability, and shifting global capital flows away from U.S. assets amid growth worries.
  
  
• Global equities (MSCI ACWI) reached record highs during the quarter, continuing the rally that began in mid-April. With a gain of 3.3% for the quarter, global equities finished the year up 22.3%, supported by strong double-digit returns across all regions.
  
  

  For the year, all sectors posted gains, with nine of eleven sectors delivering double-digit returns. For the third consecutive year, the technology sector (+26.4%) was the largest contributor to overall performance, driven by continued strength in AI-related stocks.

• Despite a volatile quarter, U.S. equity markets (Russell 3000®) rose 2.4%, closing the year with a 17.2% gain. All sectors posted gains for the year, with technology and communication services delivering the strongest performance and contributing most to overall returns. Growth stocks (+18.2%) continued to outperform value (+15.7%), while small-cap stocks (+12.8%) underperformed large-cap stocks (+17.4%) for the ninth consecutive year.

  In 2025, the S&P 500® recorded 38 new all-time highs, driven by ongoing mega-cap dominance. The top ten companies accounted for 41% of the index’s market capitalization and generated more than half of its 17.9% annual return. By comparison, the equal-weighted index gained 11.4% for the year.
  
  
• International equity markets (MSCI ACWI ex U.S.) outperformed U.S. equity markets for the year. The Index gained 5.1% in the quarter (6.0% in local currency) and finished the year up 32.4% (24.4% in local currency), marking its strongest annual performance since 2009.
  • Non-U.S. developed markets (MSCI World ex U.S.) advanced 5.2% for the quarter (6.1% in local currency), finishing the year with a gain of 31.9% (21.7% in local currency). Performance was broadly positive, with 20 of 22 countries posting gains for the year.
  • European stocks rose 6.2% in the final quarter (6.1% in local currency), ending the year with a gain of 35.4% (20.6% in local currency). Performance was supported by stronger-than-anticipated economic growth, accommodative monetary policies, fiscal expansion in Germany, solid corporate earnings and a weakening U.S. dollar. All sectors posted positive returns, led by financials, which was the best performing and largest contributor to overall results as European banks delivered strong earnings growth.
  • Asian-Pacific stocks rose 2.2% for the quarter (6.3% in local currency), finishing the year up 23.3% (21.0% in local currency). Performance was led by Japanese equities, which advanced 24.6% (24.3% in local currency) on the back of strong corporate earnings, ongoing corporate governance reforms, momentum from the global AI boom and a weaker yen.
  • Emerging markets (MSCI EM) outperformed developed markets (MSCI World) for both the quarter and the year, gaining 4.7% for the quarter (5.6% in local currency) and finishing the year up 33.6% (31.3% in local currency). All regions posted double-digit returns. China (+31.2%), Korea (+99.9%) and Taiwan (+39.1%) were the largest contributors, driven by strong performance in semiconductor manufacturing and other technology companies benefiting from the global AI surge. Latin America (+54.8%) also delivered strong results, supported by elevated commodity prices, easing inflationary pressures and a weaker U.S. dollar.
  • U.S. fixed income (Bloomberg U.S. Aggregate) returned 1.1% for the quarter, finishing the year up 7.3% as interest rates declined and credit spreads tightened over the course of the year.
    
    
2. U.S. ECONOMIC GROWTH:  The U.S. economy continued to expand in 2025, supported by resilient consumer activity and increased capital expenditures related to AI. Third quarter GDP grew at an annualized rate of 4.3%, driven by strong consumer spending, higher net exports and increased government spending.
   
   Forward-looking indicators point to moderate growth in 2026, supported by ongoing AI-related investments in infrastructure, moderate inflation, fiscal stimulus, improved productivity and easing financial conditions. However, headwinds remain from geopolitical tensions, the Administration’s tariff policies and a cooling labor market.
   
   
3. U.S. INFLATION:  Headline inflation, as measured by CPI, closed the year up 2.7% year-over-year. Shelter, the largest component of inflation, rose 3.2%, down from a 4.6% increase in 2024, as rent growth moderated and home prices edged lower. Utility prices posted the largest annual increase at 7.7%, partially offset by a 3.4% decline in gasoline prices.
   
   
4. U.S. LABOR MARKET: Despite the stronger momentum in the second half of the year, signs of underlying economic weakness persisted. Job growth stagnated, consumer sentiment softened and U.S. manufacturing contracted, according to the Institute for Supply Management Manufacturing PMI, as business activity slowed and input costs rose. The services sector, however, continued to expand. The construction industry also delivered mixed results. Nonresidential projects such as data centers, semiconductor plants and infrastructure saw strong growth, while residential construction faced challenges from elevated interest rates, labor shortages and rising material costs.
   
   
5. GLOBAL ECONOMIC GROWTH:  Globally, economic conditions improved throughout the year as U.S. trade tensions eased. Emerging Asia drove much of the expansion, led by robust activity across the AI supply chain. However, consistent with trends in the U.S., ongoing challenges remain due to global trade uncertainties, geopolitical instability and varying monetary policies among major central banks.

If you have any investment questions, call our expert team today at 214.978.3300 or email info@highgroundadvisors.org.