Why This Cycle Feels Different: Discipline, Dispersion, and the Year Ahead - 1/12/26

In this episode of Paramount Wealth Perspectives, Chris Coyle is joined by Chief Investment Officer Scott Tremlett to unpack what truly changed in markets from 2025 and what investors should expect as 2026 takes shape. While headline returns from last year looked strong, the underlying structure of the market shifted in important ways, moving from a stimulus-driven environment to one defined by resilience, selectivity, and discipline.

Chris and Scott explore why narrow leadership and concentrated returns can quietly increase risk, how investor behavior may become the biggest challenge in the year ahead, and why markets no longer reward the same habits that worked over the past decade. They discuss sticky inflation, a cooling but stable labor market, and why fewer rate cuts do not necessarily signal policy error, but rather a more constrained and realistic backdrop.

The conversation also covers evolving sector leadership, the maturation of the AI theme from narrative to infrastructure, and why equal-weight exposure and active decision-making may matter more going forward. International and emerging markets come back into focus as a softer dollar, improving balance sheets, and shifting global growth dynamics create new opportunities.

Chris and Scott close by emphasizing the importance of patience, diversification, and thoughtful positioning in a market that does not need to break to challenge investors. In a year likely defined by dispersion rather than momentum, this episode offers a grounded framework for navigating complexity and staying disciplined in 2026.

Stay informed. Stay ahead.

Transcript

Chris Coyle: 0:00

Intro song

0:11

Hello everyone. Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events. Before we dive in, we hope you all had a wonderful holiday season and that 2026 is off to a great start. As always, this is your host, Chris Coyle. I am the market director and an advisor here at Paramount Associates Wealth Management, and today I'm joined by our Chief Investment Officer, Scott Tremlett Let's start with the big picture. When you look back at 2025 and then ahead to 2026, what actually changed? Well, to be honest, the market performance looks great on paper and underneath it, the structure changed a lot. 2025 rewarded patients, but in the first half of the year, it also rewarded a very narrow group of winners. And that's important because when you get narrow leadership for that long, it feels stable right up until it isn't. We are starting to see the breadth of earnings beats increase, and that should continue throughout 2026. What really changed is that resilience replaced stimulus. The economy bent repeatedly. Rates stayed high labor cooled, politics were noisy, and yet things didn't break. That tells you why policymakers aren't in a rush and why markets shouldn't assume they'll be rescued the way they were in the last cycle. So you're saying the economy holding up is actually part of the risk? Exactly. When things don't break, expectations get lazy. Investors start assuming the next slowdown will be handled the same way the last one was. And that's dangerous thinking. Resilience buys time, but it also removes urgency. And when urgency disappears, mispricing tends to build quietly instead of correcting violently. That's a different framing than the usual recession conversation. It has to be. This isn't a crisis setup, but it's also not a bailout cycle. That middle ground is uncomfortable for investors, and historically, that's where positioning errors happen. People either stay too aggressive for too long or get defensive way too early. You've emphasized concentration a lot. Why does that matter so much right now? Because concentration distorts perception, a small group of AI linked companies drove the bulk of returns, earnings growth, and capital spending if you own them, 2025 felt easy. If you didn't, it felt like nothing worked. But markets that rely on a narrow set of outcomes are fragile. They reward outcome chasing instead of playing probabilities and heading into 2026. Dispersion, not momentum is likely to dominate returns. So it's not that AI goes away, it's that the market's relationship with it changes. True. AI didn't peak, it just matured, and that transition matters early in any cycle. The market rewards narratives later. It rewards. Actual execution, strong headline returns in 2025 hid what was actually happening under the hood. That doesn't mean the market collapses. It means selectivity matters again, and passive exposure isn't doing the same work it did five or even 10 years ago. You've said one of the biggest risks heading into 2026 isn't economic. It's behavioral. What do you mean by that? Well, markets trained investors over the last decade to expect speed, certainty, and rescue. If something broke, policy stepped in. If volatility rose, liquidity, followed, that muscle memory is still there, but the environment has changed. Liquidity is less forgiving. Policy is more constrained. Dispersion is higher when investors apply old habits to a new regime, they tend to overreach the market. Now, rewards process over prediction, that's a hard adjustment. Let's now talk about the fed. Markets still seem convinced cuts are coming quickly. They probably are coming just fewer than people want. My base case hasn't changed. Two cuts in 2026 is the ceiling and not the floor, and one cut is entirely plausible. And that's not because the Fed is stubborn, because there's simply less room to move than people think. Inflation cooled, but it didn't disappear. Shelter costs, labor shortages, energy infrastructure, all of that keeps inflation sticky. So fewer cuts doesn't mean policy error, No fewer cuts aren't a policy mistake. They're a reflection of reality. Financial conditions aren't restrictive. Equity markets are near highs. AI driven investment continues regardless of modestly higher rates. This isn't hostile, but it's not accommodative either, and investors need to understand that difference. you've used the word quote unquote sticky a lot when talking about inflation because direction matters less than the destination. Inflation is falling, but it's not going back to the pre 2020 world housing supply constraints, labor dynamics, energy, bottlenecks, those don't unwind quickly. Sticky inflation keeps real rates positive and limits how aggressive central banks can be. That's why markets expecting a rapid return to ultra low rates. Are likely to be disappointed. The more realistic outcome is inflation fluctuating in a narrow, but elevated range, low enough to avoid crisis, high enough to constrain policy. And what about the labor market data? That's usually where cracks show up. The labor market is cooling but not cracking. Hiring is slowed, quits declined, and wage growth has started to moderate, but layoffs remain contained outside of a few structurally changing sectors. The more important story is bifurcation. Upper income households continue to carry consumption. Lower income households are under pressure and that gap widened in 2025 and it's still widening. So recession risk depends on which consumer you're talking about. You're correct. Aggregate data hides stress at the margin and strength at the top. That's why you get confusing signals. The real risk for 2026 isn't mass unemployment. It's confidence if people start feeling insecure before it shows up in the data, spending changes quickly. For now, labor is a yellow light, not a red one. How does all of this translate into sector positioning? Well, the leadership broadens. AI still matters, but not every AI stock is an AI investment. Technology remains core, but dispersion increases. Infrastructure winners separate from software, laggards, industrials and utilities benefit from data center build outs and grid modernization. Financial stabilize as margins normalize, but consumer staples do remain volatile. This is a market where equal weight exposure and active management matter. Again, broad beta. Or risk still works, but it's no longer doing all the work for you. You've been more constructive on international markets than most investors because the setup finally makes sense. The case isn't just valuation driven, it's macro driven. A less exceptional US growth profile and the Fed closer to the end than the beginning of its cycle. Create room for a weaker dollar, particularly early in the year. That matters. A softer dollar acts like oxygen for international and emerging market assets. What about Europe specifically? Well, Europe, Chris isn't booming, but it's stabilizing and low expectations matter. Inflation cooled faster than in the us. Energy risks faded. Fiscal support increased and earnings are holding up better than expected. You don't need heroic growth assumptions. When valuations are reasonable and sentiment is low, that's often where the best risk adjusted opportunities do come from. And what about emerging markets? Well, emerging markets enter 2026 in better shape than they've been in years. In my opinion, many central banks tightened earlier and more aggressively. Balance sheets are healthier. Commodity linked economies benefit from infrastructure demand, and reshoring currency dynamics help too. A softer dollar eases financial conditions and improves capital flows. India parts of the Southeast Asia area and Latin America all stand to benefit from AI driven infrastructure demand. Let's come back to ai. It's still the dominant theme. Yes, but the story has changed some. In 2025 AI was the headline in 2026. It's the backbone. The durable opportunities are infrastructure, semiconductors, power generation grid equipment. Data centers, cooling networking. These are multi-year capital cycles and not short-term trades. So not another.com cycle? No, sir. This looks more like an electrification or highways, massive upfront investment, long duration payoff. And the real story isn't just technology, it's productivity that shows up slowly, but when it does margins follow. Companies that deploy AI effectively should see operating leverage even in slower growth environments. You've also emphasized medals and alternatives more than in the past years. Because they're doing a different job now. Gold and metals aren't just an inflation hedge. They're a confidence hedge in a world of large deficits, geopolitical risk, and central banks that never fully normalize confidence matters. Copper and aluminum benefit directly from electrification and AI infrastructure, real assets, private equity and private credit help to diversify portfolios as public markets become more binary. If you had to boil all of this down, what's the single biggest risk for investors in 2026? To me, it's behavior. Not inflation, not recession, but investor behavior Markets train investors to expect rescue 2026, rewards, patience, selectivity, and discipline. Instead, the market doesn't need to fall for people to get hurt. It just needs to stop rewarding bad habits. This cycle doesn't end because of time. It ends because of excess. We're not there yet, but you don't wanna be positioned as if we'll never get there. So how should people think about 2026 overall? Well, it's not about calling the next crisis. It's about navigating complexity. The era of easy money in my mind is over the era of real investment, real assets and real earnings is not successful. Investing in this environment requires slowing down, broadening opportunity sets and resisting the urge to chase outcomes. Stay diversified and stay disciplined. Awesome. Thanks Scott. As always, myself and our listeners, appreciate your insights. Thanks, Chris. I'll catch you again in two weeks. I also want to thank our audience for tuning in and remember to please submit your questions via email to general@paramountassoc.com. For now, stay informed. Stay ahead and join us next time for more key updates shaping the global economy.