2025: A Surprisingly Good Year
Given the headlines from January through December, one could certainly be forgiven if they assumed the stock market was down for 2025. Though the market definitely struggled through mid-April (especially just after the tariffs were announced), it quickly and forcefully bounced back. Why? It seems, regardless of the oft-disconcerting news of the world, as long as corporate profits keep going up, markets are reasonably happy. This seems coldly objective, but there it is.
What will 2026 bring? Of course, one never confidently knows ahead of time. The markets historically go up about 2/3’s of the years over the past century, so that tells us, all else being the same, the odds are that it will go up again in ’26. Of course, all else will not be the same, as is the case each year. Big issues to keep in mind for 2026 include continued inflationary concerns, managing our giant and growing national debt, Fed independence threats and possible slowing jobs growth (or even contraction). Many assume these factors will all ‘play nice’ as they did in 2025, and I certainly hope that continues to be the case. However, it is wise to keep in mind a variety of possible scenarios playing out in the investment world. The expression “it doesn’t matter until it matters” has particular poignance after three strong years in the stock market where expectations are high and investor comfort is easy.
You Can’t Spell Mania Without AI
As AI sweeps over the investment world, data centers seem to be all the rage, including here in good ole’ Michigan. These buildings are huge warehouses of computers to process and store information to help fuel AI growth. Data centers require HUGE amounts of power and water to operate. Besides the important questions of where will all this power and water come from and the associated environmental and municipality costs, a major looming question for investors is will these vast sums of money being spent actually lead to big profits? Because, if not, someone or some company(ies) will be stuck holding a massive bill. Firms such as Meta and Oracle, amongst many others, are helping finance these projects. Oracle, in particular, has seen its very solid balance sheet quickly become notably more leveraged. Is this a good thing? Well, it is for them if their projections mostly come to profitable fruition. Otherwise, they could be in a world of financial hurt which might result in gilded corporations like Oracle becoming financially strapped. Investors need to stay tuned and pay attention. Leverage, as always, increases potential reward but also loss.
Et tu College Football??!!
The more I read about and observe the recent goings-on in college football, the more I see a familiar pattern that reminds me of the concurrent data center craze. Gobs of money are being directed toward a desired outcome (to win) though it’s not yet clear exactly what that outcome will be nor are the downsides seemingly being truly factored in. Giant television contracts are stuffing major university athletic department coffers, even more so than even just 5 or 10 years ago. Yet, with all this new money coming in, even MORE money is now going out for facility upgrade wars to one-up competing universities, as well as to pay coaches and players. Thus, even the well-known, ‘successful’ athletic programs are building up debt even as the money gushes in (this is why I believe the Big Ten has been unwisely considering taking $ from private equity for a stake in future cash flows).
Where does all this take us and how will things be better as a result? If most universities simultaneously throw all their new money around, no university gets a greater comparative advantage and the money is then not spent wisely nor effectively. It’s an arms race potentially to nowhere.
The data center arms race seems to carry similar characteristics. Money is being feverishly thrown at the AI build-out not so much due to a clear path to improved profits but instead from a fear of missing out on what could be. Given the massive dollars involved, it would seem wise to be more thoughtful and measured in how much and where to invest. Alas, that’s just not the case and companies and universities instead feel they need to make quick and bold moves to stay competitive, even if they do so without much clarity as to where it’s all going. We’ll see where this goes, but the possibility of unfortunate results certainly seems possible if not reasonably probable, at least in certain cases.
Talking Trash in NOLA
Not a day goes by lately without political news out of Washington taking center stage. But we can look outside of the nation’s capital and down to the Crescent City – New Orleans – to see a recent example of common sense and politics clashing. Fortunately, in this case, common sense won out.
Anyone who’s been to the French Quarter knows it’s charming, lively, a bit edgy…and in fact kind of dirty. Well, a street-cleaning company stepped in which seems to reflect many of the best traits of capitalism: showing creativity and offering a clearly better solution to a problem: how do you make the French Quarter sparkle?
The company, IV Waste, utilizes shiny black trucks and has a popular signature lemon scent in their cleaning products. Oddly, the mayor of New Orleans wanted a different company to be awarded the cleaning contract, which suggested to observers and fans of IV Waste that there must be some ulterior reason for that mayoral preference.
IV Waste was widely desired to win this battle because they did the obvious: a great job doing something unpleasant yet important – municipal cleaning. After going to the state of Louisiana Supreme Court, IV Waste won out, as did of course apparently the people and businesses of the French Quarter and New Orleans.
It seems IV Waste is exactly what consumers in any economic system want: a company thatpleases, maybe even delights, its customers. The fact it’s delighting people in the naturally challenging, dirty industry of municipal street clean-up is even more remarkable. The fact that entrenched, beauracratic forces tried to foil them yet grass-roots efforts thwarted that bad outcome is also remarkable.
We should look at this too-uncommon example as something to be benchmarked and expanded upon. If you can provide a valuable service that customers love, you should be rewarded and celebrated.
Brian Weisman, CFA,CPA,CFP,CMA
(734)665-1454
brian@columbiaasset.com
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