This podcast is being brought to you by John Hancock Investment Management Distributors LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speakers, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.

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John

Hello, and welcome to the Portfolio Intelligence podcast. I’m your host, John Bryson, Head of Investment Consulting and Education Savings at Manulife John Hancock Investments. Today is December 4, 2025, and the year is closing out rapidly.

To help us take a look back at 2025 and a peek forward at 2026, I've invited back Matt Miskin and Emily Rowland, who are both Chief Investment Strategists here at Manulife John Hancock Investments, to talk about what's happening in economies and markets around the world. Matt, Emily, welcome.

Emily

Thanks for having us.

Matt

Yeah, thanks for having us, John.

John

You got it. Hey, before we jump in, longtime podcast listeners know that once a year I ask Emily the most important question of the year. And that's: what should I give my wife for Christmas? Matt always leeches off of this idea, so I know he’s interested too. So, Emily, give us some ideas. What do you got for us?

Emily

Yeah, I think we’ve been doing this offline for something like a decade too, you know, way back in the days of statement necklaces and things like that. You know, I think naming a star after her, John, would be really nice. But if you want to be a little bit less cheesy, I'll give you the top two things on my list this year—a towel warmer. I’m really looking forward to getting one, you know, just for those chilly mornings when you're getting ready. And then an electric blanket is the second thing on my list. So, I guess this shows that I’m like firmly in middle age and I’m getting very cold apparently in my old age. But those are my two top picks for this year.

John

I love them. And I'll actually go and say, you know what my wife got me last year for Christmas? She got me a towel warmer, and we use it all the time. Yep. So, great idea. Great idea. So, all right, I love it. I love it. I’m gonna think about the star as well. And the heated blankets—like, we have like five in our house, so. But great, great insights.

Matt, I would ask you, but you're not going to give me anything worthwhile. So, we'll move on.

Emily, I will stay with you. Let’s get into the markets. Give us a recap of 2025 and tell us what factors drove the markets. Interest rates, inflation, was it geopolitical? You know, recap it for us, if you will.

Emily

Yeah. And I just want to give Matt a shout-out too. He’s like totally not into consumerism of any kind, and I actually really appreciate that. But you're right, it's not very handy around the holidays. So, you know, looking back on 2025, I mean, it really has been one of the most politically driven markets of our lifetimes. Usually, we don't use politics as an input. We think about relative earnings trends. We think about economic cycles and relative, you know, relative economic growth around the world as key inputs into making decisions. We try to figure out where the best earnings growth was. None of that mattered this year. As it related to the equity markets, you know, we had the Liberation Day back in the spring, we saw a big drawdown in markets. And then, you know, as we’ve moved through the rest of the year, we’ve gone from sort of some of the most deeply negative sentiment that we’ve seen in some time to this sort of relentless dip buying that's going on and the, you know, outperformance of speculative retail pockets of the market where earnings growth is either non-existent or valuations are incredibly egregious.

So, it's been a roller coaster. Back in the spring, there was this sort of sell-everything-America sentiment that started to pervade markets, and we saw assets flow overseas. You know, European stocks are up over 30% this year, and we’ve seen emerging market (EM) equities outperforming with China in the lead. They are one of the lead areas within EM there. We’ve seen one of the worst years for the dollar in modern history. It was down about 11% at one point, now down about 9% on the year, and that's really helped risk assets. It’s helped international equities. U.S. assets have also done well. Technology stocks, you know, again taking the lead here, and we can sort of talk about the outlook for next year.

Bonds have held in quietly, and there's not a lot of focus on bonds in portfolios right now, but we are seeing some moderation here in inflation. You know, growth is slowing at the margin here, and that's helping fixed income. Year to date, the aggregate bond index is up around 7% for the year. A lot of green across our, you know, capital markets report that we look at each morning. But again, a lot of this has been driven by sentiment, by politics, not necessarily where the best earnings and economic growth are.

John

Gotcha. Okay. I’m going to come back to you on a couple of those to kind of talk about where we go going forward. But before I do, Matt, I want to pull you into the conversation. You know, I consider you a pretty cool customer, but I want to ask you what were some of the biggest surprises in the markets in 2025?

Matt

You know, John, it reminds me, we actually talked about the Patriots season early on and, and it was, you know, after the first preseason game and I got pretty optimistic. I was like, the Pats are going to be pretty good this year. And I think you said something like, I don't get ahead of yourself. I don't think they're going to be any good.

John

I think you're misremembering the conversation.

Matt

But you know, they have a pretty good record. And I think you know, you just go back and, and really what we're seeing right now in surprises is just the consumer sentiment is very weak right now. We are almost at consumer sentiment levels that are like 2008, yet consumers are spending, we're seeing corporations, if you could look to business surveys, they're booming, they're actually well above 50 on PMIs. And so, this…we keep seeing this dichotomy where if you ask people one thing, if you say how do you, how do you think things are? They’ll tell you terrible. But then they're going to go out and they're going to go shopping. They’re going to go, you know, I’m sure you’re spending this year, John, and, you know, naming that star or I don't even know how much that costs, but it's it's going to help retail sales.

And so it's been this year where low expectations, consumers still not, you know, euphoric has set up this wall of worry. And then we had, you know, legislation this year where tax cuts were are going to be coming into 2026. We’ve had the Fed get hawkish quickly in October, but now they're dovish again and they're cutting, you know, just as expected. They’re expected to cut next year. Earnings have come in above expectations. So it's all about…maybe life is in general…it’s just about expectations. And what we saw this year really was kind of this, hey, there's no way we can do another big year of returns, the last two years were 20% and lo and behold it has delivered and and I think that's just been coming in better than expectations. Beating that wall of worry has been the success for this year.

John

All right. Hey, very philosophical of you. I love it.

Emily, I’m going to come back to you, kind of transitioning from 2025 to 2026. You mentioned some of the trends that stood out, the sectors and asset classes. Which ones do you see continuing that trend? Which ones do you think maybe reverse?

Emily

Yeah, I mean, we talked a bit about sectors. We did see some broadening out in markets in 2025, which is something that we see, you know, is very healthy. Of course, tech and communication services, you know, in the lead, but also seeing some strong returns out of areas like industrials that we’ve been highlighting. Financials are starting to pick up, as well as healthcare. So, some nice breadth really emerging across markets. If you think about this from a factor standpoint—which is what we think about a lot—the best-performing factor this year has been momentum. So, for those that aren't familiar with that, it's essentially buying whatever is up over the last six to 12 months. So, we're seeing this sort of technical element across markets that is really dominating some of the cross-asset returns. And frankly, quality—which is our favorite factor—and these are companies with great balance sheets, they have a lot of cash, they have better margins, have been the laggards on a relative basis. So, we would be redeploying assets into higher-quality stocks into next year.

It’s really about to sort of use…you know, it always gets dangerous when I use sports analogies. I’m much better at shopping analogies…but we’ve been thinking about this idea of drafting the market. So, not necessarily wanting to be that race car that's out front—you’re going to risk a potential accident there—but really being fully invested, being right behind that lead car, and drafting the markets into next year. And we think that that's a good approach. We also want to make sure that we're being compensated for the risk that we're taking. You know, equities are seeing extended valuations here. We’re bumping up on 22–23 times forward earnings. There are opportunities there. But in bonds, we're seeing, you know, the opportunity to lean into an asset that's mispriced, meaning we do think bond yields come down over the course of 2026 as the cycle continues to decelerate. And we think, you know, 4% to 5% yield in high-quality bonds, whether it's investment-grade corporate bonds, mortgage-backed securities, you know, municipal bonds are another favorite idea of ours into next year. We really see that income as being very, very attractive, and we want to get some of the $7 trillion-plus in cash that's sitting in money market funds—that's by far been the most popular investment of the last couple of years—we want to think about redeploying that cash into a mix of high-quality bonds and stocks into next year.

John

That’s really helpful. I heard someone recently say, would you rather have 1% in a money market or something like 6%–7% in something further out the curve? I just worked in the 6–7 number. My kids are going to hate it.

Emily

Nice work!

John

Thank you. Thank you. Hey, Matt, you had mentioned rate cuts, the possibility in December. It seems like the odds of rate cuts have been moving up and down depending on the data that we're getting day in and day out. Where do we stand now and what's your take for December and further out?

Matt

Yeah, so it's now 90% according to the bond market, that's how much they're pricing in this December cut. So, it looks like it's a go. At this point if the Fed did just back off it, it would send some jitters into the market. But the FOMC members are suggesting that, you know, a cut is likely. And really, it's been this data that is just so murky, it's so difficult to read because with the government shutdown—so you had a lot of data points that just weren't available. You have alternative data points from the private sector like ADP, which no one respected before, is providing data, and it's showing weakness in the jobs data. We just got Challenger, Gray & Christmas layoff data. It did come down month over month, but year over year it's elevated. And so we think the Federal Reserve is right to focus on the jobs data. They have a lot of room to cut, ability to at least.

If you rewind 10 to 15 years ago, 0 interest rates, so they couldn't do much. Now they've got a 4% fed funds rate. They still could chop that pretty meaningfully into next year. If that does, it can help lower mortgage rates, that’d be beneficial. It can help provide some support to the economy, which would help the jobs market. But broadly speaking, the Federal Reserve is likely to cut in December, and we think that they could do three to four more cuts into 2026.

We’ll have to see how everything plays out. We’ve got a new Fed chair coming, and some of that is also already being priced in, in our view. You’re seeing markets respond positively to sniffing out this new Fed chair that is likely going to be more dovish, and that's about May where that turnover is going to take place. We won't get an official announcement till the beginning of next year. But overall, you know, Emily was talking about bonds as kind of this place in the market that hasn't gathered much attention, but it's tracking about a high single-digit return this year. And to us, that's a pretty nice return, and one that could actually be sustained if the Fed does continue to cut rates into 2026.

John

Okay. Very good. Emily, I want to come back to you. You mentioned a couple of things around momentum. Matt’s talking about rate cuts that would be beneficial for equities. How are you feeling about equity valuations here in the U.S.? And then specifically for tech, because we’ve seen a lot of momentum.

Emily

Don’t love the valuations in this space, but it's important to remember that you’ve got to focus on the denominator of the PE ratio as well and the earnings engine in the United States is on. We’re coming off a great earnings season in Q3. Analysts are penciling in another good one for next quarter and into next year. We have the best earnings prospects of any stocks globally here in the United States.

But, you know, the challenge is that there is some froth in some of these pockets of the market. We want to make sure that we protect against that valuation risk by owning things other than just big-cap tech stocks, which are now trading at—the S&P 500 growth index is close to a 50% premium to its long-term average. Tech stocks have compounded 30-plus percent returns over the last three years. So, it’s really about looking at other parts of the market.

And we’ve been playing around with this analogy that I like to use. I don’t know if it’ll work for Matt, but it’s around thinking of tech stocks as being that go-to outfit in your closet. We’ve used it a lot, and it might be looking a little tired. People might be wondering, ‘Has she worn that already?’ We want to be thinking about expanding that closet, looking for other items to fill it, trying to find that next best outfit. Whether it’s in mid-cap stocks, income-producing assets, or non-U.S. equities that have great earnings growth expectations, those are areas we’d be looking for. It doesn’t mean you have to get rid of that go-to outfit. It just means you might want to think about broadening the choices that you have at hand.

John

Okay, broaden the choices. That’s great. Hey Matt, I want you to put a bow on this for us. What do you think are the top themes investors should be thinking about as they position portfolios in 2026?

Matt

So, the first one is income. You know, I just think we’ve seen multiple expansion out of the equity market. Equities have, like Emily just said, such a great return driver for portfolios for much of the last decade. And if you think about the last three years, 20% annualized is…I mean…that’s great…but it’s also really hard to sustain that. There is a lot of income out there. And there’s global opportunities as well. But, in the United States we’re still looking at about 4%-5% in yield and in more investment grade income opportunities. We’ve got some credit that's around 6%-7%.

And you know, as the Federal Reserve cuts interest rates, we did this study looking back over prior cutting cycles. And what we found in terms of asset flows is that investors wait to buy bonds and sell their money markets until interest rates hit the low of the cycle. So really, what investors historically have done is said, ‘I’m going to sit in cash, sit in cash, sit in cash.’ And then as soon as bonds get great returns behind them, they then buy the bonds and lock in low yields. What we're trying to advocate for is to not do that. So like Emily said, money markets are the most popular investment this year. They were the most popular investment last year. I get it. The short end is providing an ample yield. We hadn't had that for years. But trailing you, you know, you try not to invest looking in the rearview mirror. You try to go where the puck is going, in terms of Gretzky quotes. And what we're just trying to do is say, look, if interest rates are coming down, don't wait too long to allocate that capital to lock in these yields, provide income, and then, you know, into a theme into next year. Also, just like Emily said, you know, what else can you do to the portfolio to up return potential outside of tech in the United States? And you know, whether that's mid and small cap, that's international. But to us, you got to find earnings growth. Mid and small is the few places in the world that's cheap still on an equity basis relative to its long-term history. International has gotten more expensive. We need earnings to step up into next year. We’re trying to find good quality earnings growth like industrials or healthcare outside the U.S.. But at the end of the day, income is probably the most important one to us.

John

Very good. What I love about the Portfolio Intelligence podcast is we get great investment insights from guests like Matt and Emily. We get sports analogies, race car analogies, shopping analogies, and fashion ideas across the board. And we get a little bit of fun mixed in with a little 6-7 double down.

Folks, that’s a wrap for today’s Portfolio Intelligence podcast and it's a wrap for the year. A big thanks to our guests Matt and Emily for their insights on investing in 2025 and things to look for in 2026.

I'd also like to give a big thank you to the people behind the scenes here at the Portfolio Intelligence podcast that do a ton of the work but don't get the spotlight or, in the case of a podcast, the microphone. That would be Theresa Haggerot, Cheryl Mills, Pete Dankens, and Meghan Lind. So team, thank you so much for all that you do.

Folks, if you found this episode helpful, please subscribe and share it with others that may benefit. If you want to learn more about all things investing and practice-building ideas, please visit our website. Have a great end of 2025. Thanks as always for listening to the show.

John

This podcast is being brought to you by John Hancock Investment Management Distributors LLC. Member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speaker, are subject to change as market and other conditions warrant, and don't constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.

The Bloomberg US Aggregate Bond Index tracks the performance of U.S. investment-grade bonds in government, asset-backed, and corporate debt markets. It is not possible to invest directly in an index. Price-to-earnings, or PE, is a valuation measure comparing the ratios of a stock’s price with its earnings per share.