Core Bond: Overweight

• Higher rates provide new opportunities. We favor core bond funds with higher credit quality
  since spreads for riskier bonds don’t reflect recession risks. We prefer IG intermediate term
  duration bonds given higher yields plus the opportunity for price appreciation.
  

High Yield: Underweight

• The higher risk from potential economic weakness is not reflected in credit spreads making
  the group less attractive from a risk/reward perspective.

Floating Rate: Underweight

• Deterioration in underlying asset values, used to secure higher floating rate loans, is a risk.
  

Government & Agency: Neutral

• Opportunities have improved with higher rates. Reduction of prepayments will extend
  maturities. Agency mortgage bonds remain at historically low valuation levels.

International Fixed: Overweight

• Valuations in certain emerging market bonds are attractive and have provided strong local
  performance. Some emerging market countries have stronger balance sheets than Europe.
  

Real Estate: Neutral

• Fundamentals are mixed both from a geographic and segment perspective. Retail has soft
  demand and office demand is location sensitive. Data centers have strong demand and
  warehouses have also positive trends. Continued high interest rates are a headwind.
  

Commodities: Neutral

• We are positive on gold and silver as good inflation hedges and we are positive on copper,
  but negative on energy. Weaker global, and especially Chinese demand for oil and strong
  supply growth will weigh on energy prices. This is why we favor gold, silver and copper

Value: Neutral

• We increased our weight in value on attractive relative valuation.
  

Growth: Neutral

• We have raised growth to neutral as the tariff issue has had much less impact than
  expected on growth while AI capital spending has been stronger and more widespread than
  initially thought, lifting growth and growth expectations.
  

International Developed: Overweight

• Increased defense and infrastructure spending and potentially easing of regulation should
  improve the outlook combined with lower valuation.

International Emerging: Neutral 

• China’s growth has slowed, burdened by a real estate bubble, and stricter regulation. This
  has been offset by stronger growth among SE Asia countries manufacturing the
  components used in AI and data centers, plus growth in India has accelerated. Balance
  Sheets are stronger than those in Europe.

Geopolitical unrest and the risks to global growth:

• The world is calmer and more peaceful versus 12 months ago as several conflicts have ended in a truce, or peace
  agreements. Chief among these is a truce in Gaza, aided by the threat reduction from Hamas, Hezbollah and Iran.
  
• The removal of Maduro as president of Venezuela brings hope of stabilization of the country and a reduction of crime
  and refugees to surrounding countries, including the US. This is a positive.
  
• Iran is a big concern with the country a tinderbox. Current protests could lead to a civil war as many protesters have
  been killed and jailed. While the citizens want a regime change, it could come in the form of a coup by the Iranian
  Revolutionary Guards Corps with even harsher repressions.
  
• Higher US tariffs have had less impact on global trade than feared and the US has signed trade agreements with
  several trading partners, but key agreements with China, Canada, India and Mexico are still outstanding.
  
• Notwithstanding a calmer world, we still have Cold War 2.0 with Russia, China, Iran, and North Korea on one side,
  and the “West” on the other side. Russia’s aggression towards their neighbors, including the Ukraine invasion, has
  led the West and its allies to increase defense budgets.
  
• Increased defense spending along with spending on AI has boosted economic growth.
  
• Trump 2.0 is very aggressive towards both allies and opponents with his rhetoric. He bombed Iran to eliminate their
  nuclear program, removed Maduro as president of Venezuela, and is threatening to take Greenland from Denmark.
  
• The risk is that Trump oversteps and loses support among historical allies.
• The political wind in Europe has changed as the continent realizes they have to pay for their own defense and
  historical ruling party coalitions are losing support among populations.

Economic Growth, Unemployment, and FED Action:

• The US economy surprised to the upside in 3Q25, boosted by spending on AI and AI infrastructure. Expectations for
  2026 is real GDP growth of 1.9% followed by similar real GDP growth in 2027 and 1.8% real GDP growth in 2028
• The tariffs have made the job of the FED more challenging given its dual mandate of stable prices and employment. The market currently believes the FED will support the economy through further cuts in 2026.
• The corporate sector remained strong as the profit margin for the S&P 500 got back to an all-time high of 13.9% in
  3Q25. The EPS for 2025 is currently projected at 11.3% growth, and 2026 EPS is projected to increase 10.1%,
  followed by 9.4% EPS growth in 2027.

US Government Budget Deficits:

• The US continues to run large budget deficits despite robust tax revenues. The fiscal 2025 deficit was ~$1.7 trillion,
  or 5.9% of GDP, and the fiscal 2026 deficit is projected at ~$1.8 trillion, or 5.5% of GDP.

US Government Debt:

• US Federal debt-to-GDP has risen to 125% versus 57% in 2000. The Congressional Budget Office (CBO) projects
  US Federal debt to rise by ~$20 trillion in the next decade even in the most positive scenario to ~$57 trillion.
  
• Continued large budget deficits will make this worse and eventually force harsher changes when the music stops.
  
• Projected Federal interest payments for 2026 are expected to exceed $1 trillion. This compares to fiscal 2026
  defense spending of $900 billion plus.
  
• As the interest on the Federal debt will consume a higher, and higher percentage of the government’s budget, it will
  crowd out other spending, making it harder to make changes the longer we wait.

Emerging Market Growth and China:

• South-East Asian countries such as South Korea and Taiwan should continue to benefit as these countries
  manufacture components used for the development of AI and AI infrastructure such as data centers.
  
• China has gone from an economic growth machine pre-covid to requiring government stimulus to force growth.
  
• China’s economic population has peaked, requiring less infrastructure and housing spending, slowing growth.
  
• Poor top-down economic policies from the communist party helped to create a real estate bubble and an overhang of
  bad debt from large real estate developers.
  
• Wages in China have become less competitive, and China has become very assertive to its neighbors in the South
  China Sea. Combined with tariff threats, it has led companies to move or establish new production away from China
  to diversify risks.
  
• India has been a beneficiary as the country’s economic growth has surpassed China.
  
• Mexico has also benefited from near shoring to the US.
  
• Higher demand for key raw materials used in the energy transition will benefit select EM economies such as Brazil,
  Chile, and Indonesia that have these resources.

Economic Growth, Corporate Earnings, and Financial Markets:

• Putting it all together, we are cautiously optimistic for 2026.
  
• Economic growth both in the US and globally have proven resilient and could surprise to the upside. .
  
• US equity valuations are elevated expecting AI growth to drive higher future earnings, but are sensitive to growth
  projections and discount rates.
  
• We think the FED is close to taming inflation and will lower interest rates further in 2026. This should support
  economic growth and be positive for both equity and fixed income markets.
  
• We favor intermediate IG corporate bonds due to a combination of strong balance sheets and attractive yields.
  
• We recommend long-term investors to stay invested despite bouts of volatility as the 2025 performance was strong
  reminder that fundamentals drive markets in the long run despite negative headlines at times, including geopolitical
  unrest.

These are the opinions of Ascend Wealth Planning, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing in securities involves risk of loss. Further, depending on the different types of investments there may be varying degrees of risk Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. Diversification and asset allocation strategies do not assure profit or protect against loss. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results. Registered Representatives offering securities through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC and Investment Advisor Representatives offering advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Ascend Wealth Planning, LLC are not affiliated.