The Familiar Rhythm: Markets Rise and Fall

Anyone who studies market history knows that intra-year peaks and troughs are almost inevitable. Stocks might soar on optimism early in the year, then dip as economic data, interest rates or global events introduce uncertainty — only to recover later.

This behavioral pattern reflects the fact that investors respond emotionally (fear during downturns, greed during rallies), which creates recurring cycles of exuberance and caution. These swings are not signs of bad markets but signs of normal markets.

For example, even in years when the overall return is positive, there may have been substantial dips mid-year. Investors who panic-sold at those troughs often locked in losses — while those who stayed diversified and patient often ended up doing just fine.

Why asset allocation and diversification matter

Because of these oscillations, a single-asset, all-in-on-stocks approach can be very risky. That’s where asset allocation — spreading investments among stocks, bonds, cash, maybe real estate or commodities — and diversification — holding many different types of stocks or securities — become essential.

• Asset allocation reflects risk tolerance: Younger investors can tolerate volatility and lean more into growth assets; retirees often choose a balance or more conservative mix.
• Diversification smooths out volatility: If stocks dip but bonds hold steady (or rise), the overall portfolio stays more stable.
• Diversification reduces behavioral mistakes: When a diversified portfolio experiences a decline, investors are less likely to panic-sell if losses are cushioned by other holdings.

In short: asset allocation and diversification are practical bulwarks against emotional overreaction and the natural ebb and flow of markets.

2025 — Inflation, tariffs, geopolitical friction and market behavior

Last year was especially instructive. Inflation remained a key theme in many global economies. Higher prices squeezed consumers and corporate margins alike, prompting investors to worry about potential interest-rate increases and slower growth.

Simultaneously, tariffs and trade tensions — especially between large economies — reintroduced uncertainty. Tariffs increase costs for companies that rely on imports, and that erodes profit outlook. Markets responded by swinging between hope (easing tariffs, supply-chain improvements) and concern (renewed trade threats, rising costs).

As a result, 2025 saw pronounced intra-year volatility. Periods of optimism — for example, when inflation seemed to moderate or when tariff talk cooled — often drove rallies. But renewed inflation data or fresh tariff announcements triggered pullbacks.

For investors heavily concentrated in rate-sensitive growth stocks or companies reliant on global supply chains, these swings were especially sharp. On the other hand, diversified portfolios — including inflation-hedging assets (e.g., some commodities or real-asset exposure), bonds, and a spread of sectors — fared more smoothly, cushioning the shocks.

Behavioral finance lessons from 2025

1. Markets have short memories — that’s expected. Investors must recognize that dips or spikes are part of the game, not anomalies to panic over.
2. Emotional reactions often do more harm than market events. Selling after a drop often means locking in losses; buying excessively during peaks can expose one to steep corrections.
3. Diversification is not optional — it’s fundamental. 2025 reaffirmed that a well-structured portfolio doesn’t rely on perfect timing but on steady balance and resilience.
4. Asset allocation should reflect both market conditions and individual goals. Given inflation, tariffs, and economic uncertainty, a balanced mix offered better protection than aggressive bets.

Looking ahead: building habits, not chasing headlines

As we enter 2026, the takeaway is simple (but not easy): don’t chase every headline. Markets will continue to oscillate, driven by economic data, global politics, and investor psychology. Instead:

• Build a diversified portfolio aligned with your risk tolerance.
• Resist the urge to react emotionally to short-term swings.
• Rebalance periodically, rather than trying to time peaks and troughs.
• Accept that uncertainty is a permanent market companion — but a well-allocated portfolio can weather it.

In behavioral finance terms: cultivate discipline over emotion; prioritize structure over speculation.

By doing so, you’ll make 2026 — and every future year — less about reacting to chaos and more about steering toward long-term goals with calm, rational investing.

Disclosures:

Apella Capital, LLC (“Apella”), DBA Apella Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Apella Wealth provides this communication as a matter of general information. Any data or statistics quoted are from sources believed to be reliable but cannot be guaranteed or warranted.