As 2026 draws to a close, investors are facing some important questions. How will higher interest rates affect stocks and bonds? Are artificial intelligence companies living up to their valuations? And could the index funds many investors rely on be exposing them to more risk than they realize?
In this edition of Front Row with Carnegie, our investment and financial planning professionals discuss these questions, along with year-end planning opportunities that could make a difference in your financial picture. Below are some of the key takeaways from the conversation, or you can watch the full discussion in the video below.
Prefer to listen? Find Front Row with Carnegie on Spotify, Apple Podcasts, and YouTube Podcasts.
Interest Rates: What Higher Rates Mean for Investors
Interest rates affect nearly every part of the market, but their impact on stocks and bonds can be quite different. Understanding those differences can help investors put Federal Reserve decisions into perspective.
Key takeaways:
- When interest rates rise, existing bond prices generally fall, but newly purchased bonds can offer higher yields. Investors may have opportunities to lock in attractive rates with longer-duration bonds.
- Higher borrowing costs can weigh on corporate growth and stock valuations, particularly for companies that depend heavily on outside financing.
- The effects of Federal Reserve decisions aren't always immediately apparent. Economic data is backward-looking, making it difficult to know whether the Fed has moved too aggressively or not aggressively enough.
- Carnegie continues to favor quality companies that generate strong cash flow and are less dependent on borrowing to fund their operations.
"Higher interest rates mean lower multiples on the equity side." — Ben Connard
Artificial Intelligence: Are Valuations Getting Ahead of Reality?
Artificial intelligence continues to attract enormous investment, but the pace of innovation makes it difficult to determine what companies are actually worth. New competitors and technologies are emerging rapidly, while questions about regulation and profitability remain unanswered.
Key takeaways:
- AI technology is evolving so quickly that estimating future earnings and assigning reasonable valuations can be especially challenging.
- Regulation could slow growth and increase costs, but it may also strengthen the competitive position of established companies by making it harder for new competitors to enter the market.
- The potential of AI alone isn't enough to justify an investment. Carnegie looks for companies with a demonstrated ability, or a credible path, to generate profits from their AI investments.
- Companies that can incorporate AI into existing products and business models may be better positioned to turn innovation into sustainable earnings.
"To try and put a valuation on a moving target, and the moving target is moving very rapidly, it gets very difficult." — Greg Halter
Index Funds: Are You as Diversified as You Think?
Index funds have long been popular for their low costs and broad market exposure. But the makeup of major indexes has changed significantly, raising questions about how much diversification investors are actually getting.
A relatively small group of large companies now accounts for a substantial portion of indexes such as the S&P 500. That means investors who believe they own a broadly diversified portfolio may be more dependent on the performance of a handful of stocks than they realize.
Key takeaways:
- Market-cap-weighted indexes give the largest companies the greatest influence over performance. As those companies grow, their weight in the index increases.
- Concentration among the largest companies in the S&P 500 has risen significantly over the past several decades.
- Investors nearing or already in retirement should pay particular attention to concentration risk, since significant declines in a few heavily weighted stocks could have an outsized impact on their portfolios.
- Adding another index fund doesn't necessarily solve the problem. Different indexes can hold many of the same large companies, potentially creating overlapping exposure rather than meaningful diversification.
"You might think you're going to have diversification. You're really just buying the same companies you already own." — Michael Curry
Year-End Financial Planning: Don't Wait Until December
With the end of the year approaching, now is a good time to review financial planning items that may have deadlines or tax implications. Addressing these opportunities early gives investors and their advisors more time to make thoughtful decisions.
Key takeaways:
- Required minimum distributions (RMDs): Investors who are required to take distributions from retirement accounts should confirm that they've met their annual obligations. Special timing rules may apply in the first year.
- Qualified charitable distributions (QCDs): For eligible investors, making charitable gifts directly from an IRA may help satisfy RMD requirements while providing potential tax advantages. The order and timing of distributions matter.
- Annual gifting: Reviewing opportunities to transfer assets to family members may be worthwhile, particularly for investors holding concentrated stock positions.
- Tax-loss harvesting: Selling investments at a loss may help offset realized capital gains, but the decision should be considered within the context of current income, future tax expectations, and overall portfolio strategy.
Year-end planning isn't simply about reducing this year's tax bill. As Ben Connard explains, portfolio and tax decisions should be evaluated as part of a broader, long-term financial plan.
"I think the best question for your advisor right now is, hey, can we get thirty to sixty minutes on the calendar just to make sure all my loose ends for this year are cleaned up?" — Michael Curry
Final Thoughts
Markets change, investment opportunities evolve, and personal financial circumstances rarely stay the same. This quarter's discussion highlights why it's important to understand not only what's happening in the markets, but also how those developments affect your own portfolio.
Whether that means reviewing your exposure to large technology companies, evaluating opportunities in a changing interest rate environment, or addressing year-end planning items, a conversation with your financial advisor now can help you make more informed decisions before the year is over.
For informational purposes only. The information is not intended to provide specific advice or recommendations, and all investments involve risks, including the loss of principal.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser with the Securities and Exchange Commission. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.
You may also visit our website at: https://www.carnegieinvest.com.
