Firm Sees ‘Mission Possible’ for 2026 Market Growth Amid Tax Law Shifts

PORTLAND, Ore. – January 30, 2026 – As investors navigate a complex economic landscape shaped by past volatility and new legislation, Portland-based Ferguson Wellman Capital Management is presenting a bullish case for 2026. The 50-year-old employee-owned firm is forecasting a fourth consecutive year of positive market returns, a scenario it deems not just possible, but probable, even as it adopts its most conservative asset allocation in over a decade.

This optimistic outlook is the centerpiece of the firm's 2026 client tour across 13 Western cities. It comes after a tumultuous 2025 marked by tariff uncertainty and the longest government shutdown in U.S. history. “Three years ago, the S&P 500 traded at a price-to-earnings multiple of 17x; today it trades at more than 22x,” said George Hosfield, CFA, the firm’s chief investment officer. “This high-expectation market is being driven by a list of increasingly expensive technology titans. Against this backdrop, investors are asking if a fourth consecutive year of positive returns is attainable. We believe this ‘mission impossible’ is possible.”

Defying Doubts on Wall Street

Ferguson Wellman’s forecast directly confronts four key pillars of market skepticism. While their optimism is notable, it aligns broadly with a constructive consensus among other major financial institutions like Morgan Stanley and Goldman Sachs, which also anticipate continued earnings growth, albeit with warnings of potential volatility.

First, addressing concerns that the consumer is tapped out, the firm points to fiscal stimulus set for 2026 as a tailwind for disposable income, arguing that households retain ample capacity to spend despite poor sentiment surveys. This view is supported by analysis from institutions like Bank of America, which has raised its GDP forecast based on resilient consumer spending, particularly among wealthier demographics.

Second, the firm defends the Federal Reserve against claims it is “behind the curve.” Ferguson Wellman asserts the Fed has skillfully balanced price stability and full employment, navigating the inflationary pressures of tariffs with necessary patience. This perspective aligns with broader market expectations that central banks will likely conclude their easing cycles in the first half of the year.

Third, on the question of an AI bubble, the investment firm draws a sharp distinction between today’s market and the dot-com era. Unlike the speculative mania of 2000, they argue that today’s technology leaders are cash-generating giants funding infrastructure spending primarily through massive internal cash flows, not debt. This aligns with a widespread view that the AI supercycle is driving above-trend earnings growth of 13-15% and is not yet in bubble territory.

Finally, while acknowledging that the S&P 500’s valuation of over 22 times forward earnings causes “sticker shock,” the firm believes it is justified. They contend that gains have stemmed from real earnings growth, not just multiple expansion, with consensus expectations for S&P 500 earnings to grow by 15% in 2026. This growth is reportedly broadening beyond the “Magnificent Eight,” justifying a premium multiple.

Prudent Rebalancing Amidst a Bullish Forecast

Despite its optimistic forecast, Ferguson Wellman’s strategy for 2026 is rooted in caution. The firm has taken steps to de-risk portfolios, reflecting a nuanced approach to navigating a market it believes is still vulnerable to corrections.

“Maintaining perspective and balance is key in investing,” said Peter Jones, CFA, an executive vice president at the firm. “While we are not anticipating a 2026 recession, we did recently find it prudent to realize some profits and reduce exposure to a possible market correction. We don’t believe the AI boom has yet run its course, but we have modestly reduced our weight in the sector following very strong returns.”

This rebalancing involves a significant shift in asset allocation. “We increased bond exposure, believing current yields will provide insurance if equity markets suffer a correction,” explained Brad Houle, CFA, a principal at the firm. “We enter 2026 with the most conservative recommended asset allocation in over a decade, carrying a slight overweight to bonds and underweights to small-cap equities, international equities and alternatives.”

This strategic pivot underscores a key theme for 2026: even with a positive outlook, managing risk after a multi-year bull run is paramount. The firm’s actions suggest that while they believe the mission is possible, they are also preparing for turbulence along the way.

Wealth Planning Shifts with the 'One Big Beautiful Bill Act'

Beyond market strategy, the firm is guiding its clients through a transformed tax environment created by the “Tax Act of 2025,” officially Public Law 119-21 and colloquially known as the “One Big Beautiful Bill Act.” Signed into law on July 4, 2025, the act provides significant continuity but also introduces critical changes for wealth planning.

“Perhaps the most significant outcome of the Tax Act of 2025 is what it prevents: a broad-based increase in income taxes by continuing existing tax rates,” noted Samantha Pahlow, CTFA, AWMA®, the firm's wealth management chair. Research confirms the act made the lower tax rates from the 2017 Tax Cuts and Jobs Act permanent, providing stability for long-term planning.

However, several new provisions will reshape financial strategies in 2026:

• Expanded SALT Deduction: A major relief for residents of high-tax states, many in the West, is the increase of the state and local tax (SALT) deduction cap from $10,000 to $40,000 for joint filers, effective for tax years 2025-2029. This provides significant tax savings for the middle- and upper-middle-income families that form a core part of many wealth management clienteles.

• Charitable Giving Updates: The act made the deduction for cash contributions to public charities (up to 60% of AGI) permanent. It also created a new permanent “above-the-line” deduction for non-itemizers, allowing them to deduct up to $1,000 in cash donations ($2,000 for joint filers) starting in 2026. However, new rules also introduce a 0.5% AGI floor for all charitable deductions and cap the value of deductions at 35% for taxpayers in the top income bracket.

• Enhanced Education Savings: Flexibility for 529 education savings plans has been dramatically expanded. The annual withdrawal limit for K-12 expenses doubled to $20,000, and the definition of “qualified” expenses now includes a wider range of costs like tutoring, standardized test fees, and educational therapy.

• Higher Estate Tax Exemption: For high-net-worth families focused on multigenerational wealth transfer, the act provides significant breathing room by increasing the lifetime federal estate and gift tax exemption to $15 million per person ($30 million per married couple) for 2026. This new, higher exemption is permanent and will be adjusted for inflation annually starting in 2027, simplifying long-term estate planning for many.

Managing $10.6 billion for over a thousand clients, Ferguson Wellman's focus on these detailed tax implications highlights the firm's holistic approach, integrating investment management with comprehensive wealth and legacy planning. The firm's client-centric strategy, including its multi-city tour and specialized divisions like West Bearing Investments and the private family office Octavia Group, appears tailored to navigating this new and complex financial landscape.