Play the Ball as It Lies

In a Venn diagram of people who are investors and people who enjoy playing/watching golf, the overlap of the two circles is substantial. There are many reasons for this, but it is arguably mostly due to the reality that the lessons that a (tough) day on the links can teach you also apply to navigating markets and constructing portfolios.

Playing or watching golf displays the importance of self-control and not allowing your emotions to impact your performance. Golf teaches the lesson of taking the game one stroke at a time, just as investors must approach markets one decision at a time, not allowing a past gain or loss to overly influence the next decision. Golf and investing are both exercises in knowing when to take risks and knowing when to be conservative. Golf, like investing, is a game of understanding what you can control (what goes on between your ears) and adapting to what you can’t control (such as the weather or your opponent). 

We can distill all of these lessons into one powerful quote (just sub out life for investing) from one of the greatest golfers of all time, Bobby Jones Jr:

“Golf is the closest game to the game we call life. You get bad breaks from good shots; you get good breaks from bad shots – but you have to play the ball as it lies.“

This quote, which serves as the theme for our 2026 Outlook, is such a fantastic reminder to investors that they must assess the “lie of the ball”, or the current state of the market, before deciding the approach to the next shot or decision. 

The lie of the ball determines how much risk to take, what tools you want to use to take that risk, and what you can expect out of the next shot. Just as an astute golfer likely would not choose a driver on a narrow Par 3, we as investors must make sure that we are, given the current state of the market, taking the right amount of risk, choosing the right tools to take that risk, and level-setting expectations for what returns and volatility could be.

And just as we assess the lie of the ball at the start of every year (and constantly throughout the year), we think taking extra care to assess the lie of the ball is imperative for 2026. The need for extra care is appreciation that, after three years of powerful risk asset returns, the lie of the ball has become more complex, but not unplayable.

In our 2026 Outlook slides and presentation, we provide a detailed description of the lie of the ball for the economy, policy, equities, fixed income, alternatives, and real assets, but here are a few important highlights:

• Economy: The U.S. economy has been consistently surprising consensus forecasters to the upside over the last three years, an important backdrop for risk appetite. Current forecasts sit at 2.1% for 2026 real GDP, which bakes in a slowdown in consumer spending. The labor market is entering 2026 softer than it did in 2025, with slow job growth and anemic wage growth. Inflation is entering 2026 with downward forces coming from shelter and low wage growth.
• Policy: After 175 bps of rate cuts in the past two years, monetary policy is closer to the current Fed’s estimate of “neutral”, suggesting an independent Fed would need to see much weaker unemployment statistics to ease policy much further (the “cuts because we can” have run their course with this Fed). Policies coming from the White House continue to be a source of volatility across asset classes (equities, fixed income, metals, etc.), while the stimulative boost from 2025’s OBBB remains a heated debate.
• Equity Markets: High valuations, record concentrations, and high earnings growth expectations create a high bar for surprise to the upside, mostly in a mid-term election and fourth year of a bull market, both periods that typically see lower returns and higher volatility. Secular trends (AI) help to boost earnings and sentiment, while a resilient economy supports earnings, but may not be booming enough to support a global reacceleration narrative that has enraptured markets. Consensus is resoundingly bullish, but positioning is not at stretched extremes.
• Fixed Income: After a rally in 2025, yields on government and corporate debt are lower to begin 2026. Volatility has subsided, spreads have compressed, and consensus calls for yields to fall again – in a benign way – in 2026. A steeper yield curve means investors can pick up more income by moving further out on the curve. Benign inflation and solid growth should permit credit spreads to remain close to their current levels, though the historically tight spreads on higher-yield bonds do not seem adequate compensation for liquidity and default risk.
• Real Assets: Despite benign inflation readings, many real assets are beginning 2026 with a reflationary tone, whether it is in the stellar performance of precious metals (which have also benefitted from central bank buying) or the recent strength in cyclical commodities (not including oil prices). The record returns of gold and silver in 2025 raise the probability of eventual downside volatility for these precious metals, but for now, the uptrends are powerful.

Our assessment of the current state of markets suggests a “tighter lie” for investors, but not an unplayable one. 

In addition to the details about the lie of the ball in 2026, our Outlook slides also go into detail about how we think the “shot could break” for each asset class, as well as how we would “approach the shot” for each asset class through portfolio construction.

Here are a few highlights of these conclusions:

• Equity Markets: We expect lower returns and see potential for volatility, which can provide an attractive entry point for investors, as we are not expecting a recession in 2026. Given high valuations, we see equities index returns and leadership being driven by GDP and EPS revisions, meaning a period of estimate cuts likely coincides with a period of weaker returns. For now, estimates are still being revised higher, while liquidity remains a key “wild card” for 2026 given high valuations. We have three key observations for how we would “approach the shot”:
  • Aim for the Center of the Green: Given the imperfect lie we have outlined, we view the risk-reward as less favorable than it has been in recent years. In golf terms, this means playing the more conservative shot, aiming for the center of the green and using a disciplined strategy to avoid penalties and take bogeys out of play. Rebalance, focus on diversification and companies with sound fundamentals.
  • Keep the Driver in the Bag for Now: Everyone loves the long-ball but even in perfect conditions, the top tour pros only hit the fairway about 60% of the time with the driver. An aging bull market, with crowded consensus optimism and the potential for disappointments in a wide range of areas, conditions are less than ideal for equity investors. Look to pare back higher risk, more speculative positions, stay patient and accept that par (or average return) is a great score.
  • Let the Club do the Work: An imperfect lie doesn’t take you out of the hole, but it does make shot and club selection even more important (given the potential for a mishit or less clean strike). Like using a wedge to escape from deep rough, emphasizing strong fundamentals, durable growth, and overall quality characteristics should be more effective investment tools.

• Fixed Income: It would likely take a weaker economic scenario to introduce much more downside risk to yields in 2026, given the apparent winddown of the Fed easing cycle and the upside risk to the federal deficit. Higher yields across the curve would catch consensus off guard but could come from improved hiring or hotter services inflation. Credit spreads can remain tight as long as economic growth remains resilient.
  • Limited Opportunities in Taxable Bonds: Corporate credit spreads are near historically tight levels and new policy measures to boost the housing market have helped MBS, as well. There is not much juice left in these markets for the squeeze.
  • Treasury Curve is “Steeper” but Not “Steep”: Policy uncertainty and lower recession risks have kept the longer-end rate high, making duration extension more attractive in most markets.
  • High Quality for Better Diversification: Bonds recaptured their negative correlation to stocks in 2025, reversing a trend that began at the end of 2021. Investors should think of bonds not only for their income generation but for their ability to help dampen overall portfolio volatility. We prefer higher-quality bonds with greater interest rate sensitivity as a hedge against potential downside risk.

• Alternatives: Our overall sentiment is highly selective but constructive. Manager selection matters more than ever, given the wide dispersion of returns between top and bottom decile performers, while the lower cost of capital has once again shifted investment approach (compared to the higher cost of capital in the 2021-2025 period). Mega trends, such as technological advancement, provide important demand drivers across asset classes, while the complex macro backdrop creates opportunities for skilled managers to take advantage of structural disruptions.
  • PE: Focus on managers driving value creation through margin expansion, operational efficiency and building a higher quality cap table to drive returns.
  • PC: Remain hyper vigilant about rigorous underwriting standards and downside protection as the arbiter of return.
  • Venture: Focus on smaller venture managers funding businesses at the earliest stages. 
  • Infrastructure: Being selective and thoughtful about picking managers who focus on areas supported by secular or structural tailwinds.
  • Structured Products: Diversify credit risk among individual bank issuers and country exposures. Monitor credit spreads and ratings to monitor for deterioration.

The Bobby Jones quote at the start also serves as a helpful reminder that, in addition to playing the ball as it lies, “You get bad breaks from good shots; you get good breaks from bad shots.” We can interpret this in investment terms that, “the market is not the economy”, meaning you can get good markets from “bad” economies (mostly when the economy is getting “less bad” than expected) and you can get bad markets from good economies (when all of the good news is already priced in, or if the pace of growth is slowing).

The consensus bull case for 2026 equity markets makes a lot of sense: given the mid-term election year, the White House will do whatever it takes to juice the economy and boost markets in order to maintain unified control of Congress. The challenge is that this is the set up into most mid-term election years, and yet the mid-term year typically carries the lowest returns and highest volatility for equity markets. We are not arguing that good things cannot or will not happen in 2026, but “playing the ball as it lies” means that we cannot ignore this dynamic (for details on the numbers, watch liquidity expert Michael Howell here, where he shows that mid-term years have the most earnings growth but the lowest equity returns!).

As we often say at the start of every year, it is not as important where the market ends the year on December 31; it is what you do with volatility along the way. This was certainly the case in 2025, when volatility came sharply and swiftly, but was gone in a blink. We continue to see volatility as an opportunity to rebalance and/or invest portfolios, recognizing in advance that in-the-moment emotions can get in the way of taking advantage of that opportunistic volatility.

It is this final point that we can pull out another great Bobby Jones quote. He reminds us, in the spirit of not letting our emotions get the best of us when making a decision, that “The object of golf is to beat someone. Make sure that someone is not yourself.”

2026 is bound to be another “interesting” year, with plenty of surprises along the way. It is vital that we continue to remain disciplined about long-term strategic plans, we focus on the factors that we can control (tax efficiency, fee efficiency, time efficiency), and we keep emotions in check in order to use the vagaries of an “interesting” year to our benefit. The NewEdge Wealth investment team wishes you all a prosperous year ahead.

IMPORTANT DISCLOSURES