Chris Reilly’s note: With Cornerstone wrapping up one of its best years, I asked RiskHedge publisher Dan Steinhart to join me for an important discussion. If you don’t know, Cornerstone is our simple, rules-based investing system. Here’s what it’s saying now...
***
Chris: Dan, as we close out 2025, Cornerstone has quietly delivered a great year. It’s up more than 20%, beating the S&P 500. And what stands out to me is how consistent the performance has been.
Let’s dig into what the system’s saying. Gold’s been the big story this year, up 60%...
Dan: Gold has outperformed everything—stocks, bonds, crypto, real estate. We’ve owned it since March 2024, at a price of $2,200/oz, when the buy signal first flashed. We didn’t have to debate inflation, central banks, geopolitics. The evidence said “own it,” so we did. Gold remains strong today and holds down the #1 spot in Cornerstone’s rankings.
Chris: On the other side, momentum stocks—through the iShares MSCI USA Momentum Factor ETF (MTUM)—are showing fatigue after being a core position for almost two years.
Dan: Yes. MTUM has been a great contributor, driven by huge runs in disruptors like Nvidia (NVDA) and Palantir Technologies (PLTR). But this month, it barely held onto a slot in our top six. If momentum continues to weaken, Cornerstone will move on automatically.
Chris: Anything else stand out this month?
Dan: International stocks continue to give us strong returns. The average US investor barely owns any international stocks. That’s been a missed opportunity this year, as international stocks as a whole are soundly beating US ones. Cornerstone is 1/3 allocated in international stocks.
Chris: Let’s shift to 2026, because your issue this month highlighted something I think people should hear: If you follow the four-year presidential cycle, next year could be a weaker one for stocks.
Dan: Historically, midterm years are the weakest of the cycle by a wide margin. The S&P 500’s average return in midterm years is only about 5%. And the last midterm, 2022, was the worst market year since 2008.
Chris: Meaning we’re heading into a year where people are already primed for negativity...
Dan: Yes, and I’m interested to see Wall Street’s forecasts. Most Wall Street banks will just extrapolate last year’s performance. Which would imply they’ll forecast 2026 as a solid year.
But on top of midterm election cycle, fears of an “artificial intelligence bubble” are everywhere. I could see forecasts being more cautious and negative this year.
Chris: What’s your forecast?
Dan: None. I think the way Wall Street does forecasts is pointless. I’ll just adapt to what actually happens as the year plays out, taking cues from Cornerstone.
If stocks start breaking down, our rankings will reflect that, and we’ll adjust. The system will rotate toward strength—whether that’s gold, bonds, commodities, real estate, or something else.
And if there’s no strength in any sector, that’s a bad sign, and Cornerstone will temporarily play defense by going to cash.
Chris: Do you think that will happen in 2026?
Dan: Not really. It’s pretty rare for nothing to be working in the markets. The last time Cornerstone allocated to any cash at all was in late 2023, and it was short-lived.
Before that, we held a lot of cash throughout 2022, which was great and kept us out of trouble during a very rough year for stocks and bonds. But 2022 was a weird year in that stocks and bonds declined together. That doesn’t usually happen, and I wouldn’t bet on it again.
But who knows! That’s why I like the rules-based system of Cornerstone. I don’t have to waste time trying to answer unknowable questions.
Chris: Before we wrap up, give readers one thing they can pay attention to going into the new year—something grounded in the data you’re watching inside Cornerstone.
Dan: Focus on how different parts of the market behave on pullbacks. In the issue, we showed two charts that looked completely different: momentum stocks that struggled to bounce… and small value stocks that snapped right back to new highs. That difference matters. When former leaders start reacting sluggishly while another group pushes higher, that’s often the first sign that leadership may be shifting.
I’m not saying small value will take over—we don't make that call in advance. But watching how assets respond when things get choppy is one of the better “tells” investors can observe.
Chris: Thanks. Reader, if you’re ready to put the Cornerstone strategy to work in 2026, you can find the details right here. Dan explains everything, with more on exactly how it works, and a ton of great proof.