Kapoor: The dollar is likely to underperform heading into 2026

Market Overview - The current year has been favorable for many asset classes, with significant gains observed on a year-to-date basis [1][2] - US investors have experienced a good year, and those investing overseas have seen even stronger performance, largely due to a weak dollar [2][3] Currency Impact - The dollar has shown a recovery after being down double digits earlier in the year, but it is expected to underperform against other global currencies heading into 2026 [4][5] - Investors are encouraged to maintain a meaningful portion of non-US assets in their portfolios, as opportunities exist overseas [5] AI Sector Insights - A significant portion of the Morning Star US target market index, approximately 30%, is linked to AI-related stocks [8] - There are signs of overvaluation in the tech and telecom sectors, leading to recent market pullbacks, although some companies like Nvidia and Alphabet are still considered slightly undervalued [9][10] Bond Market Dynamics - Bonds issued by large hyperscalers are in demand due to their strong cash flow, trading at a slight premium over treasuries, indicating investor confidence in their ability to repay debt [12][13] Federal Reserve Outlook - There is a mixed outlook regarding potential interest rate cuts by the Federal Reserve, with expectations for a cut next year, but it is not seen as critical for market performance [14][15] - Market valuations and the ability of companies to deliver promised growth will be key factors influencing market dynamics in the coming year [15][16]