Market Musings

Several industries, led by software, have sold off significantly year to date, as investors assess the impact of artificial intelligence on established business models. While some companies will face genuine pressure, the initial market response is often indiscriminate—pricing in disruption broadly before fully understanding the scope and timing of new innovations. Over time, the market will distinguish between structural losers and firms that successfully adapt and continue

The U.S. economy remained resilient in 2025. Despite a cooling labor market, a weak housing sector, and uncertainty around tariff policy, the economy continued to grow, supported by steady spending, AI-driven investment, and lower interest rates. 

Our base case for 2026 is no recession. Accommodative monetary policy is set to deepen via Fed rate cuts, a dynamic further reinforced by fiscal stimulus to sustain economic momentum.

The Fed cut rates for the second consecutive meeting, and although another cut this year remains uncertain, history suggests that easing policy amid strong markets often supports further gains.

Enthusiasm over advancements in artificial intelligence has fueled a significant stock rally, but in our view, it is not a bubble—at least not yet. While AI has clearly captured investor attention, today’s market leaders are far more profitable and better capitalized than tech names during past bubbles. Speculation exists, but widespread skepticism and strong fundamentals—like earnings, margins, and cash flow—are helping anchor valuations.

The Federal Reserve has resumed rate cuts. As expected, the central bank lowered the benchmark rate by 0.25% in this month’s meeting, and the updated dot plot points to two additional rate cuts by year-end. Inflation remains sticky, but the Fed’s bigger worry is the labor market, which has clearly weakened and now demands attention.

Every August, we “Chart the Course” with a series of charts that highlight key current and historical trends in the economy and markets. We hope you find them both insightful and useful. Our regular commentary will resume in September.

The newly signed tax bill passed by Congress and the President the first week of July delivers front-loaded stimulus aimed at boosting near-term growth while cushioning tariff impacts. Despite longer-term deficit concerns, it’s a net positive for the economy in the short run.

Geopolitical tensions flared last week as Israel and Iran exchanged strikes, sparking a swift market response—stocks dipped and oil surged. While the headlines are serious, historical context and energy dynamics suggest a short-term shock, not a lasting shift.

The temporary U.S.–China tariff suspension is a clear step forward, lowering effective tariff rates to more manageable levels. But uncertainty remains, especially for small businesses and the direction of future negotiations. Sentiment-based “soft” data continues to fall sharply, while hard economic indicators remain resilient.