To the casual observer, it would seem investors, policymakers, and everyday folks are inhabiting three alternate realities.  Through our lens, this divergence has been forming all year, but we would note that between the run-up to Fed Chairman Warsh’s speech at Jackson Hole and the U.S. Labor Day holiday, the pace and degree of divergence accelerated.  What is apparent – at least to us – is that this cannot persist in perpetuity.

Investors, particularly those engaged in the Equity market, continue to celebrate the extraordinary strength of U.S. corporate profits with their continued bid for the underlying shares and – despite some growing skepticism that what lies ahead is more mirage than miracle – remain generally bullish on this trend continuing, both in the near-term through perpetuation of the “capex-revenue principle”[1] and over the longer term, given a belief about what today’s capex cycle portends for future productivity growth. 

At the same time, policymakers (and the bond investors who keep them honest) have begun to realize the degree to which persistent deficits, rising sovereign financing requirements, and mounting competition for capital are challenging assumptions about the price of money.  While it would not be uncommon or surprising for duration to catch a modest bid given the sharp back-up in long rates over the past ten months, few, if any, palatable solutions appear ready in the wings to mitigate the systemic fiscal challenges faced by the U.S. and other major global economies.

While action in the Equity and Bond markets is visible to all, the more interesting observation – to us – comes from reading the “mood on the ground.”  Our travels in recent weeks have taken us to nearly every region of the U.S., through eastern and central Canada, and to Europe.  We have spoken with those on the political left and the political right.  The financially fortunate and folks just trying to keep up or get by.  We’re generally an optimistic lot, but we would describe the underbelly of sentiment as “tired.”  Really tired.  Are there optimists among us, of course; a few decidedly negative folks, too.  (Though we also found the most pessimistic could be counted among the most financially comfortable, perhaps with the luxury to lament the plight the present will impose on the future, or lacking the urgency to solve for today?)  So, what gives?  Higher prices at the pump and at the market, escalating conflicts abroad, sheer political fatigue – from all sides, tepid job growth, the deterioration in health care (which we read as availability, not quality, and thus an interesting social marker) and housing affordability – particularly for and among young families, even anxiety about artificial intelligence – what is it and is it harmful?, already dominate headlines, so one could be forgiven for suggesting the ever-strengthening network effect of “piling on” is at play and leave it there.  But we posit it is something else.  Something we have not seen before, at least not in roughly twenty-five years of professional travel and observation; we didn’t see it when the Internet Bubble burst, at the depths of the Global Financial Crisis, or even during the Covid pandemic.  There seems to be a steadily intensifying drumbeat of concern that the Western quality of life – not the life to which we aspire, but the one which we require – is rapidly and significantly deteriorating.  While it may strike some as too dramatic, it almost feels like the slow erosion of agency.  Equally troubling, many of these anxieties seem immune to either conventional or extraordinary policy remedies.  We touched on this last January in a piece titled “The End of Trust.”  Since then, dissatisfaction with present circumstances has both intensified and broadened, raising questions about whether the forces shaping those circumstances remain within anyone’s control.

Lest we continue down a socio-psychological rabbit hole, for investors, these divergent paths appear disconnected because each group is observing a different consequence of the same transition.  For most of the last fifty years, society has operated within a framework of abundant financial and technological scale in an ever-expanding global footprint of access and efficiency.  Today, claims on that framework continue to multiply, while the physical and institutional capacity that supports them becomes increasingly contested.  The result is an unusual environment in which the private sector may be entering one of history’s most consequential periods of investment (and return) just as sovereign borrowers face an increasingly difficult financing equation with few viable options and potentially catastrophic consequences.

Against this backdrop, we continue to believe investors are misreading both the impact and evolving beneficiaries of the A.I. investment cycle.  Though we have been generally underwhelmed, over the last several reporting cycles, with comments from non-Tech operators related to corporate investment, the enterprise use case, and the expected intermediate-term productivity gains, the capex-revenue principle noted above creates second and third-order beneficiaries well beyond the Tech sector.  Investors’ attention does not appear focused on these second-order impacts, however.  Nevertheless, we would distinguish nascent technological advancement from the attractiveness of its financing “opportunities,” i.e., mid-alphabet labeled equity rounds, vendor financing programs, and long-duration bond offerings collateralized by chip inventory with a 2 to 3-year half-life. A transformative technology is not automatically a profitable investment at every valuation.  The Internet fundamentally changed commerce, yet many investors lost substantial capital financing its early infrastructure build.  A.I. may produce a similar mismatch between the ultimate economic benefits and the returns captured by those funding its development.  Businesses once celebrated for asset-light operating models are increasingly financing capital-intensive infrastructure with substantial maintenance requirements and rapid technological obsolescence.  For the moment, aggregate free cash flow for the S&P remains strong.  Better to be aware.  A nasty side effect of the capex-revenue principle is that cash flow can weaken even as revenue grows.  Borrowing requirements are expanding, and enterprise escape velocity will depend on the ultimate use case and monetization framework.

Investors in our Macro Allocation Portfolios (MAP) and our Strategas Macro Thematic Opportunities ETF (SAMT) will know our approach has been to seek exposures that address each of these divergent paths.  We see three thematic exposures carrying momentum into year-end:  Artificial Intelligence, The Analog Edge, and De-Globalization. 

Source: Strategas Asset Management, 10/16/2026

Within Equities, we remain constructive on the A.I. investment cycle, but our focus is no longer discerning whether A.I. will transform the economy or whether the hyperscaler capex cycle will continue, but on which industries or operators will earn attractive returns on the capital required to make that transformation possible.  No less compelling are companies with tangible assets, specialized capabilities and durable competitive advantages that are difficult to replicate or displace through technological advancement alone.  Sectors which have the “analog edge” and those operators with strong free cash flow will enjoy pricing power and financial optionality during periods of economic volatility.

Source: Baird Strategas; "Railroads and Economies of Scale and Scope in U.S. Manufacturing Industries: 1850-1880. Chandler Revisited" – Kalson (2010); MeasuringWorth; The Planetary Society; Soviet Space Program; Quid x Stanford 2026 AI Index Report.

Space Race Adjusted for 2025 Dollars by the Planetary Society's application of NASA's New Start Index. U.S. Numbers are adapted from The Planetary Society's Database; USSR numbers are interpolated from CIA estimated.

Internationally, we prefer selective country and thematic exposure over broad market beta, reflecting growing disparities in fiscal strength, energy security, and geopolitical positioning.  In fixed income, slowing growth and eventual monetary easing may support bonds, but sovereign financing pressures and elevated term premiums warrant tactical duration management and selectivity in credit.  We maintain a structural preference for commodities, particularly in the energy patch, industrial metals, and agriculture, where physical scarcity intersects expanding demand.

The strongest counterargument to our positioning is that A.I.-driven productivity gains alleviate these pressures, expanding economic output, strengthening fiscal conditions, and reducing resource constraints. We welcome that outcome rather than position portfolios dependent upon its failure.

Nicholas Bohnsack