Webinar
AI Shake-Up and US Exceptionalism
- AI developments, including non-U.S. innovation like DeepSeek, will initially take time to fully assess, with expectations for lower-cost innovation to drive real productivity enhancements and rapid reliability gains for data aggregation within seconds.
- The competitive landscape for AI is predicted to become more diffuse and volatile, making it difficult to identify ultimate winners and losers, while large tech firms are expected to retain significant market advantages that prevent recent disruptions from eroding their edges.
- Broader economic conditions are anticipated to support a "Goldilocks" environment of strong growth and low inflation, though market paths may be choppier than prior years due to elevated starting valuations and narratives already priced in, with the S&P 500 expected to finish the year up approximately 10%.
- U.S. exceptionalism is becoming more complex with shifting tradeoffs between asset classes, while the dollar is viewed as potentially underpriced for tariff risks but expected to weaken if tariff relief occurs; long dollar exposure may remain valuable given these dynamics.
- The Federal Reserve is projected to remain in a "watch and wait" mode if economic strength persists, with a high probability of no rate cuts throughout the year, though they would respond promptly to economic hits; the neutral rate is expected to edge from 3% to 3.5% by year-end.
- Fiscal and trade policies face variability, with tariffs expected to be complicated and the deregulation agenda potentially serving as a tailwind for equities, while oil prices are forecast to remain lower through 2026 and 2027.
- Fixed income markets are expected to see the yield curve steepen significantly over the year, driven by a rising term premium likely resulting from fiscal tax and spending plans affecting the long end of the curve.
- AI capabilities are progressing toward solving complex financial analysis tasks once reliability is resolved, yet some market segments face challenges in persistently maintaining above-normal returns amidst these technological shifts.
- The cyclical momentum for spending is expected to continue, and the market may currently underweight downside growth risks; a new Fed chair is nearly certain to be appointed next year.