Equities
Tech, and increasingly the market, is moving from a cash-return regime to a reinvestment regime. After the GFC, investors rewarded companies that returned cash to investors. In the AI cycle, they are rewarding companies that put that cash back to work. This is not just a story of falling free cash flow; it is the mirror image of a market rewarding reinvestment. Tech has defined both regimes, revealing the old cash-flow “stars” as sector bets masquerading as alpha.
US stocks and bonds are on a collision course. Only a meaningful equity selloff is likely to pull bond yields considerably lower. Global equity risk-reward looks poor. The dollar will stay firm near term, but its medium- and long-term outlook remains bearish.
US growth remains positive and is now improving, with the economy seemingly exiting Slowdown and proceeding into Expansion. Markets are reflecting the shift, rewarding revenue growth and capex growth, while earnings expectations continue to advance. The backdrop remains supportive, but expectations are rising and risks from financial conditions linger.
