My latest: Will the Market Crash Soon? Lessons from the Last Four Bear Markets.
This Week’s Takeaways:
- We have a massive and concentrated national economic bet on AI that exposes our economy to risks if it doesn’t pan out, or massive job losses if it does.
- A way to diversify this AI bet is to invest globally. If AI’s potential is realized, international companies will benefit. If AI fails to deliver as expected, non-U.S. markets would likely have less of a pullback.
- International stocks are performing much better than U.S. ones already this year.
- A softer than expected inflation report leaves the Fed on track to cut rates, but inflation might stay sticky around the 3% level until next year.
- The NBA’s new gambling problem is really its old problem of too many teams tanking for better draft picks.
- The annual cost-of-living adjustment for Social Security benefits in 2026 will be 2.8%, slightly above the 2.5% increase in 2025 and near the long-term average.
- Things to Do This Weekend in Boston.
- Plus my latest book recommendation.
How Does the End Begin? by Scott Galloway
We have a massive economic and investment bet on AI right now. Since ChatGPT launched, AI-related stocks have registered 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital spending growth. Meanwhile, AI investments accounted for nearly 92% of U.S. GDP growth this year. Valuations are high, but not at historic peaks. The same is true for AI capex levels compared to GDP. Nevertheless, the size of this bet makes our economy fragile and exposes us to the risk the AI bets won’t pan out, or they will and jobs will suffer.
What determines equity returns by Vanguard
Equity returns over short horizons are largely driven by economic growth, corporate earnings and market momentum, whereas valuations play a modest role. Over longer periods (around ten years or more) valuations increasingly dominate and act like a “gravity” pulling returns back toward historical norms. Current elevated U.S. stock valuations imply that downside risk is more pronounced if growth disappoints and leaves the market more vulnerable to shocks, while global diversification remains important because international markets offer relatively better value and protection for portfolios concentrated in the U.S. AI bet.
U.S. Stocks Are Breaking Records. The Rest of the World Is Doing Better. by The Wall Street Journal
A benchmark for international equities is on pace to outperform the S&P 500 by the widest margin since 2009
September CPI: An Oasis in the Data Desert by Wells Fargo
The September CPI report came in a bit softer-than-expected. This keeps the Fed on track to cut rates today. With higher prices from tariffs still working their way into the economy, we expect inflation to remain sticky near this 3% level through the middle of next year.
NBA Gambling Investigation Renews Spotlight on Tanking by Sportico
The NBA’s new gambling problem is really its old problem of too many teams tanking for better draft picks.
2026 Social Security COLA is 2.8%: What You Need to Know by Kiplinger
The annual cost-of-living adjustment for Social Security benefits in 2026 will be 2.8%, slightly above the 2.5% increase in 2025 and near the long-term average. For the average retiree, this translates to a rise from about $2,015 per month in 2025 to approximately $2,071 in 2026, while couples will see benefits increase from around $3,120 to about $3,208. The taxable wage cap will move up to $184,500, and workers will need $1,890 in earnings to receive one credit toward benefits in 2026.
Book Recommendation
Winter of the World: Book Two of the Century Trilogy by Ken Follett
I recommended book one of this trilogy a while back, and the second entry is excellent.
Picking up where Fall of Giants, the first novel in the extraordinary Century Trilogy, left off, Winter of the World follows its five interrelated families—American, German, Russian, English, and Welsh—through a time of enormous social, political, and economic turmoil, beginning with the rise of the Third Reich, through the great dramas of World War II, and into the beginning of the long Cold War.
