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We welcome back Julia C. Hermann, Global Market Strategist at New York Life Investments, for a wide-ranging conversation on the 2026 economic outlook. We’re discussing the key macro trends shaping the future, from the ongoing AI boom and its comparison to the dot-com era, to the Federal Reserve's policy moves, the impact of tariffs and inflation, and the fast-evolving global geopolitical landscape.

Julia offers a balanced perspective, exploring why the current environment may feel at odds with headlines about global chaos, and how investors can think about risk, portfolio construction, and opportunities in this unique moment. The discussion covers everything from the intricacies of bond-market risks and Fed independence to energy markets, Japan’s financial experiment, and the emerging role of China on the world stage.

You will want to hear this episode if you are interested in...

1. 03:34 Navigating global economic uncertainty.
2. 07:35 AI investment and tax incentives.
3. 11:17 Fed independence and Powell's influence.
4. 18:30 Inflation driven by housing costs.
5. 26:09 Global economies wrestle with debt.
6. 27:59 Japan's tenuous reflation experiment.
7. 33:01 Fed influence vs market rates.
8. 35:52 AI and US-China dynamics.
9. 38:12 Focus on diversification and quality.

Is the AI Boom Hype or Here to Stay?

Many are quick to compare today’s AI surge to the dot-com bubble of the late ‘90s. However, Julia draws a firm line between the two. In the dot-com era, overvaluation was driven by hope in unproven business models. This time, it’s established tech giants, think Magnificent Seven, NVIDIA, etc., that are at the forefront.

The current rally is grounded in real earnings, not just speculative future growth. These companies are reinvesting 50-60% of operating cash flow into capital expenditures, especially in AI infrastructure. Plus, recent fiscal legislation, like the One Big Beautiful Bill, supercharges this by reintroducing immediate expensing of capital investment, encouraging more spending and innovation. That depth and durability make a near-term AI bubble burst unlikely.

Inflation, Bond Markets, and the Limits of Prediction

Inflation fears remain front and center for many investors. Despite headlines and some price increases from tariffs and supply disruptions, the full picture is more complicated. Inflation is broader than goods alone, with shelter costs making up about 45% of the inflation basket and being the major story over the past year. Energy prices have actually provided relief, with increases in some goods more than offset elsewhere.

When it comes to fixed income, Julia n remains cautious about “adding duration”, a stance held even as long-term rates surprised many by coming down during 2025.

The Fed’s Role, Policy Independence, and Market Communication

A change in Federal Reserve leadership doesn’t necessarily mean the end of balanced monetary policy. The Fed chair is influential, but decisions require consensus from the Federal Open Market Committee. What the chair does control, however, is messaging.

Ever since Greenspan’s celebrity status and Bernanke's implementation of greater transparency, communication has become monetary policy’s second lever. Markets obsess over every word, precisely because perception is reality. As long as the Fed maintains credibility and independence, the machinery keeps humming even amidst leadership changes.

Global Geopolitics

From Venezuela’s oil politics to Japan’s bond market dynamics, the global picture is far from simple. While headlines speculate about the impact of repatriating assets or local institutions being forced to buy domestic bonds (what’s known as “financial repression”), Julia provides some context: no single country, including major players like Japan or China, can destabilize U.S. Treasuries thanks to the depth and liquidity of American markets. While risks exist, global investors still see the U.S. market as the safest and most attractive port in any storm.

Back to Basics for Portfolio Construction

In an age where hot trends often trump fundamentals, the long-neglected virtues of diversification and quality are back in style, a shift driven by the realities of a later-stage economic and credit cycle. As the world grows more complex, holistic, risk-managed approaches are once again proving their worth.

Noise will always exist, and risk never disappears. But with a disciplined framework, an awareness of historical analogues, and a focus on fundamentals, investors can look toward 2026 with confidence and clarity.

Julia Hermann is not affiliated with or endorsed by LPL Financial or Capital Investment Advisers.

Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC.

The financial professionals associated with LPL Financial may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

Resources Mentioned

1. Julia’s Podcast

Connect With Julia Hermann

1. Julia C. Hermann on LinkedIn

Connect with Emerson Fersch

1. Capital Investment Advisers
2. On LinkedIn

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