Mid-Week Briefing: Should investors continue to use AI providers as a Source of Funds for AI adopters?
Evidence is mounting that investors are beginning to rotate away from AI providers and toward AI adopters as concerns grow around compute costs, margin compression, and the sustainability of current valuations. The recent semiconductor selloff, dubbed the “chip-wreck” across Wall Street, has reinforced this theme, even as the broader AI trade remains supported by powerful secular demand trends.
At the same time, historic equity outperformance versus bonds is setting the stage for meaningful rebalancing flows, raising the probability of increased volatility and a deeper correction in risk assets over the coming weeks.
Despite near-term turbulence, the longer-term backdrop remains constructive. The ongoing transition to a multipolar world continues to generate durable demand for artificial intelligence, critical minerals, and defense-related investment, supporting global equity markets even as geopolitical tensions persist.
Against this backdrop, 42 Macro continues to favor using AI and Mag-7 exposure as a Source of Funds to capitalize on undervalued opportunities across global markets.
If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.
— Team 42
Is the Fed Tightening Now So It Can Ease Even More Later?
Darius Dale joined Maria Bartiromo on Fox Business to discuss why the current bull market remains intact despite geopolitical uncertainty and a seemingly hawkish Federal Reserve. He argued that investors continue to underestimate the power of Paradigm C and the long-term implications of Kevin Warsh’s evolving policy framework.
If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) Paradigm C Continues to Drive Markets Higher
The market’s strength can be attributed to the same bullish Paradigm C thesis that 42 Macro has been highlighting since near the “tariff tantrum” lows of last April. With fiscal easing, monetary easing, and regulatory easing occurring simultaneously, investors remain focused on a rare pro-growth policy mix designed to outgrow the debt burden.
Key Takeaway: The primary driver of this bull market remains the Paradigm C policy regime.
2) The AI-Driven Bubble Is Not Over
The current market environment reflects the bubble dynamics 42 Macro anticipated months ago. Continued AI investment, supportive policy, and incremental monetary easing are reinforcing risk appetite and fueling the next leg of the bull market.
Key Takeaway: Geopolitical noise and hawkish Fed rhetoric continue to distract investors from the bigger picture. As long as Paradigm C remains intact and policymakers continue pursuing a pro-growth agenda, the path of least resistance for risk assets remains higher.
3) Today’s Hawkish Fed Could Become Tomorrow’s Dovish Fed
While the Fed may sneak in 1-2 rate hikes this year, Kevin Warsh’s task forces on data, inflation, productivity, and labor markets will ultimately likely push policymakers toward a more dovish stance in 2-3 quarters.
Key Takeaway: Near-term hawkishness may ultimately set the stage for a more accommodative Fed.
Final Thought: The Bull Market Is Not Done
While there are strong reasons for the stock market to correct over the short-to-medium term, the AI bubble is likely not over. Investors should buy the dip this summer in anticipation of an explosive move higher into and through year-end.
Best of luck out there,
— Team 42
Mid-Week Briefing: What Did Kevin Warsh’s First Fed Meeting Reveal?
The market’s attention this week remains squarely focused on two interconnected themes: the durability of the AI-driven bull market and the Fed’s policy outlook under new Fed Chair Kevin Warsh. Washington’s decision to exert greater control over frontier AI models reinforced the view that artificial intelligence is now a strategic national asset, further boosting investor confidence in the AI CapEx cycle and the broader Paradigm C regime.
Meanwhile, investors received their first meaningful clues regarding Warsh’s policy reaction function. While the Fed delivered a hawkish hold and reaffirmed its commitment to price stability, the more important development was the introduction of five task forces focused on communications, data quality, balance sheet policy, inflation measurement, and productivity & jobs.
Taken together, these initiatives suggest the Fed may increasingly rely on real-time labor market and inflation indicators, which could ultimately result in a more dovish assessment over the next two-three quarters. (more details in tomorrow’s Lead-off Morning Note)
If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.
— Team 42
This Trigger Could Send Stocks Bubbling Sharply Higher
Darius Dale joined Adam Taggart on Thoughtful Money to explain why investors should focus on what markets are pricing today instead of long-term risks that do not yet matter to the market. While concerns about recession, geopolitics, and the Fourth Turning dominate headlines, expanding liquidity, and accelerating earnings growth remain the key drivers of markets.
If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) Reflation Remains Risk-On
42 Macro’s Global Macro Risk Matrix continues to identify Reflation as the dominant market regime, signaling a risk-on environment supported by strong growth and persistent inflation pressures. Investors continue to underestimate the strength of the economic backdrop and that, if geopolitical risks ease, capital will likely rotate from crowded AI trades into the broader market while equities continue moving higher.
Key Takeaway: The market is still signaling growth and risk-on conditions, not recession.
2) Sticky Inflation Introduces Fed Policy Risk
Rather than worrying about recession, Darius believes investors should focus on inflation and the Fed’s response. If a future Fed under Kevin Warsh chooses to look through near-term inflation pressures and focus on productivity gains, markets could experience a late-90s-style melt-up.
Key Takeaway: The stock market will bubble if the Fed signals they will look through near-to-medium term inflation pressures.
3) Process Beats Prediction
Many investors correctly identify long-term risks but position and weigh for them too early. Darius warns against making “Type 2 errors”—fighting what markets are currently signaling.
Key Takeaway: Successful investors should focus on disciplined risk management and stay aligned with prevailing trends rather than betting on future outcomes before they matter.
Final Thought: Focus on What Matters Now
Recession fears remain overblown, liquidity is expanding, and earnings growth continues to accelerate. Long-term risks deserve attention, but investors who position for them too early risk missing the opportunities being created by the current risk-on regime.
No catch—just real insights to help you stay ahead in the #Team42 community.
Best of luck out there,
— Team 42
Stocks, Economy Are Running RED HOT!
Darius Dale joined Anthony Pompliano to explain why the U.S. economy continues to outperform growth and earnings forecasts, and why investors should focus on participating in the current bull market rather than fearing its eventual end.
If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) The Resilient U.S. Economy Continues to Defy Expectations
The April PCE report reinforced 42 Macro’s Resilient U.S. Economy thesis. Despite slowing income growth and a lower savings rate, consumer spending remains above trend. Darius attributes this to the West Village-Montauk Effect, where elevated household wealth allows consumers to keep spending through economic shocks.
Key Takeaway: Strong household balance sheets continue to support economic growth.
2) Socialism for the Rich & Capitalism for the Poor
Decades of policy-driven income support for the top 10-20% of households from an income and wealth distribution perspective has made the US economy seemingly impervious to adverse policy shocks.
Key Takeaway: Decades of K-shaped fiscal and monetary policy have disproportionately benefited asset owners and defense contractors, helping create a K-shaped US economy.
3) The Economy is “Running Hot”
The economy continues to “run hot,” driven by above-trend growth, strong AI investment, and pro-growth policy.
Key Takeaway: This policy regime remains a powerful tailwind for growth and risk assets.
Final Thought: If You’re Bearish, Remain in Hibernation for Now
The U.S. economy remains more resilient than consensus expects. Investors who remain disciplined and systematic through our industry-leading risk management tools (KISS & Dr. Mo) are best positioned to capitalize on the opportunities ahead.
No catch—just real insights to help you stay ahead in the #Team42 community.
Best of luck out there,
— Team 42
Sales and Earnings Growth are BOOMING.
Darius joined Maria Bartiromo on Fox Business to break down why earnings keep surprising to the upside. If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) Productivity Is Driving Broad-Based Earnings Strength
The U.S. economy is experiencing a structural uptrend in productivity growth, and that dynamic is now flowing through to earnings in a broad-based manner.
Key Takeaway: Investors should expect the ongoing productivity boom to remain supportive of earnings growth.
2) AI Is Expanding Margins Beyond Tech
As AI diffuses throughout the economy, Darius highlighted that elevated productivity, robust profitability, and expanding margins are no longer confined to the tech sector.
Key Takeaway: The next leg of the AI trade should support the AI adopters as improved profitability diffuses throughout the broader economy.
3) Focus on Deltas, Not Absolute Levels
Markets move in response to rates of change and surprises relative to consensus expectations, not in response to absolute levels of performance. As such, investors should focus on businesses with the greatest potential for improvement in revenue and profitability.
Key Takeaway: The biggest opportunities are in companies and industries that have relatively low comparative bases for revenue per employee and operating margins because that is where the free cash flow growth is likely to be fastest.
Final Thought: The Driver Behind Earnings Growth
While headlines focus on geopolitics and short-term disruptions, AI remains a pivotal driver across the economy. Investors anchored to old frameworks risk missing where the next wave of earnings growth is coming from.
If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.
No catch—just real insights to help you stay ahead in the #Team42 community.
Best of luck out there,
— Team 42
A Global Liquidity Crisis Is Underway… What’s Next?
Darius Dale joined Maria Bartiromo on Fox Business to break down why the escalating US-Israel-Iran conflict has moved beyond an energy supply shock and evolved into a global liquidity crisis. He argued that investors are underestimating how disruptions in energy flows and capital recycling are tightening financial conditions and reshaping the macro regime.
If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) This Is a Capital Account Crisis, Not Just an Energy Supply Shock
While most investors are focused on the impact of oil supply disruptions on current account dynamics, Darius emphasized that the real issue lies in the capital account. Net international investment surplus economies in the Gulf Coast and Asia are no longer generating the revenue and profits growth required to recycle capital into global capital markets, forcing them to sell assets like gold to raise liquidity.
Key Takeaway: This is not just about oil. There is an enormous breakdown in the global liquidity machine that supports risk assets.
2) Risk-Off Inflation Regime Remains in Place
Darius made clear that as long as the US–Israel–Iran conflict persists, markets are likely to remain in a risk-off Inflation regime. This regime is characterized by rising volatility, tightening liquidity, and pressure across both risk assets and traditional safe havens.
Key Takeaway: Investors should position for continued volatility as long as this conflict remains unresolved, not a quick return to risk-on conditions.
3) The Fed Is No Longer a Backstop
Perhaps most importantly, central banks are not stepping in to stabilize markets—and may actually tighten further. Drawing parallels to 2008 and 2020, he noted that investors are selling what they can to raise liquidity, not what they want to sell. Meanwhile, the Fed’s reaction function has shifted from asymmetrically dovish to a bimodal distribution, introducing the possibility of rate hikes if inflation pressures persist.
Key Takeaway: Central bank support appears unlikely over the medium term, and markets must price this risk accordingly.
Final Thought: Geopolitics Leads Liquidity and Liquidity Drives Asset Markets
Markets are transitioning from a liquidity-supported environment to one defined by scarcity, volatility, and geopolitical risk. In short, the longer the US-Israel-Iran war persists, the greater the reduction in liquidity—and decline in asset markets—investors will experience.
If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.
No catch—just real insights to help you stay ahead in the #Team42 community.
Best of luck out there,
— Team 42
Will AI Drive the Next Wave of Global Equity Leadership?
Darius Dale recently joined Adam Taggart on Thoughtful Money to explain why investors may be misreading the current macro environment. While the S&P 500 has moved sideways in recent months, Darius argued this is not a topping process. Instead, markets are likely experiencing choppy rotation due to a historic degree of crowded bullish positioning and the convergence in profitability and valuations across sectors, industries, and geographies due to AI-led productivity gains.
If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) What Looks Like a Market Top Is Likely Just Rotation
42 Macro’s market regime nowcasting signals still point to a risk-on Goldilocks environment, with growth, monetary policy, and liquidity providing tailwinds for risk assets. The sideways action in U.S. equities is largely the result of historically crowded positioning in mega-cap tech unwinding as investors rotate into other parts of the market.
Key Takeaway: The current chop is likely not a topping process. Instead, it is likely a rotation from crowded mega-cap tech into international equities, small caps, and cyclicals.
2) AI Diffusion Is a Convergence Catalyst
We believe that corporate AI adoption will drive convergence in productivity, profitability, earnings growth, and valuations across sectors, industries, and geographies. Because many international markets start from lower comparative bases with regards to productivity and profitability, the rate of change could be faster than what we see in U.S. markets, which are already dominated by highly profitable mega-cap tech companies.
Key Takeaway: Markets starting from lower trend rates of productivity growth are likely to experience the fastest productivity gains amid accelerating AI diffusion.
3) Paradigm C Remains a Powerful Growth Backdrop
The current macro environment is still best described using our Paradigm C framework, a regime where fiscal expansion, monetary easing, and deregulation are all occurring simultaneously to “run the economy hot”. When those three forces align, the result is typically above-trend economic growth and strong tailwinds for corporate profits and risk assets.
Key Takeaway: Investors should not fight a macro backdrop where fiscal policy, monetary policy, and deregulation are all pushing growth higher.
Final Thought: Position for the Rotation
Markets may remain choppy as crowded positioning unwinds, but the broader risk-on market regime remains intact. By year-end, we expect investors to be satisfied with returns in the equity and credit markets—especially those who invest beyond the traditional mega-cap tech companies.
If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.
No catch—just real insights to help you stay ahead in the #Team42 community.
Best of luck out there,
— Team 42
Can the Fed Stay Independent Amid Treasury Bond Market Imbalance?
On Yahoo! Finance, Darius joined Josh Lipton to explain why rising volatility, Fed independence concerns, and geopolitical stress are reshaping market structure. With a historic degree of crowded bullish positioning, near-term chop remains likely. However, 42 Macro maintains a constructive medium-term backdrop as the economy continues to experience a structural uptrend in productivity growth.
If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) Productivity Is Driving Disinflation
Darius emphasized that inflation should be analyzed through trend impulses, not noisy month-to-month prints. When viewed through three- and six-month annualized rates, core CPI, core goods, core services, and shelter CPI all show negative impulses. He argued that a cyclical upturn in productivity is already underway and likely evolving into a structural shift—moving the U.S. from a 2% trend productivity economy toward a 3% regime.
Key Takeaway: Disinflation is being driven by productivity gains alongside cooling wages and housing, not economic weakness.
2) There Is a Growing Geopolitical Supply-Demand Imbalance in the Treasury Bond Market
While headlines focus on President Trump’s pressure campaign against Fed Chair Powell, Darius argues this framing misses the bigger picture of why this is all happening. The core issue is a growing geopolitically driven supply–demand imbalance in the Treasury Bond Market. With foreign participation shrinking and private investors absorbing more supply, the Fed is increasingly the only institution capable of stabilizing the market, making some erosion of independence structurally inevitable over time.
Key Takeaway: The Treasury market’s scale and imbalance will ultimately force deeper Fed involvement to fill the void.
3) A Constructive Medium-To-Long-Term Outlook
Darius acknowledged that historically crowded bullish positioning makes markets vulnerable to corrections and choppier price action. However, he stressed that volatility does not negate the broader opportunity set. A productivity-led expansion supports a constructive medium-to-long-term outlook for risk assets, even if near-term drawdowns occur.
Key Takeaway: Volatility is rising, but productivity-driven growth keeps the medium-term outlook constructive.
Final Thought: Long Signal/Short Noise
Investors who fixate on noisy economic releases or political theater risk missing the forest for the trees. The defining feature of this cycle is not policy drama; it’s a structural shift in productivity and a Treasury market that has outgrown traditional buyers. Volatility will rise, but history suggests productivity-led expansions ultimately reward disciplined investors who stay systematic and avoid reacting emotionally to headline noise.
If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.
No catch—just real insights to help you stay ahead in the #Team42 community.
Best of luck out there,
— Team 42
How Should Investors Respond to the Sea Change in US Monetary Policy?
Darius joined our friends Romaine Bostick and Katie Greifeld on Bloomberg: The Close to break down what he called one of the most historic Fed decisions of our lifetimes. In a single press conference, the Fed signaled renewed balance-sheet expansion and a revised reaction function that is increasingly geared toward supporting asset markets in lieu of combatting above-target inflation.
If you missed the discussion, here are three key takeaways that likely have huge implications for your portfolio:
1) The Fed Has Entered a New Monetary Policy Regime
The FOMC effectively acknowledged that the financial system now requires ongoing balance sheet expansion to counter the stress in the repo market from bloated public sector borrowing — an outcome we have been explicitly forecasting for years. Branded as “reserve management,” the Fed’s T-bill purchases are effectively QE and reflect a clear erosion of central bank independence that is likely to grow over time.
Key Takeaway: The Fed’s revised reaction function fits 42 Macro’s long-held expectation that rising deficits would force a more growth-oriented, liquidity-providing US central bank.
2) Five of Six Key Macro Cycles Are/Will Be Tailwinds for Risk Assets
With monetary policy easing, growth improving, inflation falling, fiscal policy easing, and liquidity in an uptrend, five of six macro cycles are tailwinds. While historically crowded bullish positioning — the sixth key macro cycle — suggests the next few months may be volatile, the likelihood of explosive upside in risk assets for a fourth consecutive year in 2026 is reasonably high. Take our word for it; we’ve helped thousands of investors in 80+ countries around the world maximize upside capture in the prior three years.
Key Takeaway: With five of six key macro cycles supportive, the medium-term backdrop remains decisively bullish.
3) The AI Trade Is Now a Macro Force
We may be in the early innings of a potential AI-driven bubble, and valuations matter less when five of six key macro cycles are supportive. That said, industrial revolutions tend to end in secular bear markets, so investors must be ready to protect their life savings from a repeat of the Dot Com Bust or Global Financial Crisis.
Key Takeaway: Market timing is for novice investors who haven’t yet figured out that market timing is a fool’s errand. Moreover, remaining fully invested at all times is for investors who intend to lose half (or more) of their life savings in the coming secular bear market. Trend-following systems like KISS and Dr. Mo will be best positioned to sell near the top.
Final Thought: Navigating the New Fed Liquidity Regime
Structural liquidity support, AI-driven profitability, and above-consensus growth confirm 42 Macro’s view: investors should prepare for a volatile but rewarding stretch as Paradigm C merges with the advent of Paradigm D. Click here to learn more about our Paradigm framework:
If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.
No catch—just real insights to help you stay ahead in the #Team42 community.
Best of luck out there,
— Team 42