We believe the ‘Divergence Conundrum’ is the defining feature of this cycle. For investors, we think this is a time to stay up in quality, focus on durable cash flows, and lean into managers and assets that can create value through operational improvement, productivity gains, and disciplined capital allocation.
The ‘Divergence Conundrum’ thesis encapsulates our view that the economy is no longer moving in one clean direction. Some areas, like AI, productivity, high-end services, and national security, are still attracting capital and driving growth. Other areas, like housing, lower-income consumers, old economy capex, and rate-sensitive sectors, remain under pressure. For investors, the question is whether the economic resilience they are seeing is increasingly concentrated in a few pockets of strength rather than broad-based. For policymakers, the challenge is setting monetary policy for an economy that is hot in some areas and cold in others.
Exhibit 1: The ‘Divergence Conundrum’ Is Poised to Become More Extreme as the Cycle Continues. Against This Backdrop, the Complexity of Economic, Societal, and Monetary Considerations Becomes More Challenging
