Joseph Coughlin
Chief investment officers are well-versed in economic models that offer precision and clarity. While these familiar frameworks offer powerful and focused attention, they often neglect seemingly peripheral factors that quietly simmer beneath the surface. Such overlooked elements—political tensions, demographic shifts, technological disruptions—gradually accumulate pressure, setting the stage for sudden, sometimes radical market transformations.
To understand the current volatility, a wider lens, borrowed from both evolutionary biology and political science, provides a vital perspective to today’s markets and a means to explain and alleviate the anxiety of investors: punctuated equilibrium.
Originally coined by paleontologists Niles Eldredge and Stephen Jay Gould to explain the evolution of species, the idea was later adapted by political scientists Frank Baumgartner and Bryan Jones to explain policy change. Unlike popular assumptions, their insight is that systems don’t usually change gradually. Instead, they remain stable for long stretches while underlying pressures build. Then, seemingly all at once, those pressures break through, producing sudden, dramatic change—a punctuation—before a new equilibrium emerges.
Punctuated equilibrium argues that attention and resources can remain focused on the same assumptions, problems and solutions for years in government and markets. During these periods, incremental adjustments are the norm: policies, regulations and investments change only at the margins. However, as hidden pressures—public frustration, economic disparity, new technology, geopolitical risk—intensify, the likelihood of a disruptive event increases. When a catalyst emerges, a surge of activity and public attention follows. Old policies and norms are swept away, new paradigms are swiftly embraced, and market behavior can shift in new directions.
Why This Matters for Markets and Investors
Markets, much like political systems, are subject to this logic. For most of the post-World War II era, the global economic system experienced a remarkable degree of stability. Liberalized trade, predictable interest rates, centralized supply chains and consistent U.S. leadership formed the foundations for relatively steady growth, low inflation and expanding capital markets. The underlying global order remained predictable despite disruptions such as the dot-com bust and the 2008 financial crisis.
But underneath, seemingly peripheral and unrelated forces were converging, and pressure was mounting:
- Demographic trends such as global aging and declining birth rates began to stress social welfare systems and labor markets;
- Economic inequality grew in developed nations;
- Public trust in institutions, particularly among younger people, was falling;
- Manufacturing jobs shifted from traditional regional powerhouses like Detroit in the U.S. to other countries, causing economic and political stresses;
- Geopolitical rivals, most notably China, rose in economic and political influence;
- Climate change emerged as a global economic risk;
- Digital technologies disrupted the way people work, shop and communicate;
- Artificial intelligence became not just a new technology, but the promise of a revolution in nearly everything; and
- The Ukraine war and conflicts in the Middle East pressured food and energy markets.
The theory of punctuated equilibrium argues that policymakers and market analysts tend to overlook or downplay these pressures. They are rarely captured neatly in existing investment models. When they are acknowledged, they are viewed separately, rather than as a collective stress on the system. In short, they are disregarded until they can no longer be ignored.
A central lesson from political science’s application of punctuated equilibrium is the power of public attention. Markets are not driven by numbers alone; they are driven by what people, leaders and institutions notice and act on. When attention is fixated elsewhere, even large risks can go unaddressed. But once the spotlight swings—because of a crisis, a scandal, an election, a technological breakthrough or a geopolitical event—change happens fast. Policy and market responses are swift, sweeping and often disorderly.
U.S. President Donald Trump’s tariffs serve as a prime example. They mark a sharp break from decades of trade policy, causing a reevaluation of economic assumptions and revealing fractures that had quietly built up over the years. Similarly, the COVID-19 pandemic forced attention onto supply chain fragility, workforce dynamics and digital readiness, revealing vulnerabilities that had gone unaddressed.
These events—tariffs, pandemics, wars and inflation surges—are not the root causes of market turmoil. They are the catalysts that expose and accelerate deeper, systemic change. The turbulence we’re experiencing now is not random collapse or the result of one policy change, but a punctuation in the system: a rapid transition from one equilibrium to another.
Catalysts, Not Causes: Why Disruption Is Inevitable
For most people, the clearest recent example of punctuated equilibrium is the COVID-19 pandemic. Before 2020, daily life and work appeared stable. But beneath the surface, dissatisfaction with commuting and work-life balance had grown, and workforce aging, falling employee engagement in the workplace and digital infrastructure had quietly matured.
When the pandemic hit, these pressures erupted. Millions went remote, digital commerce exploded, health care rapidly adopted telemedicine, and supply chains cracked. The system did not evolve incrementally—it transformed rapidly. Three years later, we live in a new normal, a new equilibrium: hybrid work is mainstream, consumers expect digital-first experiences, and resilience has become a corporate priority.
The key insight? The pandemic didn’t cause all the change—it revealed the need and readiness for it.
Investment strategists and analysts might initially dismiss punctuated equilibrium as a reframing of Nassim Taleb’s “Black Swan” theory, since both concepts address sudden, dramatic market shifts. However, black swans are fundamentally rare, unpredictable outlier events that demand general resilience against unknown risks. Punctuated equilibrium suggests that attentive observers can identify building pressures before they erupt.
This difference fundamentally alters investment strategy—rather than focusing solely on building resilience against unpredictable shocks, the punctuated equilibrium framework recommends that investors adopt a broader perspective and actively monitor seemingly peripheral factors often dismissed as outside economics or mere social noise, such as slow demographic shifts or the erosion of institutional trust, factors easily overlooked until they reach a breaking point. By recognizing these accumulating pressures, investors can position themselves not just to survive disruption, but also to anticipate and capitalize on the emergence of new market equilibria.
Now, markets are experiencing their own shift. Sharp downturns, uneven recoveries and persistent uncertainty are not necessarily signs of a broken system. They indicate a system adjusting to new realities: slower globalization, geopolitical instability, demographic transition and rapid technological change (AI, automation, decarbonization).
The Trump tariffs—breaking with a bipartisan tradition of open trade—highlighted that postwar economic assumptions were beginning to fray. The tariffs acted as an unanticipated catalyst, propelling the system toward a new, yet undefined, equilibrium.
Take the Long View—Prepare for the Next Equilibrium
What does this mean for investors? The most important lesson is that disruption is not failure—it’s transition. Political science suggests that while no equilibrium is permanent, every period of volatility is followed by the establishment of a new order.
The implications:
- Stop waiting for things to “go back.” They won’t. Punctuated equilibrium is a new set point;
- Invest in adaptability. Companies and organizations that prioritize flexibility, not perfection, under what appears to be the new order, will be more resilient;
- Rethink global exposure. Markets may become more regionalized and less dependent on just-in-time global supply chains;
- Redefine risk. Traditional economic models often overlook or downplay social and geopolitical drivers, treating them as ancillary, too distant or too difficult to measure to be investment-relevant until they become too significant to ignore. It is important to account for the market impacts of demographic transition, climate events, social unrest, declines in institutional trust and political shifts; and
- Prioritize people and talent. Demographic changes and shifting preferences will gradually reshape labor and consumer markets in unexpected ways until a tipping point is reached, shocking those who are focused on the predictable and well-modeled norms today and not watching what is evolving on the edge.
Take the long view. Like political history, market history is a story of stability interrupted by dramatic change, which leads to the emergence of a new equilibrium. Investors who understand this will survive the volatility and be better positioned to capitalize on the next wave of stability and growth.
The good news is that systems don’t remain in turmoil permanently. Just as they punctuate, they also re-equilibrate. Today’s uncertainty is real, but it’s part of the cycle. Eventually, markets will stabilize—not by returning to what they were, but by aligning with new realities.
The businesses and investors that succeed will be those who view disruption not as a detour, but as an inevitable turn in the road toward opportunity.
Joseph Coughlin is the director of the Massachusetts Institute of Technology AgeLab and most recently author of, with MIT’s Luke Yoquinto, “Longevity Hubs: Regional Innovation for Global Aging,” published by MIT Press.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of CIO, ISS Stoxx or its affiliates.
Tags: Black Swan, Global Investing, investment models, market volatility, Nassim Nicholas Taleb, Tariffs
