This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron's.
Why Cash Won't Cut It
UBS House View - Daily US UBS Sept. 18: Cash may not meet long-term return needs. By definition, a portfolio needs to earn a return equal to inflation to maintain its purchasing power. If it must also fund withdrawals, taxes, or a longer-than-expected lifetime, a meaningful positive real return is likely required. In our view, cash is unlikely to meet that hurdle over the long term. Even today's high cash yields are partly offset by inflation and, in many jurisdictions, taxation. We also don't expect the current unusually high real cash rates to persist indefinitely. We estimate the long-run pretax real return on cash at just 0.7%. To overcome the combined challenge of inflation, taxes, longevity, and withdrawals, investors need a higher long-term return than cash is likely to provide.
Ulrike Hoffmann-Burchardi and team
There's No Pacing AI Uptake
The Weekly Five The Northern Trust Institute Sept. 18: As we prepare for next earnings season, what impact might restrained AI model development have on expectations?
In a series of headlines, leaders from OpenAI, Anthropic, xAI, and Google DeepMind publicly agreed to "pace the frontier" or slow the rate at which frontier or closed AI models add capabilities. On his personal website, Anthropic CEO Dario Amodei posited that "we should not stop AI progress, but we should deliberately slow the speed at which frontier models become more capable so that safeguards can catch up." Earlier this week, technology companies sold off in response, with concerns that the ecosystem's potential slowdown would have material effects on earnings growth.
To be sure, the AI ecosystem remains the primary earnings growth driver. For domestic large-cap equities, as measured by the S&P 500 index, analysts expect 12% earnings growth this year, 14% next year, and 16% in 2028. Sales growth estimates are in the upper-single digits for all three years, and AI's downstream impacts carry significant weight in those estimates. Capital expenditure estimates continue to get revised higher, and so far, capital markets are allowing companies that monetize demand, while still building for the future, to raise both equity and debt capital....
Our working hypothesis remains that, while the pace of rollout may slow, AI uptake across businesses and consumers won't. Further, we expect the desire to win the AI arms race will push companies to only modestly restrain development. We have cited Stanford's 2026 AI Index Report before and encourage readers to curl up to its 425 pages (or at least have an AI agent summarize them): One of the main findings is how disparate adoption is by industry and geography, and we expect those differences to converge over time.
Eric Freedman
Don't Fear a Rate-Hike Cycle
Market Perspective Truist Wealth Sept. 17: Since the start of the modern Fed era in 1994, the S&P 500 declined during the one- and three-month periods following the first interest-rate hike in five of six completed cycles. However, performance improved as the time horizon expanded. Stocks were higher 12 months later in five of the six cycles, with an average gain of 9%. Volatility has also historically picked up during this stage of midterm-election years, even without a shift in Fed policy.
Importantly, however, an initial Fed hike doesn't typically mark the end of a bull market. Outside of 2022, bull markets continued for another nine to 74 months after the first increase. The 2022 cycle was the outlier, with the Fed raising rates by 5.25%. That isn't our base-case expectation.
Keith Lerner
China's Growth Challenge
AM Notes BMO Capital Markets Economics Sept. 15: It is getting tougher to defend the "China will make its 4.5%-to-5.0% growth target" these days, but it is still doable given the range. And, exports are still surging as is output for products that the world still needs badly. BMO continues to stay with our 4.5% forecast penciled in for this year. But the August data, aside from exports, haven't been particularly helpful.
Credit lending, released yesterday, was disappointing. And now, the latest round of economic data is also piling on. Retail sales growth slowed further, inching up just 0.4% above year-ago levels in August (or +1.1% year to date), below expectations and another sign that the consumer continues to struggle. Note that the urban jobless rate in 31 cities ticked up 0.1 percentage point to 5.3%, too.
Industrial production, however, managed to beat expectations in August with a 5.2% climb from a year earlier (or 5.3% YTD), with most of the gains powered by integrated circuits (+20.6% Y/Y, or +22.3% YTD), industrial robots (+34.6% Y/Y, or +29.0% YTD), and new-energy vehicles (+21.9% Y/Y, or +11.3% YTD), while fixed asset investment shrank 7.2% in the first eight months of the year.
Jennifer Lee
Energy Inflation
Monday Morning Observation Capital Wealth Planning Sept. 14: The conflict in the Middle East is pushing oil prices higher, last week once again exceeding $100/barrel. Oil supply is still constrained in the Strait of Hormuz with shipping at a standstill. As a result, energy-driven inflation dominated both producer and consumer inflation reports for August.
The [consumer] report highlighted continued pressure from energy prices, particularly gasoline and fuel oil, which rose 3.9% and 10.1%, respectively. Overall, the August consumer price index report presented a mixed picture: Headline inflation remained high due to energy costs, while underlying inflation showed signs of moderation. Producers are facing similar energy-driven inflation. Goods prices increased 1.1% during the month of August, a third of which was attributed to diesel fuel, which rose more than 24% during the month. We expect September's report to show another significant increase.
Kevin Simpson
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