Podcast Series Greater Possibilities

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Rethink Markets: Chinese AI, small caps, and the space economy

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Transcript : Disclosures

Brian Levitt:

Welcome to Rethink Markets, a series from the Greater Possibilities podcast. I'm Brian Levitt, and with me as always is Jodi Phillips. Hey, Jodi.

Jodi Phillips:

Hey, Brian. So today we're going to be connecting with Michael Oliveros, who is the head of global small cap equities at Invesco. And we're going to have a conversation on Chinese AI, European space travel, and any other futuristic topics we can think of.

Brian Levitt:

Futuristic? Feels like the future is now, Jodi.

Jodi Phillips:

It does feel that way, doesn't it?

Brian Levitt:

Yeah. Maybe this isn't even us speaking on the podcast. Is the real Jodi sitting on a beach somewhere?

Jodi Phillips:

Oh my goodness, how I wish. Sipping a nice cocktail. That sounds glorious. But no, it's me. I'm here.

Brian Levitt:

You're here?

Jodi Phillips:

And to prove it... Yeah, I'm here. So to prove it, I will not be doing this podcast in 27 different languages as a proper AI avatar would do, but-

Brian Levitt:

Yeah, I think my avatar might even be above 27 now, if I can one-up you.

Jodi Phillips:

Oh, nice. Well, yeah, go ahead. I mean, I'm probably going to stumble over half of these English words myself. So sorry, no avatars.

Brian Levitt:

This is really us, and I do like the idea of talking about exciting things. I'm looking forward to this. There's just way too much negativity in the news flow. When you speak to people like Michael, you realize how many positive things are happening in the world.

Jodi Phillips:

No, that is very true. But even when we are presented with exciting developments and exciting topics of conversation, some people may feel it's all too good to be true, inserting that negativity back in.

Brian Levitt:

Yeah. Actually, I'm feeling that way about the New York Knicks right now. It's all too good to be true.

Jodi Phillips:

Well, we'll find a definitive answer to that shortly. See how that turns out. But what are you hearing in terms of investor sentiment?

Brian Levitt:

Yeah, some of it was just conversations I was having with people at the proverbial Memorial Day barbecues or early June days on the golf course, comments like, "It can't keep going like this," or when I'm looking at my business-related social media feeds, the permabears seem all too happy to tell us that we're going to have high oil prices forever or high interest rates forever or high inflation. It's all here. They've been waiting for it forever. They've been warning us. Henny Penny, the sky is falling. It's all happening.

Jodi Phillips:

Wow, you throw a really fun Memorial Day barbecue, Brian, I have to say. You couldn't just keep talking about the Knicks?

Brian Levitt:

Yeah, seriously.

Jodi Phillips:

Yeah. Look, no, I certainly don't want to sound like a permabear, but each of those things that you just mentioned, the higher oil prices, the higher rates, the higher inflation expectations, that all did happen.

Brian Levitt:

Yeah. Operative word, happened. I like that you put that in the past tense. They did all happen. The interesting thing, though, is in the past weeks, they've all peaked. Hopefully we don't have to edit that by the time this comes out. But no, they've all peaked and come down, oil prices, inflation expectations, and interest rates. And so what makes the current pessimism particularly puzzling is that a lot of it's happening at a moment when a lot of the key macro pressures seem to be easing.

Jodi Phillips:

Well, and a lot of people would say, and I've heard you say it before, that the pessimists do tend to sound smart.

Brian Levitt:

Oh. Oh my God, yeah. When I'm an optimist in the world, I feel like people think I'm hiding something or making things up. Yeah, they for sure sound smart. And look, one day they will be right. I mean, that's the thing about it is that the permabears are always right at one moment and they become famous for a brief moment. But the problem is that by the time that moment arrives, markets can be significantly higher than where they are today.

Jodi Phillips:

Okay. And that brings us to our first segment...

Speaker 3:

Trending conversations.

Jodi Phillips:

All right, Brian, what's trending?

Brian Levitt:

I think it's the market moves. Talk about from negativity to positivity, the 18.5% move in the S&P 500 Index in April and May.

Jodi Phillips:

Yeah, let's dig into that. I mean, this goes back to your point about the naysayers. By the time they were getting negative about Iran, the Strait of Hormuz, oil prices, the market had already bottomed.

Brian Levitt:

Yeah, that's what makes it hard. I mean, that's how it usually goes, and that's what makes it so hard to time the markets. And then by the time it happens, now they're skeptical that it can happen again.

Jodi Phillips:

So have they missed it? I mean, an 18.5% gain is a big one.

Brian Levitt:

Well, so look, we looked at... I knew that this was going to come up with investors, and so we looked at the 18 prior periods since 1957 when the S&P 500 Index rose by 18.5% or more over a two-month span. Returns were positive, Jodi, over the following six months in 16 of those instances. So 16 of 18 instances, you were positive six months after gaining 18.5% in two months. That's a pretty good hit rate. And the average gain over those subsequent six months was over 10.5%. Again, not too shabby.

Jodi Phillips:

No, not at all. Sometimes facts do get in the way of a naysayer's good story then.

Brian Levitt:

They almost always do.

Jodi Phillips:

Well, so then what are they missing? What are the naysayers not seeing?

Brian Levitt:

Yeah, two things. Number one, earnings, earnings, and earnings.

Jodi Phillips:

Is that the equity investor equivalent of location, location, location?

Brian Levitt:

Yeah, exactly. And no, that's not three things. That's all number one is earnings, earnings, and earnings. I mean, look, we've said this before, we said it in the last episode, US corporate earnings grew by 28% in the first quarter. Stunning. You usually don't get that type of move unless you're coming out of a recession. That's like coming out of COVID-level of earnings growth. That was way above market expectations that were in the mid single digits. And prices are up, but they're not up 28%. So prices haven't climbed at the same pace. That means valuations have actually fallen over that time period.

Jodi Phillips:

So if earnings are clearly number one, what's number two?

Brian Levitt:

Well, I would say the discount rate. I mean, look, market came into this year expecting lower interest rates, and so we had to adjust to a less accommodative Fed path. Now, you even went from pricing in a less accommodative Fed path to maybe even one rate hike, with very little incident for the market. And in actuality, inflation expectations have generally been moving lower. We talked about how things have peaked. So it's very difficult for me to see the Fed raising rates in this environment.

So that's what the naysayers are missing. You've got strong earnings growth and a Fed that's relatively comfortable with price stability. They're not convinced, but they're relatively comfortable.

Jodi Phillips:

Well, you've always said that market cycles tend to end when the Fed kills them with rate hikes.

Brian Levitt:

Yeah. I don't think we're killing this thing anytime soon.

Jodi Phillips:

Good. All right. And that brings us to...

Speaker 3:

Phone a friend.

Jodi Phillips:

So we caught up with Michael Oliveros on investing as a global small cap manager. And so first we asked him about the changing macro environment and how that impacts his view as a small cap manager. And here's what he had to say.

Michael Oliveros:

Two ways to answer that. One is it's made the job harder in one respect, and the other, it's made the job way more interesting. Why is that?

If you kind of take a step back, we have geopolitics. Geopolitics, what is that really ultimately going to be? It's a supply constraint. So you're interrupting the free flow of goods and services. And if we take a step back, a really obvious example of that is Strait of Hormuz. So you can't get goods to where things need to be, it becomes a bit more expensive ultimately because you don't have the supply.

Why does that matter? Why does it matter? Ultimately the effect of it is diseconomies of scale, typically more constraint for large companies. So if you were a large company, you had a factory in China, you were exporting to the rest of the world, that was a good thing. All of a sudden, you can't do that anymore because you have post-COVID and you have a situation where it's not necessarily a guarantee that you'll be able to get goods out of the country, but then you sort of layer on top of that tariffs. So what does that ultimately mean? It means that you're going to have to have additional supply that's coming from additional factories, and that's code for diseconomies of scale. And that's ultimately to the disadvantage of big companies.

The opposite is actually happening for smaller companies. So you had a situation where... I'll take an example. Not going to talk about names, but you'll have, and I know this company quite well, it's a German manufacturer of a component that goes onto a transformer. It's a little piece that connects the high-tension wire to the cable, and it's a very critical component. Used to source that from China primarily. As we all know, you have significant build-out of electrification across the world, the US, Europe, India, and you suddenly have 150% tariff on that Chinese part. If you were a German supplier in the previous world, you couldn't compete on that cost space. Now you can. And you layer on top of that the concept of “friend shoring,” so preferential agreements, and all of a sudden your economic profile changes like that. And why I'm saying this is these two things are happening at the same time, but they're driven along the same axis, which is sort of an acknowledgement that we have to think about where the goods are coming from. So what does that mean? It just means that the economic pie is shifting, and that's a really interesting place to be as an investor.

Jodi Phillips:

Next we asked him about his recent trip to China where he spent a week, asking him what brought him to China, what he was there to learn, and what did he come away with. And here are his thoughts.

Michael Oliveros:

The direct answer, why I was there was because I knew that I had to see for myself what was happening. I can see the effects of China, let's call it Chinese technological advancement and just Chinese industrial capacity, impacting European markets in a very direct way, and I needed to understand why that was happening. So it wasn't just share shifts between competition; it was actually one step removed. It was the customers of customers that were being disrupted. And there was something happening, I didn't know what it was, and I had to go see it for myself.

So it was two parts. One was to meet companies, and it was a range of companies from everything from yeast manufacturing to robotics and AI. And I had the great fortune of going on an AI tour around Shanghai where I met large language model companies and autonomous driving companies, and I got driven around, taxied around the city by a car with nobody in it except myself, which was scary. It's scary for two minutes, and then it's pretty fun, actually. And then it's just a ride in a car. But yeah, that was the reason for being there, and I learned all kinds of things from that experience.

Brian Levitt:

And what were the biggest takeaways from it?

Michael Oliveros:

Yeah, so what I would say, super important to understand, and I'll speak specifically to artificial intelligence, one, very different approaches. If we talk US frontier labs, and there are other friends that you can phone that are the experts on the US labs, but ultimately at the end of the day, the US labs are very much engaged in a race for super intelligence and AGI. So it's universal scaling principles, trying to throw more compute, more parameters to get to the AGI, and then we'll figure out what we're going to do with it later.

Chinese labs are different, and I think it's at least partially because they can't compete in that race. They don't have the chips. They don't have the compute. So they have to be resourceful for what they can do. And what they do have a lot of is a lot of engineering talent. And they also have quite an advantage, and I learned this, with visual data, and specifically training visual systems. And so the approach that they have taken is much more multimodal, so not just text-based, but visual, audio, touch. And their view is ultimately that AGI will end up being embodied. So it's not an AGI in a box that you speak to, it's an AGI that is walking around doing things. And that's going to require the ability to move around in physical space, which ultimately needs multimodal.

And so that leads me to the second thing, which is very different attitudes to adoption. You don't need me to tell you, you can see it around you, there is a increasingly adversarial attitude towards AI in the West. Certainly in Europe where I live, you can see it in the papers. Pick your major city. In China, you don't really get that feeling. So it feels like more of a natural progression of, we were doing one thing, and then we got mobile phones, and then we got self-driving cars, and oh, yeah, of course we're going to have robots amongst us. It's less incongruous because of the trajectory of their growth.

Where that ultimately leads, it's hard to say, but I can just say that in terms of where you see it on the day-to-day... Again, a huge market. It seems something that you, again, you need to be there to see it because there's some opportunities that are worth paying attention to.

Brian Levitt:

So what are other ways that they embody AI? That's what you're talking about with robotics? And then what becomes, just succinctly, what are the most investible areas when you think about it?

Michael Oliveros:

We can answer this at the use case level. Think about anything that a person is doing that is ultimately repetitive enough that a robot can do it, because that's the first step before you have to get to true artificial intelligence where you have an intellectual layer that's trying to decide what to do. So what is driving? We have Waze. We have map apps. So we know how to get from point A to point B. You just need a set of instructions to get it there with a cat running across the street or a stoplight or whatever. And these are things that you can program, and so it's not surprising to see that deployment in autos.

But start from the end use case and then work backwards. How do you enable that? Well, you're going to need a set of sensors to take the information in, you're going to need some processing capability, then you're going to need the intelligence or the software layer. And I think that's kind of the way that we're approaching it, just what are the easiest tasks to deploy? Start two-dimensional, then move to three-dimensional, and then work through that supply chain to say, "Where are the most critical components?"

But then the next would be almost like edge AI applications, so a camera. You can see them now. You can buy... Apple's talking about a device that's just sitting, recording. And it's like, why is that going to be, and why are they going to put a camera in your AirPods? And it's because it can take visual context and then run it through an LLM. So it doesn't have to be a Terminator. There's a whole set of small steps in between where you say, "If you could splice in another bit of information, could we then apply intelligence in that way that can automate tasks?" And I think if you sort of open your mind that way, you can see opportunities perhaps that maybe weren't so obvious in the first instance.

Jodi Phillips:

And finally, we asked Michael about space. Obviously it's very interesting on a human level and an investor level. So is space actually an investible theme? And here's what he said.

Michael Oliveros:

TBD, to be determined. Every time I see a SpaceX rocket launch and then land itself on the launchpad, I'm amazed. I was just like, it's a marvel of engineering. So the hype component of that is certainly there, and it's very visual and visceral, which is important.

But underlying that, there's two things that I would say it's worth paying attention to. Launch costs when you can relaunch a rocket and land it every two days fall exponentially. They're planning at the launch cadence of one an hour. It's going to be the same as an EasyJet flight, except you're launching payloads into space. So think about that. What happens when the cost of delivering a kilogram to low earth orbit is the same as air freight? What could you do with that? What suddenly becomes economic that wasn't before?

And why I say that is there are certain advantages to space from a business model perspective. Energy is free when you're in solar synchronous orbit. You don't need a battery because you're in solar synchronous... You don't need a cooling fan or liquid cooling if you have a data center there because it's cold in space. The gating constraint then becomes the launch. But again, if you drop that piece, suddenly all kinds of things open up. And I think that's number one.

If you take that as a given, and it's not a given that Starship will work, but if it works and that is in fact true, another very important thing happens: Space moves from a project-based industry to industrialization. So I just met a rocket company today. Historically, it was a program from a national government for something. It would be a one-off project and it would be $20 billion or $100 billion, whatever it is. And then you would design that ship and then you would hope there would be another project. If you move to a cadence where all of a sudden you're producing at a constant rate, you can start to serialize things. When you start to serialize, you industrialize, the profit potential goes like that.

And again, my gig is small cap, and what I like about all of this is whenever you kind of disrupt the order, new winners will emerge, and they can become big companies or they can be small companies. And so the playing field for competition becomes a little bit flatter.

But I think if I take a step back, yes, there's hype, and we got to be careful about valuations, but underlying it, there is something very real that you have to consider. And when you start to think about these business models, I would put it through the lens of, what is the gating constraint for this business model to be successful? If the answer was launch, then... I'll tell you, if the Starship works, economics are going to shift. And the other is, where can you see significant changes in the profit pool because of industrialization? And you're probably going to ask me where; satellites is an obvious one, but all kinds of things, like communications in space. So when you have a data center in space, how do they talk to each other? A communication system that works in space. How do you deal with cybersecurity in space? There's like, how do you service those things in space? So all kinds of things that you take for granted in terrestrial space, you have to think about, what happens when I can't service that the way that I do? And again, your perception of where the opportunities lie might shift a little bit, and I think that's an interesting place to be.

Jodi Phillips:

Thank you, Michael, for joining us. And that brings us to...

Speaker 3:

I disagree.

Jodi Phillips:

All right Brian, who is it this time that you disagree with?

Brian Levitt:

I'm going with Jamie Dimon, CEO of JPMorgan, on interest rates: They could be much higher than they are today. I disagree.

Jodi Phillips:

Well, this certainly isn't the first time you've disagreed with Jamie Dimon.

Brian Levitt:

No, it's not. And rest assured, I have all the respect in the world for what he's accomplished as JPMorgan's CEO, so this is not a knock on Jamie Dimon. It's just I've disagreed with him a handful of times on some of the bolder outlook comments he's made. If you remember, he said in 2018, "The world isn't prepared for 7% interest rates." I disagreed then. The good news is we're probably still not prepared for 7% interest rates, but we don't have to worry about that. In 2022, he said, "Brace yourself for an economic hurricane." I didn't agree with that one. And in 2025, he said, "When you see one cockroach, there's probably more." I didn't agree... That was about private credit. That was around the first brand default. I didn't agree with that one either. So it's not the first time. You're right.

Jodi Phillips:

Well, I suppose as a bank CEO, one always needs to be thinking about the risks.

Brian Levitt:

Yeah. Right. That's the job. But here's why I disagree on why interest rates are not going to go much higher than they are right now. I would say the recent move in rates, so what caused it, in my opinion, it was more of a recalibration of Fed expectations than about things that would give you more cost for concern if you had significantly higher inflation expectations or even, forbid, a bad bond auction. Those are the types of things that you would worry about with the sustained moving rates. Like we said, inflation expectations are relatively contained. We have not had bad bond auctions by any stretch of the imagination. The reality is the 10-year Treasury rate, which the benchmark rate should reflect the nominal growth potential of the US economy. So if you're a person who thinks real GDP is going to be 2%, inflation's going to be 2%, 2.5%, then there's nothing wrong with a 4.5% 10-year rate. And you would expect it to move within a band, given where the Fed's going to anchor the short rates.

So it suggests today's rates are quite reasonable. If nominal growth were to improve, rates were to drift higher, that's not a bad thing, but that's... Again, I don't think that this is a world where we should expect significantly higher interest rates.

Jodi Phillips:

Okay. And with that, let's put Brian on...

Speaker 3:

The hot seat.

Jodi Phillips:

All right, Brian, are you ready?

Brian Levitt:

Yeah, let's do it.

Jodi Phillips:

First question, a prominent memory chip company recently became the fastest company to go from a $500 billion market capitalization to $1 trillion market capitalization. Is that an ominous sign?

Brian Levitt:

No. That same company is now trading at 10 times forward earnings, so that's roughly half of the broad market's forward earning multiples. So, look, that's not an investment recommendation, but just a reminder, to put things into context, yes, 500 billion to a trillion sounds large, but the company's trading at 10 times forward earnings.

Jodi Phillips:

Okay. Next, are you concerned that new Federal Reserve chair, Kevin Warsh, is going to be tested by the market early in his tenure, as we've seen so many times?

Brian Levitt:

Yeah, I would actually view the narrative that new Fed chairs get tested as nothing more than a coincidence. October '87 is an example that people use, the stock market crash two months after Alan Greenspan took office. And then you had Bernanke coming in in the early housing downturn. Janet Yellen walked in right after the taper tantrum. But I would say a lot of those examples speak to specific times rather than necessarily testing a new Fed chair. You know, as I like to do, we run the data on these types of things. The average six-month return on the S&P 500 following the start of the last six Fed chairs is +3.6%, so there's nothing to suggest that these people necessarily get tested. Janet Yellen was positive, Jerome Powell was positive, and those are our last couple of examples.

Jodi Phillips:

Okay. Next, you've consistently highlighted how tight credit spreads are. Do you think we're seeing any structural changes that are underneath this, particularly related to the growth of the private credit market?

Brian Levitt:

Yeah, actually, interestingly enough, public credit spreads, so if you're looking at the Bloomberg Corporate Bond or US High Yield Index, those spreads have actually tightened since the conflict with Iran began. I don't know how many people had that on their bingo cards. To me, I still view that as our best real-time signal of the underlying strength of US businesses in the broader economy. I take it as a very positive sign.

It is true, obviously, that if there were stress in the private markets, they would emerge more slowly, although people have been waiting for them for quite a while now and they have not seemed to be emerging. But I would argue, Jodi, if there were systemic issues developing in private credit, you would almost certainly see it reflected in public markets through the wider spreads, rising credit default swaps, and that's because you have a lot of overlap in borrowers across these ecosystems, and you just have not seen it.

Jodi Phillips:

All right. Well, you're off the hot seat. So now we're going to conclude with one of our newer segments, Think, Rethink. So, Brian, tell me something that many people think that you believe they should rethink.

Brian Levitt:

The think is the markets have been very concentrated again this year.

Jodi Phillips:

Okay.

Brian Levitt:

You've had some weeks of it, but let me just rethink it for you. It's had its moments, like I said, particularly in the early days after the Iran conflict began. But year to date, through May, MSCI ACWI, ex-US, and the Russell 2000 Small Cap Index are both outperforming the S&P 500 Index. When people say it's concentrated, I think a lot of people would immediately go to, "Oh, it's only the S&P that's working." No, small caps are outperforming; non-US stocks and US dollar terms are outperforming.

Jodi Phillips:

All right. Well, that's it. We did it, Brian. We got through it. No avatars required.

Brian Levitt:

How do you know this wasn't my avatar?

Jodi Phillips:

So before we go... Yeah, I won't dig into that one too hard. But before we go, Brian, where can our listeners follow you or your avatar for more?

Brian Levitt:

Which language do you want me to read it in?

Jodi Phillips:

Your choice. Your choice.

Brian Levitt:

Yeah, thanks, Jodi. I'll stick with English. I don't want to show off. All right, visit invesco.com/brianlevitt to read my latest commentaries. And of course, you can follow me on LinkedIn and on X @BrianLevitt.

Jodi Phillips:

Thanks for joining. We'll see you next time.

Brian Levitt:

Thanks, Jodi.

Important information

You've been listening to Invesco's Greater Possibilities podcast, Rethink Markets.

The opinions expressed are those of the speakers, are based on current market conditions as of June 2, 2026, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Artificial Intelligence (AI) technology companies are sensitive to specific risks such as small markets, business cycle changes, economic growth, technological progress, obsolescence, and regulation. These companies may have limited products, markets, resources, or personnel, making their securities more volatile, especially for smaller start-ups. Rapid technological changes can adversely affect their results. AI companies often rely on patents, copyrights, trademarks, and trade secrets to protect their technology, but there is no guarantee these protections will be sufficient. Significant research and development spending doesn’t ensure product or service success.

Investments in companies located or operating in Greater China are subject to the following risks: nationalization, expropriation, or confiscation of property, difficulty in obtaining and/or enforcing judgments, alteration or discontinuation of economic reforms, military conflicts, and China’s dependency on the economies of other Asian countries, many of which are developing countries.

Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

Oil price discussions based on the price per barrel of US West Texas Intermediate Crude Oil, which peaked on April 7, 2026. Interest rate discussions based on the 10-year US Treasury rate, which peaked on May 19, 2026. Inflation expectations based on the 5-year US Treasury inflation breakeven, which peaked on May 4, 2026. Data sourced from Bloomberg as of May 29, 2026.

The S&P 500 Index bottomed on March 30, 2026, then gained 18.5% from March 30, 2026, to May 26, 2026. Sourced from Bloomberg, L.P., as of May 29, 2026.

Discussions about past periods when the S&P 500 Index rose by at least 18.5% sourced from Bloomberg, L.P., and Invesco as of May 29, 2026. Based on daily data from December 31, 1956, to May 28, 2026. The study examines periods where both the 2-month return on the S&P 500 exceeded 18.5% and the subsequent 6-month return was positive. Adjacent trading days where these conditions are true are excluded from the analysis.

Discussions about US corporate earnings and stock prices sourced from Bloomberg, L.P., as of May 29, 2026. Based on the earnings per share and price of companies in the S&P 500 Index and on Bloomberg consensus forecasts.

Comments about inflation expectations moving lower sourced from Bloomberg, L.P., as of May 29, 2026, based on the 3- and 5-year US Treasury inflation breakeven.

Discussion of a memory chip company hitting a $1 trillion market capitalization based on Micron Technologies as of May 29, 2026. Forward earnings comparisons of Micron to the broad market based on the price-to-forward earnings of the company compared to the S&P 500 Index. Sourced from Bloomberg, L.P. The mention of specific companies is not intended as investment advice.

The average 6-month S&P 500 Index return following the start of tenure of the last six Fed Chairs sourced from Bloomberg L.P.

Comments about public credit spreads tightening sourced from Bloomberg, L.P., as of May 18, 2026. Based on the option-adjusted spread of the Bloomberg US Corporate High Yield Bond Index.

Year-to-date returns of the S&P 500 Index were 11.00%, compared to the MSCI All Country World Index ex-US at 13.46% and the Russell 2000 Index at 18.95%, sourced from Bloomberg, L.P., as of May 28, 2026.

AGI stands for artificial general intelligence, a theoretical type of artificial intelligence that can learn, reason, and adapt like humans across any intellectual task.

LLM stands for large language model, a type of artificial intelligence designed to understand, process, and generate human language.

A credit default swap (CDS) is a financial derivative that allows an investor to offset or swap their credit risk with that of another investor.

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

The discount rate is the interest-rate backdrop investors use to figure out what future earnings are worth in today’s dollars.

Earnings per share (EPS) refers to a company’s total earnings divided by the number of outstanding shares.

Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.

Tightening monetary policy includes actions by a central bank to curb inflation.

Taper Tantrum refers to the market panic that occurred in 2013 when the Federal Reserve started to wind down its quantitative easing program.

West Texas Intermediate (WTI) is a type of light, sweet crude oil that comes from the US.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified time period.

Breakeven inflation is the difference in yield between a nominal Treasury security and a Treasury Inflation-Protected Security of the same maturity.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

The Russell 2000® Index measures the performance of small-capitalization stocks and is a trademark/service mark of the Frank Russell Co.®

The Bloomberg US Corporate High Yield Bond Index measures the US dollar-denominated, high yield, fixed-rate corporate bond market.

The MSCI All Country World ex USA Index is an unmanaged index considered representative of large- and mid-cap stocks across developed and emerging markets, excluding the US.

Rethink Markets and the Greater Possibilities Podcast are brought to you by Invesco Distributors, Inc.

Is the stock market’s advance in April and May “too good to be true”? We explore why market pessimism may be missing the bigger picture. Then, Head of Global Small Cap Equities Michael Oliveros joins us to discuss what he learned about artificial intelligence during a recent trip to China, and the emerging economics of space.

Rethink Markets: Chinese AI, small caps, and the space economy
Rethink Portfolios: Commercial real estate with Charlie Rose

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Transcript : Disclosures

Danielle Singer:

Hello, I'm Danielle Singer, head of wealth management platforms for Invesco, and I'm excited to bring you the second episode of Rethink Portfolios. A new series from the Greater Possibilities podcast. This show will go inside the decision-making process of portfolio managers, where we'll bring you in-depth conversations that explore how our experts manage risks, identify opportunities, and navigate changing markets.

Now speaking of markets, our market focused show with Brian Levitt and Jodi Phillips will continue as usual right alongside the series.       So please watch your podcast queue for the latest from them.

Now with that, let's get to our guest. Charlie Rose is the global head of commercial real estate credit for Invesco. I'm very excited to have this conversation with Charlie today, because of all the headlines about this space that are probably still raising concerns. Some even say it's broken. But while office demand remains lower than it was pre-pandemic, there are likely market specific nuances that are going to be critical to understand. So let's welcome Charlie to give us his insights on what he's concerned about, what he's not concerned about, and why it's time to rethink real estate. Welcome to the podcast, Charlie.

Charlie Rose:

Danielle, thank you so much for having me here. It's such an honor to talk to you again. I'm really looking forward to the conversation.

Danielle Singer:

Great. Now we're going to spend some time drilling down into the credit part of real estate, but we're going to start big picture. Because when most people hear commercial real estate lately, they picture half empty office buildings, scary headlines. So from your perspective, on a scale of dumpster fire to quietly fine, where are we really?

Charlie Rose:

Well, that's a great setup, Danielle. I would say if people are going to use terms like dumpster fire, they must be looking at a very small portion of the commercial real estate industry. And probably what they're looking at is the office sector where we've seen so many negative headlines over the last couple of years, but let's put that into context. Office is only 2.5% of the listed US commercial real estate market. Now it's a little bit larger in the unlisted institutional market, but it's still only 17% of that segment of the market. So said differently, 96% of listed investment real estate is something other than office, and 83% of unlisted institutional investment is not office. Even within office too, you see a broad divergence in performance. And I think many people are shocked to hear that in the office sector, fully 47% of all office buildings in the United States today are fully occupied, meaning they're 95% occupied or higher. So roughly half of the office market is fully occupied. So we have to take down some of the rhetoric and really look at the numbers to understand what's going well and what's not going well in the commercial real estate industry.

To be clear, commercial real estate did go through the second largest correction in modern history between 2022 and 2023. We saw real estate values in the institutional space down somewhere 20 to 25% during that period of time. This time around was different, however. It wasn't a demand or supply driven issue specifically. It was a rate shock that led to that adjustment in pricing. And we've now seen real estate values start to increase from the bottom, we've seen supply drop off fairly significantly. And overall in the commercial real estate industry, we're seeing an environment of stability from a demand perspective and from a valuations perspective.

Danielle Singer:

That's really helpful context and I think that data speaks to maybe, like you said, what's driving some of those headlines versus the reality. So let's keep on this theme of is the pain over. I think one time when we were speaking recently, you did talk about that real estate values have been recovering maybe even since late 2023. Now, if you and I were at a cocktail party that might get some mixed reception. What do you think has been driving that recovery?

Charlie Rose:

So again, commercial real estate saw a major correction starting at the end of 2022 as rates started to rise. We look at two metrics when we're thinking about real estate values. The first, and we have to make a clear distinction, is prices. What are market clearing prices as individual investors are buying and selling real estate? And the second are values. What values are being recognized in existing portfolios through an appraisal process?

So from the pricing perspective, prices have actually started to increase as early as late 2023. So we're now almost three years into a recovery cycle, and prices as measured by the Green Street Price Index are up 8.8% from the trough in late 2023.

Now from a valuations perspective, valuations typically take longer to adjust down and longer to start to correct. So valuations in the NCREIF index are up only marginally from the trough at about 0.3%, with that increase really just starting to come in over the last year.

But regardless, today we're in an environment where both transaction prices are increasing and valuations broadly writ are increasing across the market. That has resulted in less of a gap between buyers and sellers, more certainty for lenders in the market as to the values of the collateral they're lending against. And for us, that's translating into a significant increase in both our buying activity in the real estate market and even more so in our lending activity in the commercial real estate market.

Danielle Singer:

Wow, that certainly makes it sound like things have been exciting and continue to get more exciting. So maybe touching on a stat you brought up before, office being a relatively small part, 95 plus percent outside of office. So would you say this is not a narrow recovery but rather broad across property types and markets?

Charlie Rose:

Yes, and it is broad, but real estate remains a sticks and bricks asset class, block by block, asset by asset. And so there's a lot of nuance that we see across the industry. To start with, we are now seeing demand firm up in our asset classes where we spend most of our time from a credit perspective being apartments and industrial. Apartments and industrial are the largest transaction markets today and are characterized by a fairly stable demand profile and cashflow profile, driven by the fact that these buildings are occupied by many tenants and that results in less volatility in the underlying cash flows. Demand is increasing in those asset classes right as we're seeing supply start to drop off, but different markets are reacting differently.

And I'll give multifamily as a specific example, somewhat counter to popular opinion is where we're seeing the strongest apartment rent growth throughout the country. Many people would assume that you're seeing the strongest rent growth in the Sunbelt markets, those markets that are seeing the largest population and employment growth. But in fact, over the last two years, the three best performing apartment markets from a rent growth perspective have been New York City, Chicago, and San Francisco. And these are markets that are characterized by very low supply and relatively stable demand, which has resulted in better rent growth.

Danielle Singer:

So you have access to a lot of data. You're quoting a lot of things that you see as a subject matter expert, but a lot of our listeners don't. So when they say commercial real estate is broken, what do you think they're getting wrong? Is it just the headlines or is there something else you think that they might be observing that's feeding this? Just to put a bow on this topic.

Charlie Rose:

Yeah. So I think that is somewhat of a backward-looking statement over a relatively short period of time. From a forward-looking perspective, we are seeing an environment in which you have relatively stable demand, you have reduced supply, and you have a stabilization of values. I also think that you may be somewhat informed by the way that investors have accessed commercial real estate historically, that is leading us to be focused on the equity side of our business in investing in a very data-driven, differentiated fashion, and to emphasize to a much higher degree some of the specialty product types that we think will perform particularly well in this environment. These are generally asset classes that are characterized by modest CapEx and relatively high current in place income, and include amongst other things, senior housing, manufactured housing, medical office and student housing.

Now, the credit side of the business is another area where we are spending a lot of time focusing, and real estate credit stands out as particularly attractive because it's exhibited effectively a zero correlation over the last 10 years to real estate equity. As an aside, real estate credit similarly has effectively had zero correlation to private credit over the last 10 years. So that is a way of accessing real estate that has a very low correlation, a current income level that historically has been attractive relative to both private credit and equity, in our opinion, and is set up to perform well in a higher for longer rate environment.

Danielle Singer:

Charlie, you brought up a lot of great points there, one of which very helpful, is the distinction between investing in real estate from the equity perspective or the credit perspective where you are more focused on. So let's spend some time getting into the nuts and bolts maybe of the credit investing side of this space. One thing I think that a lot of people think about is banks as the traditional dominant lender, and now it has switched to alternative lenders, private credit, for example. What changed that really drove a lot of this?

Charlie Rose:

Sure. So if you go back prior to the global financial crisis, banks in the United States were over 60% of the commercial real estate debt market. Fast-forward to 2019, banks were a little bit over half of the commercial real estate debt market. Last year in 2025, banks only represented 34% of new commercial real estate loans being originated.

So you've seen this progression from 60% to 50% to around a third of the market being represented by bank lenders. And to put that into perspective, we're talking about what is today a $6 trillion asset class. So that is a very substantial reduction in overall origination volume from the banks.

And there have been multiple factors and multiple steps along the way that have resulted in the banks being less active. To be clear, the banks still remain very active in commercial real estate debt. They're still a third of a very large market, but from a relative perspective, they're less active, because banks have realized that there are other more efficient ways from a capital treatment perspective for them to deploy their capital.

And one area where we've seen the banks get particularly aggressive in the growth of their businesses is providing loan-on-loan leverage to alternative real estate lenders such as ourselves. So they're getting access to the asset class without making direct real estate loans secured by real estate.

Danielle Singer:

And maybe it's that the traditional lenders, at least today, aren't the ones dominating some of the news. Right? There's been a lot of headlines recently around private credit, and it was great that we were able to have Scott Baskind, who heads up our global private credit team on our Rethink Markets podcast recently, to talk about the sector and what's happening. You already started to touch on some of the diversification properties of private real estate credit, but do you want to dive into a little bit more about how it stands out potentially within a portfolio from other forms of private credit?

Charlie Rose:

Sure. So what exactly is real estate private credit? Maybe we'll start there. Real estate private credit as we think about it is a strategy in which we are direct originators of mortgages secured by commercial real estate properties. In most instances today, we are making a mortgage loan just as an individual would obtain a mortgage loan against a home. We're the lender making that mortgage loan against an apartment building, an industrial building, or similar property types. We're doing so at scale and we're generally lending to institutional sponsors. So rather than a family being the borrower on a mortgage loan on a single family loan, we are lending to a multi-billion dollar institutional fund run by a manager whose name would be familiar to you.

We're generally doing so on a relatively short-term basis, three to five-year total loan term, with a floating interest rate structure. This asset class is characterized by, again, as I mentioned, a very low correlation to private credit and to real estate equity, and it's characterized historically over the last 10 years, by lower volatility than, say, real estate equity.

So while you don't have the growth potential that you would get in real estate equity, in real estate credit, you do have a very stable current income profile and a diversifying benefit coming from these portfolios of mortgage loans. The reason you've seen less volatility in real estate credit is by virtue of the position in the capital stack that we're investing in. On average, historically, we've been a lender around 65% loaned value, which means if we are lending against a $100 million property, we're making a $65 million loan, and subordinate to us is $35 million of equity from a brand name institutional sponsor. So even in a GFC-like or 2022 like market correction, our loan balance is insulated.

Danielle Singer:

I appreciate that you were able to zoom out a bit and redefine the space for our listeners. So now let's zoom in a little bit more. Earlier you touched on a few areas that you were finding attractive, but let's talk about where you're really leaning in right now. When you look across your landscape, what's standing out as particularly appealing or interesting today?

Charlie Rose:

So first, when we're talking about real estate credit, our objective is to be a pretty boring part of your portfolio. Number one, my job is to not lose money, and I want to minimize default rates, minimize delinquencies, minimize volatility. So our focus is really on risk mitigation.

Today we have found ourselves continuing to be very active in making loans to industrial buildings, and specifically when we're talking about industrial buildings, we're really focused on multi-tenant infill industrial buildings that have a diversification of the cash flows that are used to pay the interest on our mortgages, and secondly, on various forms of housing, most notably apartments. From a geographic perspective, we always strive to have a geographically diversified portfolio, but year-to-date, Europe has stood out as a particularly attractive market for us. So we have been leaning in to institutionally backed real estate in Europe, while also remaining cognizant that the US market is about three times the size of the European market. That's always going to be our largest market.

Danielle Singer:

I love that you are talking about trying to be boring in that sleep well at night type of asset class. And maybe that's somewhat at odds with things like the enthusiasm around AI, and I think you've been pretty clear about maybe steering away from things like data centers. Is that why? Is there an element of risk and not boring that's keeping you on the sidelines in that space?

Charlie Rose:

I am at risk of scaring folks away during this very exciting period of innovation, but as we think about the real estate lending business,at a time in which investors have quite substantial exposure to AI in different parts of their portfolios, we have made the conscious decision to avoid data centers and focus on non-AI correlated property types.

Additionally, I would say as a sleep well at night conservative lender, that whenever I see a lot of enthusiasm in a specific segment of the market, it makes me nervous and I start to retrench back towards the most stable cash flows without binary risk. Most data centers have some sort of binary risk in terms of single asset exposure or potential exposure to redundancy over time. And accordingly, that's why we've been very vocal, we're not making loans on data centers today, we don't plan to, and we intend to keep it that way.

Danielle Singer:

Very interesting. And I like the ability to contextualize it for the AI story and then the specific commercial real estate credit story elements of AI enthusiasm. One area that I think our listeners might be enthusiastic about just because it's tangible. I love that parts of real estate, it's about you can see it, you can touch it, many of us are homeowners. And it sounds like retail and hotels, areas familiar to a lot of people, are starting to pick up steam. What's changing that's making those sectors interesting right now?

Charlie Rose:

Yeah, so let's break it down a little bit. Retail would probably surprise a lot of our listeners as being our strongest conviction amongst the four major traditional asset classes, at least from an equity perspective. So traditionally within institutional real estate, the four prominent sectors have been retail, apartments, industrial, and office building. Retail was out of favor for a long time with overbuilding and the onset of e-commerce, as well as changing consumer preferences. Today we are finding ourselves in an environment where we have much better understanding of e-commerce penetration and what types of retail are thriving in an e-commerce environment. And we also are finding ourselves in an environment where we simply haven't been building new retail for well over a decade, at the same time as our population in the US has been increasing. So from a supply-demand perspective, retail is leading us to be very convicted in that space. Now, interestingly, that is mostly an equity conviction for us right now. On the credit side, retail is a little bit harder to access for the types of retail that we like. And so we see less volume in retail on the credit side.

Hotels are a very different asset class and are an asset class where you've seen that K-shaped recovery really accentuate a certain profile of winner and a certain profile of loser. So you are seeing some notable strength, particularly at the high end of the market, but for us, we are playing it very conservatively because it is a very operational business, it is a CapEx intensive asset class, and you have to release the building every single night, which creates more volatility in the underlying cash flows than you would see in some of those other property types that we focus on.

Danielle Singer:

Thanks for clarifying that. And it's nice to hear that for some of us that are mall walkers, there's still maybe a tailwind at least on the retail equity side of the space.

Charlie Rose:

Don't air all your dirty secrets to our podcast listeners, Danielle.

Danielle Singer:

Maybe that's what's going to keep the listeners. Let's take it personal for a minute. What do you love most about your job investing in commercial real estate credit markets?

Charlie Rose:

You know, Danielle, I love talking to young people in our industry. It's one thing that gives me a lot of joy. And as I'm talking to young people getting into our industry, I often tell them, careers are a combination of luck and hard, hard work. And also, many careers are characterized by being willing to take advantage of opportunities, even if they weren't what you planned for when they arise. So when I got into this business, I thought I was going to be a real estate developer, building shiny skyscrapers that I could show my children I had built and feel very proud of.

Today I'm a real estate lender, it is about as different as you can get within our industry from being a developer of skyscrapers. Certainly a much lower risk proposition. But I love talking to our clients, understanding what [inaudible 00:26:56] objectives are, and working with our people to achieve our clients' objectives on a day in and day out basis. This ultimately is a people business, our capability is defined by our people, and we are working on behalf of our investors who are individual constituents with individual goals, and that gives me a lot of satisfaction.

Danielle Singer:

I love that. And hopefully you're inspiring the next gen of Charlie Roses for the commercial real estate credit space. Maybe to wrap up, in five years from now or so, what do you think people will say they misunderstood most about this period in real estate?

Charlie Rose:

I think that we often find it is very hard to call the bottom, it is very hard to move with conviction early during a recovery. And I am seeing a setup for a very strong secular cycle in commercial real estate, both credit and equity. We are in an environment of reduced supply, we're in an inflationary environment, it is becoming more and more expensive to build, and it is expensive to finance the ground-up construction of real estate today. Those factors are resulting in less building, at the same time as our economy still grows and our population still grows, and the need for real estate expands. That is setting us up very well from the equity side of the business. On the credit side of the business, we've seen a fundamental shift in the composition of lenders, resulting in greater opportunity for alternative lenders to step in, take market share. And what we find, is once a borrower borrows from an alternative lender, they typically come back time and time again, because it is a smooth, seamless, efficient process. So five years from now, I think folks will look back and say we should have acted with more conviction getting into the real estate space in 2026, at a time when equity was set up for a strong growth cycle and credit was set up for a strong deployment cycle, at a time when that elevated inflation environment was supporting higher for longer pace rates, supporting higher income on floating rate credit instruments.

Danielle Singer:

Amazing, and I'm sure I will have you back well within the next five years. Charlie, as always, it's been an absolute pleasure.

Charlie Rose:

Danielle, the pleasure was mine.

Danielle Singer:

Thank you, and catch you all next time.

Important information

You've been listening to Invesco's Greater Possibilities podcast, Rethink Markets.

The opinions expressed are those of the speakers, are based on current market conditions as of May 12, 2026, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

Diversification does not guarantee a profit or eliminate the risk of loss.

Investments in real estate-related instruments may be affected by economic, legal, or environmental factors that affect property values, rents or occupancies of real estate. Real estate companies, including REITs or similar structures, tend to be small and mid-cap companies and their shares may be more volatile and less liquid.

Private credit strategies invest in debt instruments that are not publicly quoted on an exchange.

Private equity strategies invest in companies that are not publicly quoted on a stock exchange.

Alternative investment products may involve a higher degree of risk, may engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, may not be required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual portfolios, often charge higher fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. There is often no secondary market for private equity interests, and none is expected to develop. There may be restrictions on transferring interests in such investments.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

There is a risk that the value of the collateral required on investments in senior secured floating rate loans and debt securities may not be sufficient to cover the amount owed, may be found invalid, may be used to pay other outstanding obligations of the borrower or may be difficult to liquidate.

Data on the office sector’s share of the US commercial real estate market based on the FTSE NAREIT All REIT Index as of April 30, 2026.

Data on the office sector’s share of the unlisted institutional market based on the NCREIF Property Index as of March 31, 2026.

Data on office building occupancy rates from CoStar as of the fourth quarter 2025.

Discussion about the 2022-2023 correction in commercial real estate and the increase from the bottom based on the Green Street Commercial Property Price Index. The index fell about 22% from its March 2022 peak to the cyclical low in December 2023, then rose 8.76% from that trough to the most recent reporting period in April 2026.

Data about valuations in the NCREIF Property Index as of the first quarter of 2026, sourced from the National Council of Real Estate Investment Fiduciaries.

Correlation and income comparisons of real estate equity, real estate credit, and private credit over the past 10 years based on the Giliberto-Levy High-Yield Real Estate Debt Index, the Cliffwater Direct Lending Index and the NCREIF Property Index from 2016 through 2025. The 10-year average distribution yield was 11.2% for private real estate credit, 10.3% for direct lending, and 4.5% for private real estate equity. The correlation between the Giliberto-Levy High-Yield Real Estate Debt Index and the Cliffwater Direct Lending Index was 0.06. The correlation between the Giliberto-Levy High-Yield Real Estate Debt Index and the NCREIF Property Index was 0.05.

Statements on the volatility of real estate credit versus real estate equity based on the Giliberto-Levy High-Yield Real Estate Debt Index and the NCREIF Property Index from 2016 through 2025. Based on the annualized standard deviation of 1.37 for the Giliberto-Levy High-Yield Real Estate Debt Index and 3.85 for the NCREIF Property Index. Standard deviation measures an index’s range of total returns in comparison to the mean.

Statistics on the activity of banks in the commercial real estate debt market and the size of the commercial real estate market sourced from the Federal Reserve and MSCI as of April 21, 2026, latest data available.

Discussion of the best performing apartment markets from a rent growth perspective sourced from RealPage market data as of the first-quarter 2026.

Comparisons of the size of the US and European real estate markets sourced from the US Federal Reserve System and Bayes Business School through the fourth quarter of 2025.

The FTSE NAREIT All REIT Index is an unmanaged index considered representative of US REITs.

The NCREIF Property Index, or NCREIF Index, is a quarterly, unleveraged composite total return for private commercial real estate properties held for investment purposes only.

Green Street Commercial Property Price Index is a value-weighted index that measures what's happening in real estate prices in aggregate.

The Giliberto-Levy High-Yield Real Estate Debt Index measures the returns of high yield commercial real estate debt.

The Cliffwater Direct Lending Index is an index of private middle market loans.

Leverage measures a company’s total debt relative to the company’s book value.

Capital expenditures (or capex) is the use of company funds to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

Cash flow is the net amount of cash and cash equivalents generated by a business.

Correlation is the degree to which two investments have historically moved in relation to each other.

Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.

Capital stack is the financial hierarchy of all the money used to fund a real estate investment, including debt and equity.

A K-shaped recovery refers to one in which higher-end categories are thriving and other categories are struggling.

GFC stands for the Global Financial Crisis of 2008.

Rethink Portfolios and the Greater Possibilities Podcast are brought to you by Invesco Distributors, Inc.

Danielle Singer sits down with Charlie Rose, Invesco’s Global Head of Commercial Real Estate Credit, to look past the headlines and unpack what’s really happening in commercial real estate. From the office market narrative to the evolving opportunity in real estate credit, they explore where risks remain, where demand is holding up, and why select areas of the market may be more resilient than many investors think.

Rethink Portfolios: Commercial real estate with Charlie Rose
Rethink Markets: Strong corporate earnings beat the market’s expectations

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Transcript : Disclosures

Brian Levitt:

Welcome to Rethink Markets, a series from the Greater Possibilities podcast. I'm Brian Levitt and with me as always is Jodi Phillips. Hey, Jodi.

Jodi Phillips:

Hey, Brian. So today we're going to be connecting with Hemant Baijal, who's the Head of Global Debt at Invesco. We're going to have a conversation on global macro, a look at how emerging markets have been faring during the Iran conflict and his views on the US dollar going forward.

Brian Levitt:

Don't you love having these kind of friends at the firm? The Phone a Friend.

Jodi Phillips:

Absolutely.

Brian Levitt:

I'm very much looking forward to that. And one of the things that I've really found remarkable since the start of the conflict with Iran is that the US dollar has just been essentially flat since then.

Jodi Phillips:

Yeah. No, it certainly hasn't been a risk off type of environment. Investors, they're not exactly crowding into the so-called safe haven US dollar assets.

Brian Levitt:

No, they're not.

Jodi Phillips:

But you told us before that you expect markets to be positive a year following the start of this conflict and so far so good. Is that view just because you're the self-proclaimed FOMO guy? Your fear of missing out on market advances, is that what's behind that view or do you really believe it?

Brian Levitt:

Brian Levitt, the FOMO guy. You think I'm going to get legs with that? You think this is going to stick?

Jodi Phillips:

I mean, one can dream, right?

Brian Levitt:

I am dreaming. I need a nickname.

Jodi Phillips:

Maybe it's this one. Yes.

Brian Levitt:

Yeah, maybe it is. Yeah, I still believe it. It actually has nothing to do with my FOMO. It really has a lot to do with just markets. They're just simply not behaving as if the business cycle is coming to an end anytime soon and the economy continues to be quite strong.

Jodi Phillips:

But a stronger dollar would be one of those things that might give you pause.

Brian Levitt:

Yeah, correct. That would be one of them. Credit spreads blowing out would be one of them. And of course that hasn't happened either.

Jodi Phillips:

Good. Well, that's a nice testament to the resilience of the economy and the fundamental strength of corporate America.

Brian Levitt:

It really is. And another solid earnings quarter too. Jodi, it's like forget FOMO. It's hard to be bearish when the companies of the S&P 500 Index are growing earnings by double digits quarter after quarter and expectations continue to climb for earnings.

Jodi Phillips:

Yeah. Well, anyone who's listened to this podcast knows that you can't help but tie in song lyrics to whatever is happening in the markets. And so I did see one of your recent commentaries you brought out War, what is it good for?

Brian Levitt:

Absolutely nothing. Say it again.

Jodi Phillips:

That of course is the right answer. But you rightly noted that's the purview of foreign policymakers and the voters, of course. But for markets, when it comes to events like the Iran war or Russia, Ukraine or tariffs or pandemics, these aren't necessarily as bad for markets as investors may have been fearing. And that's because markets are looking for whether or not businesses are growing earnings.

Brian Levitt:

Correct. And that's been the case. That's been the case this time. And historically it matters. Did you come into the conflict in a good place? And it's hard to argue that the global economy did not come into this in a good place. It did. The United States did as well.

Jodi Phillips:

And that brings us nicely to our first segment.

Narrator:

Trending conversations.

Jodi Phillips:

What's trending, Brian?

Brian Levitt:

I hope it's earnings. I mean, I'm sure there's other things trending like the war in Iran or maybe the UK bond yields or maybe Japan intervening with the yen. But no, I'm going to go with earnings.

Jodi Phillips:

Yeah. And this isn't just the things are better than we feared environment. We sometimes see that.

Brian Levitt:

No, no, no.

Jodi Phillips:

This was truly one of the strongest earnings quarters over the past several years. So give us the stats to back that up.

Brian Levitt:

Okay. Well, first, 84% of companies in the S&P 500 beat expectations. You usually see 75, 78, numbers like that. 84 is a big number. This is now the sixth straight quarter of double-digit earnings growth. Nine of 11 S&P 500 sectors grew earnings. Seven of the 11 S&P 500 sectors delivered double-digit earnings growth.

Jodi Phillips:

So clearly it's not just US tech companies that are behind all this.

Brian Levitt:

No, it's not. I mean, look, don't get me wrong, the big information tech companies delivered great results, but you also had significant beats from bellwether companies in the healthcare sector, the industrial sector, the financial sector. Not bad.

Jodi Phillips:

All right. So key takeaway, your view of all this is earning strengths looks to be real and that it's been broadening. And markets have followed despite the war, despite the elevated commodity prices.

Brian Levitt:

Right, correct. And so when people say it's a market that's ignoring war, I don't believe that's the case. I believe it's a market that continues to be surprised by the strength of corporate earnings and often by a meaningful amount. I was just reading on FactSet that earnings came in 20.7% above expectations. That's pretty meaningful.

Jodi Phillips:

Okay. That brings us to our next segment.

Narrator:

Phone a friend.

Jodi Phillips:

We caught up with Hemant Baijal for a conversation on global fixed income. First, we asked him how he would characterize the global macro backdrop and whether there are parts of the world where the war and the higher oil and gas prices have been meaningfully impacting activity. And here's what he had to say.

Hemant Baijal:

The curse is always of living in interesting times, and these are certainly interesting times from both the macro backdrop and the markets. So if we look at the US and then we look at the rest of the world, in the US, there are really three competing forces at work right now from a macro perspective. Prior to the Iran conflict, it was really AI that was driving. Interestingly, the equity market and the bond market were really trading two different versions of AI. The equity market was trading the first order derivative, which is growth, and the bond market was really trading the second order derivative, which was deflation.

And that's why what you saw in the early part of the year was the yield curve flattened significantly in the US even before the conflict. Once the conflict started, interestingly, obviously the conflict, the transmission mechanism is through oil. Higher oil prices is both a tax on consumers as well as somewhat inflationary, that's the dynamic that has been affecting the world. Now in the US, the bond market, interestingly, has been trading the first order derivative of that, which is inflation and not the second order derivative, which would be slower growth over a period of time. And the third factor affecting the US is obviously the labor market. We saw reasonably good non-farm payrolls today, but in the last 12 or 13 months, we've actually had five revised prints that have been negative in that same period of time too. So the labor market supply side shock, I think is still going to be a factor that is going to affect growth in the US and it's one of the risks to the market.

So if I look at the US market or the US economy, it's been doing particularly well. The dynamic that's making it do well, which is the CapEx from the hyperscalers and the impact on GDP, which directly is close to 1% of GDP and maybe even much larger if you include all the indirect benefits. But globally, that's not the case because that CapEx cycle is not translating globally. Maybe it should, but it isn't. So energy prices are the only thing that are transmitting or changing the macro environment globally. Clearly higher oil prices, it's not just higher prices, it is also shortages. So I am quite concerned about growth in Asia. India seems to have found some oil from Russia, et cetera, but nonetheless, shortages are very non-linear in their impact on growth. So I am quite concerned that Asian growth is going to be lower than what we are even expecting today.

And will that then channel over to Europe? We are already penciling in lower growth in Europe. Again, shortages, places you don't expect it, fertilizer prices up, jet fuel shortages. All of these have an impact on lowering growth estimates in Europe as well as Asia. Will that then come back to the US and go full circle? Possibly. So I think robust economic activity in the US weakening elsewhere with risk to the US on the downside.

Jodi Phillips:

Next we asked how, as global multi-asset investors, how is his team looking at navigating this type of environment? And here's what he told us.

Hemant Baijal:

You have really three levers you can pull in a multi-sector. You have rates, you have FX and you have credit. So when you look at rates and developed markets, we have adjusted to potentially a higher rate profile and we are pricing in an outcome which is purely based on that inflationary shock from oil and not the slower growth part of it. And so we think that that is quite overextended in the market at this place, particularly in Europe. So I think from a rates perspective, the opportunity set is quite rich.

That brings us next to foreign exchange. Now, foreign exchange is extremely interesting because the dynamic that was at play prior to the conflict still remains in play, which is a weaker dollar. That is not what we used to expect. A conflict of this nature with oil prices going up so much, one would've expected a much sharper increase in the dollar. That kind of indicates that that original dynamic of having too many dollar assets globally and too many portfolios is limiting the amount of inflows you can get in dollars. The cost of acquiring a US dollar investment, the marginal cost is effectively going up and that is showing up with a lower dollar over a period of time.

Credit is a very difficult... It's been rock solid because nominal growth has been pretty good, but it is a very tight spread. Given that we can do rates in a multi-sector portfolio, we would prefer to be in rates than in credit as a result. So we think credit remains an underweight in the portfolio. So overweight rates, overweight FX, underweight the dollar and underweight credit.

Jodi Phillips:

And finally, we asked Hemant why he believes active management is important and here's what he told us.

Hemant Baijal:

Think about it this way, that if we have 20 different countries we can invest in. So we can choose which countries to invest in, which part of the yield curve, just to create efficient portfolios. If the dollar isn't going up, then you just open up a vastly larger base and there active management becomes very key. Which market do you want to invest in? Which part of the yield curve do you invest in? Which instruments do you use? Which currencies do you go long? How do you extract FX carry in the best possible way? Which currencies do you want to be long? Which currencies do you be underweight? It's not just always against the dollar. And there are so many that the global cycle is so asynchronous with Asia probably facing shortages, US being energy independent, this asynchronous cycle just creates a lot of opportunity which active management can take advantage of.

Jodi Phillips:

Thank you, Hemant, for joining us. And that brings us to our next topic.

Narrator:

I disagree.

Jodi Phillips:

All right, Brian, what is it this time? Who are you disagreeing with?

Brian Levitt:

All right. I'm going to go with Neel Kashkari, president of the Federal Reserve Bank of Minneapolis. A series of rate increases could be warranted even at the risk of further weakness to the labor market. I disagree, Jodi. All right.

Jodi Phillips:

So you're not feeling rate hikes?

Brian Levitt:

No, I'm not. And neither is the market. Actually, if you look at the Fed funds implied probability rate, it has rates as flat between now into the middle of 2027. That's a pretty far cry from expecting three rate cuts this year, but it is certainly not expecting rate hikes.

Jodi Phillips:

So it sounds like you're not too concerned that higher commodity prices are going to feed through to broader inflation.

Brian Levitt:

No, and a few things on that. The first, it's a price shock. And so I agree with Hemant's comment about it being a tax. That doesn't typically lead to a sustained move higher in inflation. And the bond market seems to agree. You know I love my inflation breakevens, right, Jodi? So the five year is back at 2.6%, that doesn't seem like it warrants a rate hike. The other thing to notice that Fed policy is already restrictive. The spread between the two-year US Treasury, which the Fed tends to anchor and the 10-year US Treasury, which reflects nominal growth is already very tight. And so my view is that rate hikes would risk inverting the yield curve at a time when consumers are dealing with over $4 or $4.50 gasoline nationally. That should not be viewed as a good thing. So apologies to Neel Kashkari, but I wholeheartedly disagree.

Jodi Phillips:

All right. Guess we could try calling you the inflation breakeven guy.

Brian Levitt:

Do you think that's good? Inflation break your FOMO?

Jodi Phillips:

FOMO’s better. We’ll stick with that one.

Brian Levitt:

Thank you. Thank you.

Jodi Phillips:

And at this point we're going to put you on.

Narrator:

The hot seat.

Jodi Phillips:

So first, Brian, let's talk about the Fed. You gave us your rapid reaction to Jerome Powell's last meeting as the Fed chair in the Greater Possibilities Rethink Now series. But one of the things you didn't mention at that time was Powell's decision to remain on as a Fed governor. So that's really not typical for outgoing Fed chairs. Are you concerned about that decision being a distraction?

Brian Levitt:

No, I'm not. Look, I view Powell as remaining on the Fed likely because he wants to show his deep determination to keep the Fed independent. I would view that as a good thing for markets, even if Powell won't admit that. That's why he's staying. I view that as a good thing for markets. If you observed Jerome Powell over these years, it's pretty clear to me he has the temperament to be a lower profile Fed governor. I don't think he has any intention of being a shadow Fed chair.

Jodi Phillips:

All right. Next question. Markets have already posted strong gains this year, but as the old saying goes, sell in May and go away. Do you agree with that philosophy?

Brian Levitt:

No, absolutely not. And actually the last few years have been, May's represented sort of a turning point after some challenging springs. Russia, Ukraine, Silicon Valley Bank, tariffs, and others. So no, we did the math on this. If you look from 1928 through 2025, staying invested throughout those years would've dramatically outpaced the sell in May playbook portfolio by more than 300%. Let's think about what 300% means. So 3X your money over that nearly 100-year period simply by not selling in May and buying back in the fall.

Jodi Phillips:

Nice. So stay tuned for the disclosures to hear all the numbers behind that particular math problem.

Brian Levitt:

Be reading that one for a while.

Jodi Phillips:

Our next question, our next question. There are probably a lot of investors out there who are wondering if it's too late to invest in oil, that they've missed the big price jump. What is your view on investing in oil right now?

Brian Levitt:

Yeah, I mean, I'll use history as a guide. So we took a look, maybe you'll need more footnotes, but we took a look at each time oil spiked by more than 20% since 1988. And over the following 12 months, oil was down on average by 7.9%, and the S&P 500 index was up by 25.6%. So when oil spikes, people tend to want to barrel into it. You see what I did there? But it ends up you tend to be buying more at a peak. So I would view it as oil as a potential hedge right now against further geopolitical conflict, but I would not view it as a way to speculate right now to generate outsized returns.

Jodi Phillips:

All right. Last question. The 30-year US Treasury rate had climbed to over 5% in early May. Do you see that as a harbinger of bad things to come or a potential buying opportunity in bonds?

Brian Levitt:

I'm with Hemant on this one. I view it as a buying opportunity. Reality is I just don't believe inflation will be as bad as some fear. If the economy slows, I would expect rates to come in. So I don't think we're heading to a sustained place over 5%, no, buying opportunity.

Jodi Phillips:

Okay. You're off the hot seat. So now we're going to conclude with one of our newer segments, Think, Rethink. So Brian, tell me something that you believe people are thinking right now, but that you believe they should rethink.

Brian Levitt:

All right. Think. This is stagflation. You've heard that, right, Jodi?

Jodi Phillips:

I have once or twice.

Brian Levitt:

Rethink. Unemployment rates 4.3%. Five-year inflation breakeven, 2.6%. I'm the inflation breakeven guy. So this is neither stag nor flation.

Jodi Phillips:

Okay. So before we go, Brian, where can our listeners follow you for more?

Brian Levitt:

Yeah, thanks, Jodi. Visit invesco.com/brianlevitt to read my latest commentaries. And of course, you can always follow me on LinkedIn and on X @BrianLevitt.

Jodi Phillips:

Thanks for joining. See you next time.

Important information

You've been listening to Invesco's Greater Possibilities podcast, Rethink Markets.

The opinions expressed are those of the speakers, are based on current market conditions as of May 8, 2026, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.

Fixed income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers.

The profitability of businesses in the financial services sector depends on the availability and cost of money and may fluctuate significantly in response to changes in government regulation, interest rates and general economic conditions. These businesses often operate with substantial financial leverage.

The health care industry is subject to risks relating to government regulation, obsolescence caused by scientific advances, and technological innovations.

Investments focused in a particular sector, such as industrials, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.

Currency risk is the risk of an investment’s value declining due to changes in currency exchange rates.

Statements about the dollar being flat since the start of the war sourced from Bloomberg as of May 6, 2026. Based on the return of the US Dollar Index from Feb. 27, 2026, to May 6, 2026.

The US Dollar Index measures the value of the US dollar versus a trade-weighted basket of currencies.

The S&P 500 Index has returned 6.80% since the start of the war on February 28, 2026, according to Bloomberg.

Statements about credit spreads sourced from Bloomberg as of May 6, 2026. Based on the option-adjusted spread of the Bloomberg US Corporate Bond Index.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market.

Commentary on earnings per share growth of S&P 500 Index companies sourced from Bloomberg and FactSet for the quarter ending March 31, 2026, as of May 8, 2026. The first quarter of 2026 was the sixth straight quarter of double-digit earnings growth.

Comments on the flat yield curve sourced from Bloomberg, based on the spread between the 10-year and 2-year US Treasury rates.

The yield curve plots interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates to project future interest rate changes and economic activity.

A flat yield curve is one in which there is little difference in the yields for short-term and long-term bonds of the same credit quality. In a normal yield curve, longer-term bonds have a higher yield.

The front end of the yield curve refers to bonds with shorter maturity dates.

Non-farm payrolls sourced from the US Bureau of Labor Statistics as of April 30, 2026.

The economic impact of capital expenditures by hyperscalers sourced from the US Bureau of Economic Analysis as of May 8, 2026.

Capital expenditures (or capex) is the use of company funds to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

Hyperscalers are large cloud service providers, which can provide services such as computing and storage at enterprise scale.

Statements on the fed funds implied probability rate sourced from Bloomberg as of May 6, 2026.

The fed funds implied rate refers to the likelihood of future changes to the Federal Reserve's target fed funds rate.

Commentary on the 5-year US Treasury inflation breakeven rate sourced from Bloomberg as of May 6, 2026.

A breakeven inflation rate is a market-derived estimate of future inflation, calculated by comparing the yield on a standard government bond (nominal) to the yield on a Treasury inflation-protected security of the same maturity.

Commentary on the spread between the 10-year and 2-year US Treasury rates sourced from Bloomberg as of May 6, 2026.

Discussion about “Sell in May” investment results sourced from FactSet, as of Dec. 31, 2025. A $1000 investment in the Dow Jones Industrial Average from January 1928 to December 2025 would be worth $9.2 million. That same investment by an investor selling May 1 of each year to go into Treasury bills and getting back into the market on Nov. 1 would be worth $2.7 million.

Commentary on oil spikes and the following 12-month return of oil and stocks sourced from Bloomberg. Data from June 23, 1988, the earliest data available, through March 30, 2026. Oil prices based on Brent crude oil, which comes from the North Sea and is a global benchmark for oil prices.

Information on 30-year Treasury rates sourced from Bloomberg as of May 6, 2026.

The unemployment rate is sourced from the US Bureau of Labor Statistics as of April 30, 2026.

The 5-year inflation breakeven is sourced from Bloomberg as of May 6, 2026.

Correlation is the degree to which two investments have historically moved in relation to each other.

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

The Dow Jones Industrial Average is a price-weighted index of the 30 largest, most widely held stocks traded on the New York Stock Exchange.

Earnings per share (EPS) refers to a company’s total earnings divided by the number of outstanding shares.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified time period.

Stagflation is an economic condition marked by a combination of slow economic growth and rising prices.

FX refers to foreign exchange, or currencies and their exchange rates.

First-order derivative refers to the immediate, direct effect of a development, while second-order derivative refers to the subsequent, indirect effect.

Rethink Markets and the Greater Possibilities Podcast is brought to you by Invesco Distributors, Inc.

In this episode, we unpack why strong corporate earnings — not geopolitical headlines — have continued to drive market performance. They also sit down with Invesco’s Hemant Baijal to discuss the global macro backdrop, the US dollar, and where he sees opportunities across rates, foreign currencies, and emerging markets. Finally, we discuss Jerome Powell’s decision to stay on as a Federal Reserve governor, oil prices, and why investors may want to rethink the stagflation narrative.

Rethink Markets: Strong corporate earnings beat the market’s expectations
Rethink Now: A new era for the Federal Reserve

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Jessica Wise

Hi, I'm Jessica Wise. Welcome to Rethink Now, a series from Invesco’s Greater Possibilities podcast designed to help you make sense of what's happening right now and what it could mean next. Today, Jerome Powell presided over his last Federal Open Market Committee (FOMC) meeting as the Chair of the Federal Reserve. After the meeting, we caught up with Brian Levitt, Invesco’s Chief Global Market Strategist, to get his thoughts.

First, Brian shared his opinion on the Fed's decision.

Brian Levitt

Basically a nonevent. The market has been primed now for a while really, since the war in Iran started, that the Fed was going to hold off on rate cuts. So the big difference coming into the beginning of the year was the market expected three rate cuts. By the time we got to the April meeting, there was no expectation of the Fed doing anything, which is precisely what we got.

I think that what's really important to note, though, is that this is a market that had priced out the three rate cuts without really much incident. The credit markets held up nicely. The equity markets have recovered. And so it's a market that's not beholden on rate cuts. And so the Fed has some time here. But ultimately, I would expect interest rates to go lower as inflation expectations come down and as the economy potentially slows, given some of the lagged effect of $4 a gallon gasoline which hopefully may be changing there.

Jessica Wise

Then we asked Brian what he expects to see from new Fed chair Kevin Warsh.

Brian Levitt

I would expect to see much of the same that we had under Jerome Powell. I know that there are some concerns that Kevin Warsh might be beholden to the president and might come in and want to bring interest rates down substantially, because that's what President Trump has wanted. Ironically, we probably would be at 3% interest rates by now on the Fed Funds had we not done the tariffs and not done the war in Iran. So, I still think that there's room for the Fed to bring rates down to what I think most of us would assume to be more of a neutral rate.

But Kevin Warsh, remember, he's anyone who's chaired a committee; he's chairing a committee. And it's not just him. There will be others on it. And this has been a Fed under Jerome Powell that's largely voted and operated in unison, not at every meeting, but for the most part. And so I don't think it's going to change meaningfully. I think Kevin Warsh is going to continue to look to have a unified Fed or as close to a unified Fed as possible.

And most of the members of the FOMC right now seem pretty committed to holding rates where they are, wait and see, and then slowly bring rates down should the conditions warrant it. And that would be regardless of whether it was Kevin Warsh or Jerome Powell.

Jessica Wise

Finally, we asked how he would sum up Powell’s time at the helm of the Fed.

Brian Levitt

A little bit of a mixed bag. I can't imagine he's all that upset leaving the Fed position with markets at or near an all-time high and with inflation expectations contained. So, he should declare that a victory, right? He left with his good name. He left with price stability. He left with a historically low unemployment rate.

So all of that is good. The reason it's a mixed bag, of course, is because of the response in 2022, when the Federal Reserve was slow to recognize that inflation was heading to 9.5% on a year over year basis, now it's a little bit hard to look back. Hindsight's always 2020. Remember that there were a lot of things operating against him.

First, huge stimulus from the prior two administrations or from Biden and the prior administration. The supply chain challenges. We also have to remember that it was unclear whether we were really getting out of Covid or whether the vaccines were going to work and all these things, so it was hard. He wanted to wait and see. He let the inflation genie out of the bag.

He tightened fairly quickly, got inflation back down and again is leaving office with price stability, pretty close to full employment and markets near an all time high. So mixed. But he can leave with his head held high.

Jessica Wise

Thank you for joining us at Rethink Now, brought to you by the Greater Possibilities podcast. In future episodes, we'll continue to explore the future of Fed policy under its new chair.

Important information

You've been listening to Rethink Now, from Invesco's Greater Possibilities podcast. The opinions expressed are those of the speakers, are based on current market conditions as of April 29, 2026, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward-looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Gasoline prices are sourced from the American Automobile Association, as of April 1, 2026. Based on the national average price of regular unleaded gasoline.

On April 15, 2026, The S&P 500 Index closed at a record high of 7,022.95, and the Nasdaq Composite closed at a record high of 24,016.02. Sourced from Bloomberg.

Inflation figures are sourced from the US Bureau of Labor Statistics.

The Greater Possibilities Podcast: Rethink Now is brought to you by Invesco Distributors, Inc.

Brian Levitt shares his quick take on the results of today’s Federal Reserve (Fed) meeting, his expectations for incoming Fed Chair Kevin Warsh, and his assessment of Jerome Powell’s time at the helm of the Fed. (Invesco Distributors, Inc.)

Rethink Now: A new era for the Federal Reserve
Rethink Portfolios: Municipal bonds with Mark Paris

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Danielle Singer:

Hello, I'm Danielle Singer, head of wealth management portfolios at Invesco, and I'm very excited to bring you the first episode of Rethink Portfolios, a new series from the Greater Possibilities Podcast. This show will go inside the decision-making process of portfolio managers, and we'll bring you in-depth conversations that explore how our experts manage risk, identify opportunities and navigate these ever-changing markets. Speaking of markets, our market-focused show with Brian Levitt and Jodi Phillips will continue as usual alongside this series. So please watch your podcast queue for the latest from them.

Now with that, let's get to our guest. Mark Paris is the chief investment officer and head of municipals for Invesco. I always get the pleasure to speak to Mark, but this is a really interesting time. We have surging energy prices that have put inflation back in the spotlight. The Federal Reserve is entering a new era under Kevin Warsh's leadership, and the midterm elections could bring back a divided government and impact federal spending priorities. So how is Mark and his team navigating all this? Let's find out.

Welcome to the podcast, Mark.

Mark Paris:

Great to be here. Thank you, Danielle.

Danielle Singer:

Now, before we jump in too deep, how would you usually explain municipal bonds to somebody that's not in finance?

Mark Paris:

So I always say, you wake up in the morning, you turn the lights on, we own the power company. You go brush your teeth, we own the water company. You get in your car, you drive to work, we probably own the toll road that you go to work on. So essential services are the backbone of the municipal bond world. Also, borrowing at the county level, at the state level. And then you've got hospitals, universities, school districts. These are all essential projects that get to borrow at a lower rate than corporate bonds because there's a federal law that says that municipalities can do that, and they save a lot of money in doing that. And then they provide a lot of great services in all these different areas that we touch every day.

Danielle Singer:

Wow. So for our listeners, these are things that they live and breathe, things that are very familiar to them. Now you're a seasoned professional in this space. I'd love to know, what are some of the things that have changed the most about this market since you started managing portfolios?

Mark Paris:

I get that question a lot. When you've been around a lot, you get some gray hairs and people start asking you stuff. Maybe the gray hairs are the things that change the most. But look, the reality is obviously technology has affected everybody. When I started on Wall Street in 1990, people didn't have computers on their desk necessarily. There certainly wasn't the internet. Now we're dealing with AI. And what I've learned over the years is you have to embrace change. You have to embrace technology. It is vital for how you provide value for shareholders, how you improve as an investment manager.

But I would also say that the more things have changed, the more they've actually stayed the same. Our market is an unquoted market. It's always been since I've been involved over 30 years now. An over-the-counter market where you have to negotiate prices, where you have to understand the supply and demand aspects of the market, where you have to have really strong relationships with traders, underwriters, salespeople, issuers. And so I always say, yes, you have to be there for technology and you have to adjust. But I also say that this is maybe not quite your father's muni market, but it still has a lot of the same things where advantages go to people who can understand how to take advantage of anomalies that exist in the marketplace.

Danielle Singer:

So this is one of those areas that almost really is, the more things change, the more they stay in the same.

Mark Paris:

Yes. Yes.

Danielle Singer:

And maybe why munis sometimes I think in a good way are called boring, right?

Mark Paris:

In a good way.

Danielle Singer:

In a good way, but we're going to dive into all the reasons-

Mark Paris:

Awesome.

Danielle Singer:

Why they're absolutely not. Let's continue on the current landscape, big picture for munis. What feels most important today for investors to understand about the marketplace?

Mark Paris:

So I think the most important thing is that we came out of a period of time post-COVID where rates were extremely low. And what I continue to hear from investors, from friends, from family members is, "My God, I can't make enough interest in this environment." Well, rates are significantly higher than they've been in quite some time. So I think investors are starting to feel that, starting to enjoy that. And the reality is that, for a long time, you really couldn't get a lot out of fixed income, but now you can clip that coupon, you can gross that up on a tax-exempt basis. And I think investors are excited about that.

Danielle Singer:

Very true. And you brought up a couple different dynamics there. What's more important today? Fundamentals or technicals?

Mark Paris:

I get that question all the time in the muni market. We are still a technically-driven market to a large extent because supply matters, how much new issuance is coming into the market. Parts of the curve where that supply is coming flows into the marketplace, what retail investors are putting into the product. So those are always vital things to look at. However, we are a credit shop, we believe. We have 24 dedicated credit analysts. These analysts do their own research. They look at the Moody's and the S&P reports, but what they really do is put their own proprietary rating on everything that we do.

So yes, it's still a very technical-driven market, but what is that credit doing? What is the competition of that credit? For instance, if we bought a hospital bond in the city of Chicago, what's the next hospital nearby that does similar things to it? How is that going to affect that bond's credit rating? What are the demographics of an area? Is it aging? Are more young people coming in? Those things matter for school districts, for tax basis. So I think always, to me, we start off at the fundamental level and then the analysts give us a strong fundamental opinion. And then the portfolio managers layer on that the technicals of supply and demand and what is going on in the actual over-the-counter, non-quoted market.

Danielle Singer:

That's really helpful. And I'm glad you brought up credit because we are going to dig into that topic in a minute. But you mentioned that investors might be really excited right now about munis. What area might you think they're underestimating though?

Mark Paris:

So I think people have had a little bit of shock here. Interest rates have moved up a lot the last few years. Your NAVs in bond funds, your prices of municipal bonds have gone down over the last few years. And I think people think that what happened in the past is going to happen in the future.

We actually disagree a little bit with that. We think that this is going to be a really positive carry year. We think that rates are going to be in a range this year. We talked about rates being higher, and so when you clip that coupon and gross it up, and so our hope this year is that investors understand that the last couple of years were a bit of anomaly in the muni market. There were a few different things going on. We had some talk about tax exemption going away for a while last year in the One Big Beautiful Tax Bill. Thank God that didn't happen. And that means that the tax exemption is going to last. Not only has it lasted for over 100 years, but I expect it to last going on in the future. So that's really positive.

So I would tell investors, don't be focused on the volatility of the last few years. Be focused on where the yields are. This could be more of a range year, more of a carry year. And they should feel a lot more positive about where the muni market is in 2026 than where it was the last several years.

Danielle Singer:

You read my mind, because thinking about what's on people's minds, headline risk, the macro. Again, before we dive into the technicals and the micro, is there a headline risk you think people are worried about that might be overblown?

Mark Paris:

Yeah. So look, I think you've heard a lot of people, you see people sometimes in the media, sometimes non-muni people, to be quite honest, that talk about general obligation bonds could be in trouble, that state budgets are not doing well, that the muni market is in danger. That is, to me, a little bit of the sky is falling. And I'll tell you why. Tax collections are really strong in this country. Tax collections come from three places in most states. That is property tax collections. Mortgage rates 6-7%. Housing prices continue to go up. We see that in this area, obviously. And so tax collections on property are going well.

Sales tax collections. Right before COVID, a law was passed, if you bought something online, you had to pay the state sales tax on that. So state sales tax collections have been very, very positive the last few years. States have surpluses. Most states have a good surplus. So I think the fears of whether they think that maybe the economy is going to slow down too much or states are going to spend money in the wrong ways, I think that can be a little bit blown out from times. When we do the microcredit research, we find that municipal credits are actually in a really good place because we're watching the tax collections, we're watching the local economies, and we're watching politically what the governments are doing.

Danielle Singer:

Really helpful. As a portfolio manager, I'm going to let you get carried away with the more technical stuff because I know that's where you're raring to go. Let's talk about rates and credit a bit. You mentioned this. Investors tend to not see periods of volatility as an opportunity, but they get nervous, right? They see this as a threat. How should investors think about muni bonds when interest rates are moving around as much as they have? And you talked about that a little bit, but maybe dive a bit deeper into the rate environment.

Mark Paris:

So look, we know that rates have been high. We will get a new Fed chair and we'll see what that means for rates. This economy is doing fine. It's not a runaway economy, but we also don't see it as necessarily a slowdown economy. So again, most of your return in the municipal bond market historically has been from the coupon. And so when you have strong managers that can find really good fundamental credits and really high coupons and hold those coupons for a long amount of time, that's a very valuable thing.

And I think that's a pretty powerful thing to get out of fixed income. It's not what you make, it's what you keep, and you don't have to pay taxes on the muni money. And I think that's where investors are starting to see, "Wow, a couple of years ago I couldn't get this, now I can, and when I gross it up, this is pretty good."

Danielle Singer:

See, not boring at all. You talked about the importance of credit research, the strength of it within your team, but I still think that, even though this is a very tangible part of the market for investors, they drive on the toll roads, they go to the hospitals, they're also very aware of some big household corporate names. So how should investors think about buying a bond from a city or a water department or a municipal instead of just buying that big famous company name?

Mark Paris:

So look, I think that municipal credits are rated. They're out there. They're strong revenue streams. We live here in New York City. The New York City Water and Sewer Authority is one of the strongest credits in the muni market, providing water, providing services to a vast majority of people. And they have a large amount of days cash on hand and they're doing just fine as a credit. The bridges and tunnels that we use in the city, my kids used to laugh at me. We'd go on a vacation and we'd land somewhere and they'd say, "Okay, Dad, tell us what you own. We know you own that tunnel authority, that bridge, that hospital, that university."

So again, as you said, those are the things that we can touch and we can feel and you can see them tangible. You're probably getting a bill at your house with one of the municipal bonds that we own in our portfolio. So it's not a known name, but it's something that you touch and see every day and know that we're doing solid credit research on those things to make sure that we're getting a good coupon and that the fundamentals are right.

Danielle Singer:

Your kids must have thought you were the king of New York owning all of these very important things. Speaking of which, as a born and raised New Yorker myself, I was really interested in Moody's revised outlook on New York. Any thoughts there?

Mark Paris:

Yeah, a lot of thoughts. So as you know, I was born and raised in Brooklyn. I went to college in Manhattan. I've worked my adult life in Manhattan, even though I've lived in New Jersey most of my adult life. I love New York. We were a little bit ahead of the rating agencies, which was great. So we had pared back a little bit, not because we were worried about the credit, but because when something goes on negative watch, you do see some price movements. So kudos to my analyst for being a little bit ahead of that. We are still very comfortable owning New York City. There are still a lot of things that this current administration by the mayor of New York, I mean, talk about that are going to be difficult for him to just do.

You've got a council in the city that has control over a lot of things like property tax. You have the state, which has control over a lot of other taxes. So I think it's going to be a little bit difficult to just enact certain types of change. In the meantime, you've got a very vibrant economy here. You try to get a reservation on a Monday night in New York City, it's not an easy thing to do. We look at the finances of New York City and New York State to be in very good shape. I think that the rating agencies wanted to just be cautious here because change always develops and this new administration is talking about a lot of change, but we're very comfortable owning New York.

We were a little bit ahead of the downgrade. Obviously it's something we're going to continue to monitor, but even when we look out one year, two years, three years, we think the economy in New York is going to be very good. We think that New York City bonds and New York State bonds are going to be solid investments. It just matters when you buy and sell them. And when they go cheap, you want to buy them.

Danielle Singer:

Very constructive comments and very helpful. Where else are you seeing resilience on the credit side?

Mark Paris:

So I think transportation has been one sector, specifically airports. I hear it a lot from folks who come visit us in the New York office. "Wow, I just got off the plane in LaGuardia. I can't believe this place. It looks so different than it did when I was younger." And that's what we're doing really across the country. The United States is putting money into infrastructure, putting money into airports, because origination and departure fees are strong at airports. Then concessions, what do you do when you're at an airport and you're stuck there for a while? You buy that $6 water, you go to the concession stand, you pay 20 bucks for a hamburger.

Danielle Singer:

The smell of Aunt Anne's pretzels.

Mark Paris:

All those things roll into fees for the airports. So airports have great cash on hand. I think back to the COVID crisis and everybody said, "Oh, what's going to happen? No one is traveling." Well, these airports had hundreds of days of cash on hand to weather that storm. These airports are very well run. Sometimes you go to a city and you find that the airport is more vibrant than the actual city that you're in. So there's so much activity. So transportation has been a great place for us.

I would say that some of the education charter schools have really become a much bigger thing in the country, specifically since the pandemic. And so where you do really good credit research, where you understand that there's a good management team in place, we've seen a lot of value there. And then the expansion of suburbs in places like Houston, Florida, California, we've been able to provide the infrastructure for the utilities in the pad that goes in for the house. We don't buy these things as shovel and dirt. We buy these things as houses are being bought and sold there. And then the house pays an assessment to the bond holder for the services that are provided. This is not 2008 where people own multiple houses and they don't live in them. These are primary residences that people are buying. And so we've seen a lot of value there.

The last thing I'd say is, we have a really keen eye right now on healthcare. The One Big Beautiful Bill does cut back on Medicare, Medicaid reimbursements. It'll be more towards the end of 2027 than now. We think there's going to be some selling in the hospital space where people get nervous. They hear that the One Big Beautiful Bill has cut this, and they say, "I don't want to own hospitals." Yet, hospitals that do elective surgery, hospitals that are in the birthing business, hospitals that have sometimes even an endowment or good fundraising possibilities, are in a good demographic area, have good, strong management, we should be able to pick through some of the selling that goes on and really find some good deals in that sector going forward.

Danielle Singer:

So in addition to those comments you just made on healthcare, when you look across maybe rates, yield, duration, credit, the whole spectrum, are there other risks you're monitoring that aren't necessarily keeping you up at night?

Mark Paris:

Yeah. Look, I think as a money manager, everything keeps you up at night. You manage billions of dollars, you realize that it's billions with a B and this is other people's money and you want to do the right thing for them. So I think that's really important to keep in mind, but certainly you have to follow when you manage a fixed income portfolio, what is your duration compared to what is out there in the marketplace? How is that duration going to move with interest rates? What can you do to mitigate that duration? Can you buy some shorter call bonds that can mitigate it? Can you buy some higher coupon bonds? So we're looking at the convexity of our portfolio, the duration of our portfolio, the structure.

Risk is a big part of what we do here at Invesco Fixed Income. I think there are two very strong things that we add to the table in Invesco Fixed Income. The risk parameters that we bring in from our risk team and the investment strategy team, which I'm a part of where we talk about where rates are going, where we talk about where the global economy is going, what the Fed is going to do. And so we bring in a lot of thoughts from the taxable side, from the mortgage side, from the rate side of things into how we're managing the dynamics of a fixed income portfolio. It is municipal bonds, but it's still fixed income.

Danielle Singer:

I love that you're starting to touch on the importance of education and really being 360. For our listeners, when we think about what's in it for them, what are some of the key takeaways? Let's start with, if I'm an investor and I invest in munis today, what should I think about success looking like in let's say five years time when I evaluate that portfolio?

Mark Paris:

So I think when you look at that, you want to know that you're getting a good rate of return, that your price of your bond or your NAV is not eroding that return. And some of that did happen in '22 and '23. Let's be fair. The Fed was very aggressive, rates moved very quickly, but you also had treasury returns that were significantly negative those years. So now that we're past that, I think where investors should see success is looking at their yearly grossed up returns in their potential, in whatever their specific tax bracket is. And if you're getting close to what traditionally you see getting in the equity market on a year-to-year basis in muni bonds with hopefully a little less volatility and price movement and not having to write that check to the tax man, I think that's a pretty successful story.

So, munis are going to be a little bit lower than treasuries on an absolute... With treasuries on an absolute basis, a little lower than credits on an absolute basis. But again, when you gross that up, that is where you should see and feel your success in clipping that higher coupon, which is again, significantly higher than we've seen in a while.

Danielle Singer:

So I think, based on those comments, we might already know the answer to this question, but how should investors think about the importance of muni bonds in their portfolio? Is it about the income? Is it about the taxes? Is it about the stability or it's always going to be about all three?

Mark Paris:

It's always going to be about all three, but I think what sometimes investors miss is the muni market is a pure play on the United States. We're not really worried about steel prices. Tariffs weren't that big of a hit to the muni market. Even oil shocks that we've seen in the past, I remember when Brexit hit and everybody said, "What does that mean for the muni market?" Not a whole lot. This is about local communities, this is about states, this is about the services that they provide. And there's a really good low correlation in munis to the equity market. When you buy a corporate bond, that corporate bond usually has an equity component to it. And if the equity starts to sell off, you're going to see some volatility in that corporate bond, even if rates don't move.

We don't have that in munis. So you have a little bit of a buffer there. I think munis are a great addition to your portfolio because you're investing in infrastructure in the United States and services in the United States. You don't have that global look so that you don't have the geopolitical necessary risk to it. And I think that the tax exemption, therefore, gives you that extra component of, "I don't have to write the check to the IRS." So a little bit of what you all said, but I also believe that the fact that munis are specifically for the United States gives it a bit of an advantage to have a part of your portfolio that is U.S.-centric.

Danielle Singer:

I think that's a great point. And also it gives an investor options. How do you want that exposure?

Mark Paris:

Exactly.

Danielle Singer:

How do you want to own it? What about the listeners that are thinking, "Yeah, this sounds great, but it's only for the rich. It's only for the high income investors." What do you say to that?

Mark Paris:

So I think that's a bit of a misnomer. Nobody wants to pay taxes. I think you can always find a rate that makes sense. And I say this a lot to young people, "You may want to start owning munis now while your income is here, because as your income gets to here, you're going to feel good about moving it." And what I said, low to high. I know we're doing a podcast.

Danielle Singer:

Can't see the hand movements.

Mark Paris:

Sorry about that.

Danielle Singer:

We get it. We get it. I want to turn a little bit to some personal reflections. Is there something that you've learned over your time managing muni portfolios that people might surprisingly not know?

Mark Paris:

Yeah. So I think that you feel an obligation. And I talked about this a little bit earlier. This is a lot of money. I'm a kid from Brooklyn and to see, again, billions with a B, I know that I feel a sense of obligation to our shareholders. I know my team feels a sense of... I love when I get on a team call and I hear, "my fund", "our fund", and I hear that from credit analysts. I hear that from quantitative people. I hear that from portfolio management. Everybody has a vested interest in doing what's right for the shareholder. And I think sometimes you see a headline on Wall Street, "This Wall Street person makes this much, this firm is doing that." We are here for our clients. We are here for our shareholders and we care deeply about them.

And I will tell you that when I talk to members of my team about a bond, about the performance in the portfolio, about what we're doing, it's always with that underlying current of, what is best for the shareholders and how are we doing things? And I've been here a long time. This is my 24th year here at Invesco, and I feel like that's been the driving force of what keeps our department focused and what keeps our department grounded. And we're always going to have that philosophy. Shareholder first, care, thoughtfulness. Not what's important for us, what's important for the shareholder.

Danielle Singer:

I think our listeners probably really appreciate hearing that and clears up some maybe misconceptions about portfolio management and Wall Street and the like. Speaking of misconceptions, what is maybe one other misconception about muni bonds that you'd love to clear up?

Mark Paris:

So I think people hear municipal bonds and we talk about the fact that it's a non-quoted market and the word illiquidity comes up. I've been in this business a long time, over 30 years. This is not an illiquid market. This is a market where professionals can find liquidity. We have a very large amount of municipal bonds that we manage in high-grade, high-yield, down the curve, up the curve, separately managed accounts. And so we know how to negotiate with the street. We know how to get liquidity when we need it. We know how to manage the portfolio so that there are pockets of liquidity and pockets of yield that's throwing off good yield that maybe we don't want to actively sell. So I hear a lot from other markets, "Well, the muni market isn't as liquid as the treasury market." No, nothing is as liquid as the treasury market, but we're not as illiquid as people think.

Good managers who create good portfolios. I always tell my portfolio managers, "Don't tell me you have no liquidity when you need liquidity. You better be building liquidity up constantly in the portfolio." And so, I get a little bit personal about it because I've been in the muni market a long time. I've worked with people on our staff who've been with me a long time, and we always feel like that's a little bit of a bad rap. We find liquidity when we need it because we have good relationships, we build portfolios the right way and we understand the dynamics of the muni market.

Danielle Singer:

Mark, I think we've given our listeners a lot to chew on around municipal investments. It has been an absolute pleasure.

Mark Paris:

Thank you, Danielle.

Danielle Singer:

Thank you. And catch you all next time.

Important information

You've been listening to Invesco's Greater Possibilities podcast, Rethink Portfolios.

The opinions expressed are those of the speakers, are based on current market conditions as of April 10, 2026, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

Diversification does not guarantee a profit or eliminate the risk of loss.

Mortgage rates sourced from Freddie Mac.

Discussions about most of the return in the municipal bond market coming from the coupon based on Bloomberg Municipal Bond Index data sourced from Morningstar and Bloomberg from 2011 through 2025.

The Bloomberg Municipal Bond Index is an unmanaged index considered representative of the investment grade tax-exempt bond market.

Discussion about negative Treasury returns in 2022 and 2023 based on the Bloomberg US Treasury Total Return Index, which measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury.

Discussion about the correlation between municipal bonds and the equity market sourced from Bloomberg as of Dec. 31, 2025. The 10-year correlation between The Bloomberg Municipal Bond Index and the S&P 500 Index was 0.44.

The 30-year AAA muni-to-Treasury ratio was 92% as of March 31, 2026, sourced from Bloomberg.

Discussion about tax-equivalent coupons for muni bonds sourced from Bloomberg, based on the Bloomberg Municipal Bond Index as of March 31, 2026. The tax-equivalent yield for an investor in the top tax bracket is near its high over the past 15 years.

Fixed income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

Municipal securities are subject to the risk that legislative or economic conditions could affect an issuer’s ability to make payments of principal and/or interest.

High yield bonds, or junk bonds, involve a greater risk of default or price changes due to changes in the issuer’s credit quality. The values of junk bonds fluctuate more than those of high quality bonds and can decline significantly over short time periods.

The health care industry is subject to risks relating to government regulation, obsolescence caused by scientific advances, and technological innovations.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Correlation is the degree to which two investments have historically moved in relation to each other.

A coupon is the annual interest rate paid on a bond, expressed as a percentage of the face value.

“Grossing up” refers to the fact that municipal bond interest is generally exempt from federal income tax. You would require a higher yield on a taxable bond to end up with the same income on an after-tax basis.

The yield curve plots interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates to project future interest rate changes and economic activity.

"Carry" refers to the income earned from holding a bond over a specific period, primarily derived from its coupon payments minus any financing costs.

A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments, or other debts.

Duration is a measure of the sensitivity of the price (the value of principal) of a fixed income investment to a change in interest rates.

A general obligation bond is backed by the credit and taxing authority of the issuer rather than revenue from a project.

Net asset value (NAV) is the per-share value of open-end and closed-end funds and exchange-traded funds (ETFs).

The Greater Possibilities Podcast: Rethink Portfolios is brought to you by Invesco Distributors, Inc.

Host Danielle Singer sits down with Mark Paris, Chief Investment Officer and Head of Municipals, for a timely, in-depth conversation on the municipal bond market — why it matters, how it works, and what investors may be missing right now.

Rethink Portfolios: Municipal bonds with Mark Paris
Rethink Markets: The war with Iran, market indicators, and the realities of private credit

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Transcript : Disclosures

Brian Levitt:

Welcome to Rethink Markets, a series from the Greater Possibilities Podcast. I am Brian Levitt, and with me, as always, is Jodi Phillips. Hey, Jodi.

Jodi Phillips:

Hey, Brian. We've certainly got no shortage of market news to talk about today, but first, let's explain the new intro to our listeners. The Greater Possibilities Podcast has been going strong for five years, and we're shaking things up a bit now.

Brian Levitt:

Yeah, we are, and we're welcoming some new series into the Greater Possibilities family. It is time. We are now a Greater Possibilities channel, which is very exciting. So our colleague, Danielle Singer, will be hosting a series called Rethink Portfolios. Those are going to be deeper dive interviews with portfolio managers about how they're managing risks and finding opportunities. Much more in depth, Jodi, than our quick phone a friend segments. I'm looking forward to it.

Jodi Phillips:

That's right, I am too. In addition, we'll produce some special episodes called Rethink Now, where we give a quick rapid response to breaking news that's impacting markets. But the most important thing for our listeners to know is that they don't have to do anything different to get these episodes, they're all part of the Greater Possibilities Podcast Channel. So if you're subscribed to us, you get it all.

Brian Levitt:

That's right, we're giving them three for the price of one.

Jodi Phillips:

Yeah, I mean, it's free, so let's not forget that. But yeah, three for the price of one. So back to today, coming up in a bit we're going to have a conversation with Scott Baskind, who's the global head of private credit for Invesco, for a conversation on the current realities of private credit. In response, of course, to the ongoing headlines emanating from that space. But before that, let's get to our first segment.

Narrator

Trending conversations.

Jodi Phillips:

All right, Brian, what's trending?

Brian Levitt:

I think it still has to be the war in Iran.

Jodi Phillips:

Yeah, of course. That is still ongoing. You said in our last episode that the impact on the global economy and the markets of that is going to depend on the duration of the conflict and the closure of the Strait of Hormuz. At this point in time, early April, are we in the danger zone now?

Brian Levitt:

Well, I guess let me first let you in on a little bit of a secret, Jodi.

Jodi Phillips:

Yeah.

Brian Levitt:

That secret is I'm not a military expert. I'm also going to maybe ruin things for you as well to let you know I wasn't a molecular biologist in 2020 at the time.

Jodi Phillips:

Understand, understand. You just played one on TV.

Brian Levitt:

Yeah. Look, I mean, when you do what I do for a living, people want you to have opinions on these things. I think of myself as a markets guy, and so basically what I want to discern is what the market is telling me, rather than give you the timeframe for the conflict that puts us into the danger zone.

Jodi Phillips:

Well, that makes sense. I mean, chief global market strategist, yeah, markets guy. So what is the market telling you at this point?

Brian Levitt:

Yeah, I'm not chief military strategy, molecular biologist strategist. So the crude oil forward curve is still in backwardation. I think that's a good sign in terms of whether the market is considering this danger zone.

Jodi Phillips:

Yeah. Of course, what backwardation means is that the prices are higher for delivery in the short term than for delivery in six months and 12 months. So if the market's expecting $75 a barrel for oil in 12 months, which would be significantly lower than where it is today, that means markets expect the conflict to have ended by then.

Brian Levitt:

Right, and so yeah, it takes away me having to think about this from a military perspective, what's the market telling us? If I think of other preferred indicators of distress, things you and I, Jodi, have talked about for years, whether it's inflation expectations, whether it's credit spreads, whether it's the US dollar, I mean, admittedly, they're moving in the wrong direction, I think that's clear, but they're not pointing to disaster, which is critical.

Jodi Phillips:

Good. Well, that's good to hear. You mentioned credit spreads, right? Spreads for investment grade and high yield are still below average.

Brian Levitt:

Yeah, remarkably. Look, if you zoom in on it, it's moved up. The credit spreads have widened out a little bit. But you zoom out over a three or five-year period, it's not substantial. That's indicative, I would say, of the fundamental strength of the US economy and US businesses going into this event. Now, don't get me wrong, it's clear the economy is slowing. How could it not? The nearly synchronized global expansion that we had forecasted has faded with the conflict. That's disappointing. I mean, it was a very nice setup for the global market. So it's a slowdown, but right now, in terms of the things that we like to watch, there's little to suggest that something more ominous is occurring.

Jodi Phillips:

Okay. Well, speaking of the fundamental strength of businesses, we're going to turn to our next segment.

Narrator

Phone a Friend.

Jodi Phillips:

This is where we caught up with Scott Baskind for a conversation on private credit. First we asked Scott, what's been driving the negative headlines that have been coming out of this space? And here's what he had to say.

Scott Baskind:

Yeah, it's a great question. I think if we take a step back to 2025 and the confluence of events that really led towards the first two high profile defaults, First Brands and Tricolor, and then the subsequent media covering the space and really painting private credit with a singular brush, and the expectations that on the heels of that there would be additional fraud, and I think there's many quotes out there from Jamie Dimon and many other high profile individuals that really started to paint the picture that private credit in totality was having challenges.

Fast-forward to where we are today and some of the evolution, if you will, or the AI expansion with Anthropic and others that have had some fairly significant impacts on the technology sector, and in particular the software space, which happens to be the largest component or single sector within private credit, there's been a level of panic, if you will, and I think some justified, and as always some overreaction. When I think about the broad market, credit concerns do become liquidity concerns in some instances. I think what we're finding is some of the reasons that have translated from credit to liquidity facing some of the largest public vehicles and public BDCs, if you will, leaves us where we are today from a market perspective. So I think there's some reality and some perception that we should look to tackle here.

Jodi Phillips:

Next, we asked Scott for his opinion on what the reality is of the situation and how concerned he is about it, and here are his thoughts.

Scott Baskind:

Yeah, as I mentioned, I think the credit concerns becoming liquidity concerns is something that, unfortunately, the market faces throughout different cycles and throughout history, if you will, I think maybe starting from the structural elements. These funds are doing exactly what they're supposed to do, protecting existing investors' medium liquidity that was deemed to be appropriate for these types of structures with these types of semi-liquid or less liquid assets in it. I think this reality of what's occurring in the market is not necessarily tied towards credit, but just broad market concerns.

So from a corporate credit perspective, what's I think really important to set the bedrock is broadly corporate credit remains on the sound footing. Revenues, EBITDA across the asset class remains positive, but there's certainly different pockets that are being more impacted by the continuation of inflationary pressures, by continuation of supply chain disruptions. Clearly, everyone's being impacted by the geopolitical environment that we find ourselves in, and software is clearly at the heart of concern due to the pace of change and the acceleration of change within the AI ecosystem, if you will.

I think what's most important for investors and interested parties to recognize is, while software is the largest component of tech and the largest component of the private credit allocations, if you will, they make up about 20% or approximately 20% of the broad market, quite consistent with US GDP, if you will. That's heavily concentrated in a number of funds, not in the breadth of funds in the broad market. I think the remainder of the market is very well diversified across sectors, across different industries, if you will, and the focus of lending to companies that should be characterized as old economy, more defensive and less growth-oriented, is really the bedrock of private credit in general.

Jodi Phillips:

Next, we asked Scott where he is seeing the best opportunities in the space, and here's what he had to say.

Scott Baskind:

Yeah, so opportunities is an interesting one in today's environment, and it's very much, I would say, bifurcated or barbelled, if you will, both between lending strategies and opportunistic opportunities and stressed opportunities. On the lending side, what's quite interesting is as markets tend to correct themselves, what we do traditionally look for and likely find is really good companies that are in need for capital for purposes of acquisition financing, capital markets activities, if you will. Those are really good companies to underwrite today. As we underwrite credit in more uncertain economic environments like we're in today, we're building stronger capital structures, we're building much greater protections as it relates to subordinated debt and/or equity cushions from a enterprise value perspective, which is really important, and we're incredibly conservative and the market has been conservative as it relates to putting capital to work in certain sectors. From a performing perspective, really interesting opportunities to put capital to work and deploy capital in this marketplace.

The other avenue that I think investors are very much excited about is on the opportunistic side. As we're seeing deterioration in certain sectors and weakness in certain companies and opportunities, there's certainly a need for capital and liquidity. Opportunistically, we're able to invest in companies that are in need of that type of growth capital, if you will, in order to continue to meet their objectives in terms of their underlying strategies. This capital markets evolution or cap solutions has been a tremendous component of how we've been putting capital to work for the broad market. That opportunity is barbelled, as I mentioned, performing credit and then companies that are in need of some capital, really allows investors to share in both income-oriented opportunities and also total return opportunities today.

Jodi Phillips:

Finally, we asked Scott if he believes that the democratization of private markets is going to continue, and here's what he said.

Scott Baskind:

Yeah, I think it's great, and it's obviously thematic given some of the challenges more publicly that the markets are facing. I think there's likely to be a bit of a pause or a slowdown in that, but we truly believe that over the medium to longer term that this opportunity for the wealth channels for retirement is very much embedded in what private markets ultimately can bring towards a broader diversified allocation. We do not anticipate a long-term hiccup here. Clearly, markets go through pauses and corrections. We view this as an opportunity. We're continuing to spend an enormous amount of time educating our partners, our clients on a global basis, and that's really important to making sure that democratization continues over a longer-term basis. This is a slow path, if you will, from low single-digit allocations to what's ultimately expected to be something at or near 10% over time. This is a long-term perspective, it's likely to morph over time as it relates to the pace, but we remain quite excited and quite confident in that.

Jodi Phillips:

Thank you, Scott, for joining Rethink Markets. Now, we're going to move on to our next topic.

Narrator

I disagree.

Jodi Phillips:

This is where Brian takes a statement that's been in the news recently and disagrees with it. What's it this time, Brian?

Brian Levitt:

Yeah, I've been political the last few times. I don't necessarily mean to be, but it's just so in focus. I'm going to go with President Trump, "We don't use the Strait," meaning, of course, the Strait of Hormuz, "The United States, we don't need it."

Jodi Phillips:

"We don't need it." Okay, so let's dig into that disagreement a little bit. I mean, before this conflict started, did the oil going through the Strait get exported here to the US?

Brian Levitt:

No, not a lot, and that's what President Trump is alluding to. More than 80% of the exports of oil going through the Strait of Hormuz went to Asia. I think it's estimated a couple of percent of the oil ended up in the United States. That's where I guess there's a bit of agreement with Trump's statement, but disagree entirely in terms of implications and what it means.

Jodi Phillips:

Right, it's the impact, because we still have $4 a gallon gasoline nationally.

Brian Levitt:

We do. I'm feeling it. You feeling it, Jodi?

Jodi Phillips:

Yes, I'm feeling it, for sure.

Brian Levitt:

Yeah. Considering an electric vehicle?

Jodi Phillips:

Well, I don't know. I don't know. I don't know. We'll see. But yeah, I have to fill up my car, my son's car. Yeah, it's a lot.

Brian Levitt:

It's a lot. Look, why do we need it? It's because, of course, oil is priced globally and any type of disruption raises prices everywhere. So yeah, the hit to the Asian economies is bigger, it's why you're seeing a strong dollar, they are more dependent on oil imports. The US benefits from the energy renaissance that we had over the past couple of decades. But don't get it wrong, this is why I disagree, the United States would benefit significantly from the Strait being reopened.

Jodi Phillips:

Because of oil and gasoline prices going down.

Brian Levitt:

Yes, exactly.

Jodi Phillips:

All right. So next segment, we're going to put Brian on.

Narrator

The Hot Seat.

Jodi Phillips:

All right, Brian, let's run through these questions pretty quickly. Do you think that the market was right to price out Fed rate cuts?

Brian Levitt:

Well, right or wrong, Jodi, it happened. The important thing is it happened without significant incident to the credit or equity markets. That's important. Ultimately, I still think the funds rate is going to 3%. The conflict has just stalled that for the time being.

Jodi Phillips:

Okay. So to that point, do you think the war is a bigger hit to inflation or to growth, or is it stagflation?

Brian Levitt:

Well, you and I both basically suggested that it's more of a hit to growth. I view it as a tax on the consumer, that $4 a gallon gasoline, or more in parts of the country. That's a bigger hit to growth. The stagflation points are a bit hyperbolic. In the mid 1970s, let's remember, that's where the term stagflation came from, the unemployment rate was above 8% and inflation was double digits. That's stagflation, and that's usually the result of policy mistakes by the US Federal Reserve. Today, obviously, the unemployment rate's substantially lower than 8%. The inflation rate is not even close to double digits. So stagflation, usually a policy mistake, not a short-term spike in commodity prices because of a war.

Jodi Phillips:

Okay. Switching gears a bit, how can the benefits of artificial intelligence potentially help non-US markets?

Brian Levitt:

Yeah, this is a good one. I like the question. So the first wave of performance within the AI trade really came from the hyperscalers, the chip companies. Of course, many of those businesses were domiciled in the United States, and they now make up a fairly heavy concentration of the S&P 500 index, as most people spent 2025 pointing out. Now, if you consider the MSCI All Country World Index, excluding the United States, that index has significantly greater exposure than the S&P 500 does to sectors and industries like healthcare and industrials and logistics and financials. If you think about parts of the market that potentially stand to benefit the most from artificial intelligence, I think those are some of the ones that many put near the top of the list, particularly things like healthcare, industrials, etc. So that's where a lot of the optimism was coming in early in the year around non-US markets stalled a little bit because of Iran, but ultimately I think we get back on that path. That's a structural story versus the conflict, which is a very near-term story.

Jodi Phillips:

Okay, and with that, you are off the hot seat. We're going to conclude this episode with one of our newer segments called Think, Rethink. Brian, tell me something that you believe people are thinking right now but you think they should rethink.

Brian Levitt:

People are thinking that the business models of software companies have been meaningfully disrupted by artificial intelligence. You've seen that in the valuations of the software businesses. You've seen that in some of the concerns in private market that we recently discussed with Scott Baskind. But if we rethink that, what you're seeing in the headlines, the earnings for software and broader infotech companies in the S&P 500 have generally been beating expectations and by a meaningful margin. Mega cap and large cap software oriented platforms beaten consensus by roughly 8% on average. Analyst estimates for 2026 earnings have been revised higher for many of these names. So think software's going away? Rethink when you take a look at the results that they've had.

Jodi Phillips:

Very good. So before we go, Brian, where can our listeners follow you for more?

Brian Levitt:

Yeah, thanks, Jodi. Visit invesco.com/brianlevitt to read my latest commentaries. Of course, please follow me on LinkedIn and on X, @BrianLevitt.

Jodi Phillips:

Thanks for joining. We'll see you next time.

Brian Levitt:

Thank you.

Important information

You've been listening to Invesco's Greater Possibilities podcast, Rethink Markets.

The opinions expressed are those of the speakers, are based on current market conditions as of April 7, 2026, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers.

The health care industry is subject to risks relating to government regulation, obsolescence caused by scientific advances, and technological innovations.

The profitability of businesses in the financial services sector depends on the availability and cost of money and may fluctuate significantly in response to changes in government regulation, interest rates and general economic conditions. These businesses often operate with substantial financial leverage.

Alternative investment products may involve a higher degree of risk, may engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, may not be required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual portfolios, often charge higher fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. There is often no secondary market for private equity interests, and none is expected to develop. There may be restrictions on transferring interests in such investments.

Comments on the forward curve for oil prices sourced from Bloomberg, L.P. as of April 1, 2026. The forward curve is a graphical representation of the current market prices for oil delivered at different future dates. Backwardation occurs when the current price of oil is higher than the prices in the futures market.

Discussion about indicators of stress sourced from Bloomberg, L.P. as of April 1, 2026. Inflation expectations are based on the 5-year US Treasury breakeven rate. Credit spreads are based on the option-adjusted spread of the Bloomberg US Corporate Bond Index. The US dollar is based on the US Dollar Index, which measures the value of the US dollar versus a trade-weighted basket of currencies.

Comparison of investment grade and high yield credit spreads sourced from Bloomberg, L.P. as of April 1, 2026. Credit spreads based on the option-adjusted spread of the Bloomberg US Corporate Bond Index and Bloomberg US Corporate High Yield Bond Index.

A breakeven inflation rate is a market-derived estimate of future inflation, calculated by comparing the yield on a standard government bond (nominal) to the yield on a Treasury inflation-protected security (TIPS) of the same maturity.

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

The Bloomberg US Corporate High Yield Bond Index measures the US dollar-denominated, high yield, fixed-rate corporate bond market.

Discussion about oil going through the Strait of Hormuz sourced from the International Energy Agency as of February 28, 2026.

Gasoline prices sourced from the American Automobile Association, as of April 1, 2026. Based on the national average price of regular unleaded gasoline.

Discussion of the unemployment rate and inflation rate in the 1970s sourced from the US Bureau of Labor Statistics.

Discussion of the sector concentration of the S&P 500 Index and the MSCI All-Country World ex-USA Index sourced from Bloomberg, L.P., as of April 1, 2026.

The MSCI All Country World ex USA Index is an unmanaged index considered representative of large- and mid-cap stocks across developed and emerging markets, excluding the US.

Discussion of software company earnings sourced from Bloomberg, L.P., as of April 1, 2026. Based on Bloomberg consensus estimates.

Statistics about the size of the software market sourced from JP Morgan as of February 2026.

Duration is a measure of the sensitivity of the price (the value of principal) of a fixed income investment to a change in interest rates. Duration is expressed as a number of years.

Hyperscalers are large cloud service providers, which can provide services such as computing and storage at enterprise scale.

Stagflation is an economic condition marked by a combination of slow economic growth and rising prices.

The federal funds rate is the rate at which banks lend balances to each other overnight.

EBITDA stands for earnings before interest, taxes, depreciation and amortization.

BDC stands for Business Development Corp., which are publicly regulated investment companies in the US that provide capital to small and mid-sized private companies, typically through loans.

Rethink Markets and the Greater Possibilities Podcast is brought to you by Invesco Distributors, Inc.

What is the market telling us about the conflict in the Middle East? Brian Levitt discusses what he’s seeing from his preferred indicators of distress. Then, we talk with Global Head of Private Credit Scott Baskind about the current realities of private credit and the ongoing headlines emanating from that space. (Invesco Distributors, Inc.)

Rethink Markets: The war with Iran, market indicators, and the realities of private credit
A software-driven selloff, an incoming Fed chair, and economic resilience

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Transcript : Disclosures

Brian Levitt:

Welcome to Invesco's Greater Possibilities podcast. I am Brian Levitt, and with me as always is my co-host, Jodi Phillips. Hey, Jodi.

Jodi Phillips:

Hey, Brian. So later in the show, we're going to speak with Senior Portfolio Manager Justin Livengood about the tech-led selloff that's happening as we're recording this today. But first, we have a full agenda to cover. It's already February, Brian, and this is the first time we've recorded together in 2026. Our January podcast was you talking with AI futurist Zack Kass, which was fascinating, by the way.

Brian Levitt:

I enjoyed that.

Jodi Phillips:

Yeah, it was a great conversation. But that means we've got a whole month's worth of headlines to cover right now. So there's plenty to talk about, don't you think?

Brian Levitt:

Yeah, I think there's always plenty of talk about it. I think I was saying the other day, Jodi, anytime I've been introduced in my entire career, somebody said, "Well, it's good we have Brian here, there's plenty to talk about right now." So yeah, there's probably always a lot to talk about.

Jodi Phillips:

That's a fair point. There is always a lot going on, but really, doesn't it feel like more than usual right now? It does to me.

Brian Levitt:

Yeah, yeah, I would consent that events have been happening at a feverish pitch.

Jodi Phillips:

And so that means we'll need to proceed at a feverish pitch to cover them also.

Brian Levitt:

Cover them at a feverish pitch, yeah.

Jodi Phillips:

Yes. Are you ready?

Brian Levitt:

Yeah, sure. Let's do it.

Jodi Phillips:

All right. All right. Let's do Venezuela first.

Brian Levitt:

Yeah, that was too small of an economy. The world had a lot of oil, not a huge issue.

Jodi Phillips:

Okay. Iran.

Brian Levitt:

Same. Also, too small of an economy and the world has ample supply of oil.

Jodi Phillips:

So when you say too small of an economy, just to make sure I'm clear, you're saying too small of an economy for that conflict to have much of an impact on markets?

Brian Levitt:

Correct.

Jodi Phillips:

Okay.

Brian Levitt:

Or much of an impact on the trajectory of the major economies of the world.

Jodi Phillips:

Yep, okay.

Brian Levitt:

Yeah.

Jodi Phillips:

Greenland.

Brian Levitt:

Also too small. The big issue with Greenland was tariffs on Europe, and that could have resulted in less optimal economic outcomes, particularly at a time when we're looking to contain inflation. But Jodi, as my kids say, that's so last month.

Jodi Phillips:

That's so last month.

Brian Levitt:

So last month.

Jodi Phillips:

All right. Well, we're in February. Let's move on.

Brian Levitt:

Yeah.

Jodi Phillips:

Federal Reserve independence.

Brian Levitt:

Yeah, although the markets, at least for now, seem to have been reassured by the selection of Kevin Warsh. I know we're going to talk about this a little bit later on, but not a significant issue right now for markets.

Jodi Phillips:

Okay, great. Now, how about the tech selloff?

Brian Levitt:

Yep, bingo. There you go. So all of these others, too small. What we're seeing in the tech sector right now, of course. And so we'll cover that on this pod.

Jodi Phillips:

Okay. So with that in mind, we'll move on to our next segment.

Speaker 3:

Trending conversations.

Jodi Phillips:

So Brian, I have a feeling I know what you're going to say, but what are you being asked about these days?

Brian Levitt:

Yeah, we gave it away. I would say the recent downturn in tech stocks, more specifically software companies, but also what we're seeing in precious metals, what we're seeing in Bitcoin. There's just been more volatility in different parts of the market that I think investors have been used to seeing for quite a while.

Jodi Phillips:

Yeah, for sure. I mean, it will be a few days before we can post this, but as we record this, the NASDAQ 100 is down between 2.5 and 3% from the start of the year, and it's about 6% off of its all time high reached in October. So in your opinion, Brian, does that sound like a bubble popping?

Brian Levitt:

No. And it's not all parts of tech. It's not all parts of the market. There's plenty of sectors of the S&P 500 that are positive this year. In fact, as we record this, the semiconductor industry or semiconductors index is positive this year. So no, it's not as if the whole AI trade is coming down together like a bubble. It's just behaving less like a monolith. The markets are becoming far more discerning, particularly within software, assessing the potential winners and losers.

Jodi Phillips:

Okay. Are you surprised by that?

Brian Levitt:

No. I mean, if you remember, we were very purposeful in naming our outlook resilience and rebalance. Now, you might remember I wanted to call it KPop Demon Hunters or something.

Jodi Phillips:

Of course, yes, yes.

Brian Levitt:

Yeah, but you wouldn't let me. And you were probably right about that as you often are. So the resilience thing was all about the global economy. Still feel good about that. In fact, our leading indicators are moving into expansion for a lot of the world. The rebalancing was really about diversifying away from mega cap growth and the so called AI trade.

Jodi Phillips:

Okay. So how are you feeling about that outlook now that we're a month into 2026?

Brian Levitt:

Yeah. Well, so far so good. We got to be clear. And given that these things are recorded, people can always go back and get them. But one month doesn't make a year, I know that. And I'm certainly not a baseball pitcher, but you never want to talk to a pitcher during a no-hitter. So you don't really want to brag about five weeks of performance. But yeah, it's been a better start for mid-caps as we had expected. It's been a better start for more value-oriented parts of the market, and it's been a better start for non-US equities. And that's all about diversifying away from what had become a mega cap growth story that was priced for a lot of really, really good things happening.

Jodi Phillips:

Well, so then in your opinion, what do we need to see for that good start to continue?

Brian Levitt:

Yeah, so you continue to need to see an improving economic backdrop both in the United States and around the world. And you'd like to see policy easing in the United States, Federal Reserve lowering interest rates down to what we would categorize as a more neutral or more reasonable level, probably Fed funds rate around 3%.

Jodi Phillips:

That seems reasonable.

Brian Levitt:

Yeah, improving backdrop. US easing does seem reasonable. I think so. It's funny, as we record this, all the negativity, it wasn't that long ago, only a handful of days before we recorded this where I was quite enthused by the ISM manufacturing PMI that had come out.

Jodi Phillips:

Yeah. The Purchasing Managers Index, which of course, surveys the people who make the big decisions in the manufacturing sector. So what did that tell you?

Brian Levitt:

Yeah, new orders were really strong. Okay. You saw a pretty significant increase in new orders. What does that mean? New orders come in. That's a pickup in economic activity. And the prices paid component has been fairly flat over the last, really since October. So new orders up, prices paid relatively benign. We like that.

Jodi Phillips:

Yeah. Sounds good to me.

Brian Levitt:

So that's the type of backdrop we're talking about where the economy can pick up and the Fed could ease. So despite all of the, I don't know, do we call this carnage, whatever we call this, the recent... I don't know, when did 2% down in the S&P become carnage? But underneath there's a lot more happening than that and we get that. And so we look through that, the fundamentals of the economy still looks sound.

Jodi Phillips:

Okay. And then that brings us to?

Speaker 3:

Phone a friend.

Jodi Phillips:

So we put in a quick call to Senior Portfolio Manager Justin Livengood to talk about this tech-driven selloff. First, we asked Justin, what is driving this selloff? And does he think it's the bursting of the bubble that so many feared? Here's what he had to say.

Justin Livengood:

Yeah. Well, it's almost a year exactly to the day when we had the selloff in the markets last year around DeepSeek and the potential implications that had on AI. So it's sort of appropriate that now we have the latest bit of volatility in the equity markets that again, is somewhat driven by AI. This time it is affecting software stocks. But the question in the market is more than just around tech and AI. There is definitely some change going on with momentum, which this week, for example, has had a couple of really sharp selloff days following some really sharp rallying days. In fact, it's interesting, the markets are sitting still very near their highs. And in fact, the equal weight market basically at its high. The breadth in the market has hung in there quite well.

I don't think that this is some bursting of a bubble. Look, momentum once or twice a year gets overbought to a point where you need to release some pressure. And that's going on right now. There are a handful of pockets in the market that have had incredible runs even year to date. Stuff like that needs to correct, of course. And that's part of what's triggered this selloff and part of what has, I think, moved some of the higher momentum names back down a bit. But it isn't the same broad selloff that we saw last year, for instance, with DeepSeek or in past momentum corrections.

I can think of some broader market pullbacks that were much more painful, much more systemic. This is much more selective, and that's somewhat a good thing. It's responding more to some of the macro stuff going on, again, around defense, around the geopolitical situation, a little bit around earnings. We're about halfway through the earnings season, and so people are reacting to some really strong earnings still in the industrial space and some strong earnings in semiconductors offset by weaker consumer and software-related earnings reports. So some of this is just natural volatility in earnings season that happens to coincide with some of this momentum part of the market being particularly extreme, and so it's somewhat healthy. I'm not particularly concerned about the market, though, comma, though I do think that it would make sense the market chops for a while in the first part of the year, given how strong last year and last couple years have been and as this rotation that I know we're going to talk about in a second continues to play itself out.

Frankly, I think it's good that some of the Mag Seven stocks are resetting as far as valuation and sentiment. A broader market is a healthier market, and I'm not just saying that as a small mid-cap guy, I genuinely believe that's true. I think last year was getting a little uncomfortable to have so much return coming from the top seven or 10 stocks. So it's not all bad. I think some of what's happening is healthy, and I don't think this is the beginning of some major bubble burst that leads to a double-digit type correction in the equity markets.

Jodi Phillips:

Finally, we asked him about his views on a rotation within growth and whether he thinks it may be time to rotate back towards tech, software, AI, and here's what he told us.

Justin Livengood:

The market has definitely been rotating from growth to value, although the definitions of those two really keep moving around a lot. I mean, there's a lot of growth in industrials. There's even a lot of growth right now in energy to very value traditional sectors. And so I don't totally think about it in the growth and value context, but you're right, there's been a lot of rotation by sector that started really last summer and has really picked up steam and pace in the last three, four months. I think that a lot of the industrials and energy rallying has legs. There might be some chopping and backfilling here in the short run, but earnings have been really, really good.

And this is just with the economy starting to turn. Monday, we had the best ISM number we've seen in probably a couple years, which has really started to reflect resurgence and activity in the broader economy, industrial economy. We're starting to see the benefits finally as some of the reshoring that's been talked about for a couple years. So I'm really bullish on industrials and to a degree, in energy and materials. We're seeing it in earnings, and I think the stock moves are largely justified. The flip side is, yeah, going back to the discussion around AI and software from a second ago, there's been a huge rotation out of software into semi and other parts of the market that are less affected. I definitely think that software companies are, and that part of the market that's affected negatively by the emergence of AI are getting to a valuation level that's intriguing, but valuation by itself is not enough to spark a recovery.

And I don't think those areas are yet fully washed out. And I don't think importantly, there are fundamental catalysts that are going to turn the stories and the fundamentals back in favor of some of those groups. So no, I would not say it's time to rotate towards software. Now, you asked tech generally, again, I think within tech, semiconductors are still probably a pretty interesting area, maybe a little stretched, but fundamentally unbelievable things are happening in semiconductor land and look no further than last night when Alphabet announced that they're going to spend 40% more on CapEx this year than anyone expected, which is 50, $60 billion of incremental spend. A lot of that's on data centers, servers, and semiconductor equipment or chips that will require semiconductor equipment. So the spend on the AI ecosystem continues at an incredible pace. That spend is largely from well-heeled, large customers that can write checks, they're not just borrowing money.

I don't think it's yet time to go contrarian and start buying the cheaper beat up software stocks yet. That moment may come, and it probably will come, and it might even be later this year, but I think February is still a bit too soon.

Jodi Phillips:

Thanks for joining us, Justin. Now we have-

Speaker 3:

I disagree.

Jodi Phillips:

All right, Brian, so what are you disagreeing with at the moment?

Brian Levitt:

I'm going to ask your permission. Can I go back 16 years on something I disagree with?

Jodi Phillips:

You've had something lingering for 16 years that you disagree with?

Brian Levitt:

Yeah, maybe. I would say not every day. It's not as if I'm perseverating over it, but yeah, I've got something 16 years later that I want to talk about.

Jodi Phillips:

I am super intrigued, so go for it.

Brian Levitt:

Yeah, don't worry, It's timely. So I want to go back to words from Kevin Warsh, who of course will be the next Fed chair if approved. So this is something he said in September 2009. If they, meaning the Federal Reserve, waited to raise rates until the economy returned to normal growth, they would almost certainly have waited too long creating an inflation problem.

Jodi Phillips:

Okay. That's an interesting quote because that does not sound like the dovish Fed chair that the administration wanted.

Brian Levitt:

No, it does not. And I could not have disagreed more with Kevin Warsh than I did in 2009. Honestly, it was baffling to me at the time, anyone who thought, including Mr. Warsh, that the US could raise rates in what was still a very over levered environment, both in the banking system and in the household sector. And there were significant deflationary forces on the economy at that time.

Jodi Phillips:

Well, considering that the Fed didn't raise rates until 2015 and there wasn't inflation, I'd suggest you were right. So what does that mean going forward now?

Brian Levitt:

Yeah, maybe it means I'll be the next Fed chair. No, that ship has sailed. I didn't get that rose.

Jodi Phillips:

I disagree, sorry.

Brian Levitt:

Yeah. So what does it mean? It's hard to say. I think you can project a bit on Warsh on what you want. He was clearly hawkish in '09, and now he seems to believe that significant productivity gains from artificial intelligence could produce growth without inflation, and that could enable the Fed to lower rates without bringing forward inflation.

Jodi Phillips:

Do you disagree with that?

Brian Levitt:

Seems reasonable. It'll be tested. It seems reasonable, but I do expect the Fed to be able to bring rates to 3%, whether that's over the next 12 months, the next 18 months, I do expect the direction to be lower, and that should be supportive of risk assets.

Jodi Phillips:

Okay. So what are your thoughts on Fed independence? I know that was one of the key risks to watch in your annual outlook.

Brian Levitt:

Yeah, it's all been fairly orderly. I mean, the dollars bounced round a little bit, had weakened a bit. US rates had been going a little bit higher, but that's unwinding a little bit in this little flight to quality. So I would categorize it as orderly inflation expectations, relatively contained. So the market does not seem overly concerned that Kevin Warsh represents the end of Fed independence. I think that that's critical.

Jodi Phillips:

Great. So now it's time to put Brian on-

Speaker 3:

The hot seat.

Jodi Phillips:

So Brian, I kind of feel like you were on the hot seat at the top of the show, but I do have more questions, so we're going to get through these as quickly as possible. First, you wrote an article about the market implications of US government shutdowns quite a while ago, but it's been live on our website ever since. Should we ever take it down or should we just keep it up forever?

Brian Levitt:

We're just keeping it up. Yeah, probably just keep it up. But the most important point of that is the markets have typically not been impacted and the last couple of times have been no different.

Jodi Phillips:

Okay. So what's going on with gold? Prices went down, they bounced back up again. What's the deal?

Brian Levitt:

I'd say a few things. I mean, the first thing was central banks were diversifying out of dollars and that was largely related to the US freezing Russian dollar reserves after they invaded Ukraine. So central bank diversification. Second, look, we talked about the Fed lowering rates. So as the Fed lowers rates towards the rate of inflation, you erode real yields. And so when your real yields go away in things like treasury bills, gold tends to look more attractive. Three, geopolitical risk. We talked about that. You started the show when I was on the hot seat, now I'm on the hotter seat, Venezuela, Iran, all of that, so the geopolitical risk and perhaps the final is the investors piling in the stuff you read on chat sites and that type of thing. I suspect that the rally in gold has gotten a bit overdone and obviously has pulled back in recent days ahead of us recording this.

Jodi Phillips:

Okay. So what's your assessment of the recent surge in Japanese government bond yields?

Brian Levitt:

Yeah, I've been getting that question a lot and whether that's the beginning of the end for countries, sovereigns being able to borrow money, no. To me, it just suggests the Bank of Japan is behind the curve with raising interest rates. I don't know if you can blame them. I mean, it's quite a sea change from the past 30, 40 years where they were desperately trying to get some inflation and nominal growth. So being a little behind the curve seems okay. Our expectation is they will raise rates. That should stabilize the yen and should stabilize bond yields there.

Jodi Phillips:

Okay. Well, now you're off the hotter seat. And before we go, I'm going to throw in a new segment, Brian. This one's called Think and Rethink. So Brian, in this segment, I want you to tell me something that many people are thinking right now, but you believe they should rethink.

Brian Levitt:

Oh, I like this. Well, when you said think, rethink, the first thing I thought of was me every August when I think the New York Giants are going to be good and I have to rethink that by the end of September. But think, rethink. I'm going to go with think. We started with this, geopolitical events have a meaningful impact on the equity market. Let's rethink that. We looked at the one-year average of the S&P 500 index following a peak in what we call the geopolitical risk index. That one-year return is 15.4% on average. So what does that mean? That means when the geopolitical risk index surges, when everybody's worried about the same thing, over the next year, the average return is 15.4% for equities.

Jodi Phillips:

All right. So before we go, Brian, where can our listeners follow you for more?

Brian Levitt:

Thanks, Jodi. Please visit investco.com/brianlevitt to read my latest commentaries. And of course, you could always follow me on LinkedIn and on X @BrianLevitt.

Jodi Phillips:

Thanks for joining. We'll see you next time.

Brian Levitt:

Thank you.

Important information

You've been listening to Invesco's Greater Possibilities podcast. The opinions expressed are those of the speakers, are based on current market conditions as of February 5, 2026, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

An investment cannot be made directly in an index.

Diversification does not guarantee a profit or eliminate the risk of loss.

The gold spot price per troy ounce peaked at $5417 on January 28, 2026, fell to $4779 on February 5, 2026, and was above $4900 during early trading on February 6, 2026, according to Bloomberg.

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We discuss the drivers and implications of the early-February market selloff with guest Justin Livengood, who believes “a broader market is a healthier market.” And Brian Levitt explains why he disagrees with a past statement from Fed Chair Nominee Kevin Warsh, and what he thinks of Warsh’s recent opinion that significant productivity gains from artificial intelligence could enable growth without inflation.

A software-driven selloff, an incoming Fed chair, and economic resilience
Discussing the future of AI with Zack Kass

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Transcript : Disclosures

Brian Levitt

I'm Brian Levitt, Invesco's chief global market strategist. Today, I am bringing you a very special episode of the Greater Possibilities podcast. It's coming to you from Invesco's Breakthrough 2025 conference, where we just had the opportunity to hear from our keynote speaker, Zack Kass. Now, Zack joins us in our podcast studio so we can share his insights with our listeners.

Who is Zack? Zack is one of the world's foremost authorities on implied artificial intelligence. He played a key role in early efforts at commercializing artificial intelligence and large language models. Most recently, he served as OpenAI's head of Go to Market. And today, his mission is to help businesses, nonprofits, and governments navigate the rapidly evolving AI environment.

Our conversation today is brought to you by Invesco QQQ. QQQ tracks the Nasdaq 100 index, which is made up of the 100 largest non-financial companies listed on the Nasdaq. That includes many of the innovative companies that are driving this AI conversation, as well as companies that are using AI in less publicized but interesting ways.

The opinions you’re going to hear in this conversation are Zack’s. And we’ve got a lot of ground to cover. So with that, let's start the conversation. Zack, thank you very much for joining us.

Zack Kass

Thanks for having me.

Brian Levitt

We're so excited to have you. I would say the biggest question that I get now from the investment community is about the hype around artificial intelligence. So I figured just a great place to start would be do you view all of this as overhyped?

Zack Kass

I think we should separate sort of what the questions you get asked versus the questions that I think about.

Brian Levitt

That’s a good point.

Zack Kass

Because I do think it's ... hype has to be framed in the context of do you think that a given investment is — and by the way, let's just define hype, right? In this case, I assume what people are asking is, is this overpriced?

Brian Levitt

Is it overpriced? Will it ever return anything? Will we ever use it to the extent that the businesses expect it to be used?

Zack Kass

Okay. That's great. So let's separate those three definitions of hype. One is, is this overpriced, such that I won't get, you know, ROI? Is this overpriced such that it actually goes to zero? And is there business value in the adoption of this? And on the first two, you are a better expert than I am. And I say this to basically anyone who studies the markets.

It's very hard for me to look at any given company and say, yeah, that company is priced well, or that company isn’t. And public markets are pretty good at pricing things, but even they make plenty of mistakes because information is imperfect.

What I think is more important and what I try to talk about is whether or not AI broadly is overhyped. And I would argue the answer is no. So if you're staring at a company, I don't know if you're staring at even an industry, I don't know. But if you're staring at the potential for this technology to radically change the human experience, then I argue it's probably under hyped still.

And the reason I think it's under hyped is because I don't think most people have fully processed what it means to have unmetered intelligence. And in the same way that describing a future of electricity to someone in 1920 who was starting to see the effects of power plants around manufacturing, around their neighborhoods, where they knew that it was coming.

Right, the combustion engine or the steam engine was giving way to something more interesting, but hadn't yet fully seen what it would do. Right. There is still a lot of gas and kerosene, and a lot of people just didn't have power or electricity. It's pretty remarkable to consider that we're probably there with AI.

I think what's most interesting is not the argument about a given company or even a given market, but the fact that we are building very smart machines that are getting exceptionally cheap to run. And if all of the GPUs, by the way, went away tomorrow, you could run GPT 4 on your CPU. We actually have enough compute on Earth to power a ton of inference already.

So if we stopped making scientific progress on the model and if we stopped building the frontier, I think GPT 5 and 5.1 could do a lot . And if we stopped building data centers, the CPU could actually be a pretty impressive inference fallback. That, to me, signals that something way more profound is happening here than whether or not, you know, ChatGPT grows to 2 billion users or 3 billion.

Brian Levitt

And it's grown its base very significantly.

Zack Kass

And I don't think it's overhyped. And this is my answer.

Brian Levitt

You know it’s funny as you talk about it, it reminds me of my first week, freshman year at the university, 1994, where I did not hand in a homework assignment. And the reason I didn't hand in a homework assignment is because it was assigned over email. And I remember being told that I needed to have an email account, but I never did it. Which tells you a little bit about my personality, but it's the same thing you're talking about with regards to electricity. I didn't realize what was coming.

Zack Kass

Yeah. And again, to me it's studying these markets is about studying the proliferation and the cost and the utilization and the commoditization of AI is not even a subsidized game. It's real. We are massively in fast compressing these models. And the implications are going to be pretty incredible.

Brian Levitt

I've already noticed a pretty significant benefit. But it doesn't necessarily change how efficient I am at my — well, it changes how efficient I am at my job. I'm not sure what else it frees me up to do. Right. So I can use these models to do research quicker. So I'm already seeing benefits from it. But those feel like small potatoes compared to what's likely coming. What are some of the things that excite you that may be coming?

Zack Kass

So on an individual basis, I think what we're seeing right now in the younger generation, I think is, is a good bellwether. Now, this is what I'm going to say is going to be viewed probably. I mean, there's somewhat of a hot take here because people stare at Gen Z in particular. Great, people stare at Gen Z in particular, and they say, well, look what's happening with a younger generation.

Look at the, you know, my theory of Idiocracy, which says that someone will eventually discover they don't need to critically think in order to survive, and they will start doing it less. And a lot of the idiocracy that we're seeing in Gen Z, because there is a declining rate of literacy and motor dysfunction actually presenting Gen Z is less likely to, ride a bike and swim.

That's scary. And I agree, it's bad. And also Gen Z is overperforming in ways that we had never seen a generation over perform. And what I basically think is happening is we're observing this new k curve, cognitive k curve, where if you want to do nothing, you can. You can do absolutely nothing and live, you can subsist.

And I don't think that's an AI feature. I actually think that's an economic feature. I think abundance allows for optionality. And we have to acknowledge that optionality means some people will abuse it. But what's really cool about watching Gen Z right now and many parents can attest to this, is the younger generations are overachieving in ways that we have not seen them before. Multidisciplinary overachievement because of technology. They're exploring business, science, arts, sports in new, incredible ways because they have access to technology you and I couldn't have fathomed. And now we are ungating for many young people, what we used to gate in the form of education and technology and classes and coaches by just saying, what do you want to learn? What do you want to be great at?

That is an incredible marker to me of what will happen on a personal achievement and over performance basis. And that alone, I think, stands as sort of a very good lens into how we are going to see AI improve people's personal capacity for achievement.

On a business basis. It's going to look a little similarly, but different. Whereas I think AI is actually going to help us drive down the cost of doing business, which creates this massive diffusion event. And what I think is going to happen is we are fast tracking towards a world where exceptionally regulated environments, where we policy things that way will maintain very expensive prices, and worlds where technology can, will actually diffuse most things.

And the last thing I think AI does in the pretty near future, I think we're going to have major scientific breakthroughs. And I, you know, people have been talking about this a while, but I think we're getting much closer than people realize to things like fusion, custom gene therapies, custom antibiotics, a lot of material and particle sciences improvements. I mean, Willow chip, quantum. I mean, my backyard in Goleta, California, quantum just got very real. And this is in large part due to improvements in our ability to do incredible testing at scale through AI.

Brian Levitt

I want to draw on that point you were making about where the younger generation is getting better at things and learning quicker. A lot of people worry about this idea of mass unemployment. I get that question all the time. What are we all going to do for a living when there's a machine that can do many of the tasks that we currently do. How do you respond to that?

Zack Kass

First, I will start by saying that this is a particularly sensitive time to even talk about it. And so for those who are affected by layoffs or for those who are worried about it, I want to acknowledge that like what I'm going to say may sound callous, but I also am trying to point at what I think are facts.

Right now there are two trends that I think are particularly scary to people. One is like this sort of like weird undercurrent in the market that suggests that AI is massively propping up the actual market, and that GDP growth sans AI is actually flat or even negative. That discretionary income and consumer confidence is waning and has been for some time.

And that amidst that, companies, big corporations who employ lots of people are starting to say things like, we're going to hire less people because of AI. And there are a lot of reasons to stare at this and be pretty unnerved. I definitely acknowledge that. Amidst that backdrop, I actually think I want to tell a story that best explains how I view this issue.

In October last year, October 1st, 2024, the dockworkers went on strike. The longshoremen. Do you remember this?

Brian Levitt

I do remember.

Zack Kass

Harold Daggett, the head of the longshoremen, instructed his dock workers to walk off the ports on October 1st and shut down shipping in and out of the United States and basically brought the economy to a halt for a day.

Brian Levitt

Not only do I remember it, I wrote a paper about it. And the day the paper was about to go out, the strike ended. So I never used it.

Zack Kass

Ah just your luck.

Brian Levitt

Just my luck. Right.

Zack Kass

I would like to read the paper by the way. I also wrote a paper about it well after the strike ended, because I became fascinated when I watched him go on CNN on the morning of October 2nd, and he very calmly pointed at the camera and the American people, and he said, you have no idea how dangerous we are. I will cripple you.

And I remember I watched the whole thing start to finish and watched it over and over. And as you recall, I'm sure, you wrote a paper. His demands were neither more money or safer working conditions, which have been the two tenants of every labor union since we organized labor. His demand was new as far as labor unions are concerned, which is a guarantee from the ports that they would not automate their jobs.

And if you recall, the picket signs read robots don't pay taxes and automation harms families. I was pretty fascinated, so I sent him an email, a very long, thoughtful one. But I went and was able to meet with a bunch of, he did not want to meet with me, but I met with a bunch of the longshoremen and the results we’re going to publish in the book.

What I discovered in the process basically changed how I viewed this issue, and how I view the automation issue. For most of the men, it was clearly not an economic issue to them. It was an emotional one. They described the job as being core to their identity. They described it as a place they wanted their children to work.

One person we talked to said they were going to continue having children until they had a son, so that their son could join the union. And what I realized in the process is one of the questions I needed to ask was, and I asked each of them, who benefits economically if we automate the ports? And all of them without fail, reflexively, said the capitalist. They've been trained basically to say the capitalist.

Brian Levitt

The capitalists, management, the shareholders.

Zack Kass

And I said, okay, who are the capitalists? Well, it's the shipping companies, you see. It's the shipping companies and the port owners. They benefit economically. I said, well, who else might benefit economically? And my argument in exploring this question with them and anyone else is that it is in fact, everyone who benefits economically if we automate the ports, including eventually, the dockworkers and their kids.

And what I realized in exploring this and many other automation issues is that we all, all of us, wander the earth, every single day asking, when is this good or service going to be better, faster, cheaper? Without realizing that what we are asking is when is a human going to be extricated from the manufacturing of this good or service?

And we don't do it because we're jerks. We do it because we are conditioned to believe the world should get better, faster, cheaper. And if it doesn't, we are aggrieved. And what we forget every day, somehow in this automation debate, is that you and I and everyone else on Earth are descendants of people whose jobs were automated to our economic benefit.

Brian Levitt

Absolutely. And we've always known that good economies evolve, right? If you're going backwards or you're not evolving from agrarian to industrial to service to knowledge base, standards of living will decline.

The one thing that I question that seems a little bit different this time is that there was always some level of retraining or reeducation for people to move into new and better and higher paying and more service knowledge oriented jobs. What happens when the service and knowledge... do we get to a point where everything has then been automated, or AI has taken on most of the tasks? Where does the demand come from in society?

Zack Kass

The book that comes out in January pays homage to John Maynard Keynes, who wrote in 1930 a paper titled The Economic Possibilities for Our Grandchildren. You may have read this. I've read this now over 100 times. I can recite it word for word, in which he said, I must now disembarrass myself to describe a future in which I will certainly not live to see, one in which we have solved the economic problem, and be faced with something more profound.

The Godfather, or the father of modern macroeconomics, was describing a world where automation would actually force us to solve a spiritual issue. And I'm not trying to be flippant. I'm not trying to be esoteric or philosophical. I do think we should be honest about the fact that if we automate most work, we're going to be faced with a different problem, and it's not going to be how do we put more and better food on the table?

It's going to be, what do we do with our time? And my point right now is I actually think that's the new issue. Now the path getting there is wonky, and it's wonky for two reasons. All jobs do not automate at the same time.

Brian Levitt

Right.

Zack Kass

And policy is going to protect a ton of jobs. So when people are like, okay, what job is going to automate first I'm like, show me the weakest union because policy and policymakers are going to protect, as the longshoremen got protection, jobs that actually serve only those who are doing the work. There are huge cartels in the United States in terms of power, very small in terms of size.

Ophthalmologists. I mean, I take aim at them constantly. The reason that it is so complex to get eyecare, and the reason that glasses and prescription glasses are so expensive is because there's a policy that way. And the automation embedded in a lot of industries that allow us to do things more inexpensively may not come.

And so what I think we have to be honest about is two things. The distribution problem that we are facing, which I think could last 20 to 30 years. I am certain that there will need to be backstopping when industries actually automate at uneven paces, and that may be UBI, it may be something else. But on the horizon very clearly is something that I think is much more interesting, which is a space in which we do different work.

I also think, God, we have to have the humility to remember that most of the work we do today, we could not have described 50 years ago.

Brian Levitt

Oh, absolutely. I mean, I remember answering questions early in my career. What are we going to do when nobody works in the manufacturing sector? If we don't build anything, what are we all going to do? And it's been very clear. I mean, we're sitting here today with a near 4% unemployment rate. Right? We've created new jobs. We've created new industry.

Brian Levitt

Standards of living improve.

Zack Kass

The Indian economic miracle which happened very quietly. India achieved food safety, you know, 10 years ago. Happened because of the proliferation of electricity and the internet, and it pulled an enormous swath of the global population out of poverty at a time where people assumed it could never happen. And I remind people that it is not necessarily government intervention that they seek. It is technological intervention, and obviously it needs to be regulated. And I'm not a AI maximalist. But I do think we need to start reframing this conversation around the challenges that humans will face, not on an economic basis, but on an emotional one.

Brian Levitt

And just to put a finer point on that, I mean, I've always loved looking at the statistics. A lot of people kind of have this idyllic view of the 1950s in this country or in this world when something like 60, 70% of the world lived in abject poverty. Today, those numbers are less than 10%. So we've seen how this works across societies.

Zack Kass

Rosy retrospection to me, is something that I actually... There are, you know, there are a lot of biases in there, 100, over 100 biases in the human brain, all of which are a genetic predisposition that you cannot do much to, to eliminate your bias. You just have to acknowledge it and see it. One of the funny things about machine bias is that I have to remind everyone, eliminating bias in the machine makes the machine inoperable. You want a machine that operates with bias. You just want to be able to explain the bias, which humans can't do. We're not very good at unpacking all of our experiences, all of our genetic predispositions that tell us why we believe a certain thing.

So we wander the earth with this tacit agreement that you have biases and I have biases, and we just don't talk about them. One of the things that really amazes me is the degree to which very smart people are willing to romanticize the past.

Brian Levitt

Romanticize the past.

Zack Kass

The rosy retrospection issue.

Brian Levitt

The only thing better about the past was I was younger.

Zack Kass

Yeah, well, by the way, there were some... I think you can argue that on some basis. There were definitely times of, you know, certainly in the recent past there were times with more international stability.

Brian Levitt

Closer community maybe people think about.

Zack Kass

Totally. But also I'm like, look, we should probably acknowledge that we didn't do things particularly well at a point in history, and that it's okay to look forward at all the other solutions to the problems that we face today, including but not limited to, device addiction, which is, I think, our sugar or our cigarettes which we will solve because we have a history of solving these problems.

Brian Levitt

I couldn't agree with that more. And speaking of which, when you talked about earlier about vaccines or the ability to get a hold of the diseases that now currently plague us, can you walk through how that may work? What is the potential of artificial intelligence?

Zack Kass

Basically any novel sciences where we are clearly rate limited by human intelligence. And unmetered intelligence presents the opportunity not to print a million more oncological researchers, of which, by the way, today there are 10,000. But to answer the question, what if 10,000 oncological researchers were 10,000 times more productive?

And the sort of un shackling of novel science, I think is really just not being priced that well today. I think for many people it's so philosophical, it's unbelievable. What we're observing is the rate at which we can make novel scientific breakthroughs is accelerating. And critically, the rate at which we can link them together.

And so in the case of, for example, like vaccine exploration is one, but in this case, the genetic therapy that cured baby K.J. in May was developed by Crispr and AI, wherein they were able to test by multiple orders of magnitude and speed, the right target and the right solution for that target. And so now what's happening is...

We're creating worlds where very rare diseases can actually be solved because you no longer need a massive sample size. You used to need massive sample size and money in order to do things. And now you're seeing these incredible progresses in very, very rare disease. I mean, I won't name a name, but a dear friend of mine is doing some incredible work to cure a disease that, in his family, a very rare disease and only 20 families in the world seem to carry.

And they're making exceptional progress because they were able to do far more with 20 scientists than they could have ever done 10 years ago with 5000.

Brian Levitt

It's so promising. It's so exciting to hear you talk about that. Is there anything within this space that concerns you?

Zack Kass

Well, sure.

Brian Levitt

Is this the Terminator?

Zack Kass

First, let's extrapolate long enough. I actually think one of the things that we should start being honest about is that we are approaching, we will approach soon a moral quandary. Like when did we start playing God? When does genetic testing and genetic therapy actually start to, you know, it's like, oh, you want your child to be taller or smarter, right? Or both. Yeah, yeah. My case, I only got one.

Brian Levitt

You're pretty tall. I don't know. So which one? Which one were you suggesting?

Zack Kass

That’s nice of you. I was referring to myself as a Neanderthal. But we are going to start to wade into some interesting territory where we have to start asking, are we doing this to improve the human experience or are we doing this for vanity?

The other issue I have is, I'm exploring this idea of automation boundary. There is this very important theory of virtuous friction, which is some things are hard and that's good. Lots of things are hard and that's bad. Walking a mile to get clean, drinking water is bad. That is vicious friction. But working really hard in college to get grades so that you can prepare to be an adult is good. And when people talk about, oh, ChatGPT and cheating, I'm like, the point is not that it's cheating. The point is that right now we have homework that doesn't comport to the current world. And so students aren't actually stretched. We're losing the virtuous friction that used to exist to prepare people for adulthood. That is one of the most immediate things that I worry about.

The Terminator, which lives on sort of another end of it, I worry less about. I spend a lot less time concerning myself with malicious or maligned superintelligence. I think it's far more theoretical and science fiction than it is anything else. But if I had to rank order my deepest concerns. One is Idiocracy, which we talked about a percentage of the population deciding they don't have to critically think so they don't do it.

One is dehumanization. A percentage of the population finding more interest in a virtual or digital reality than a physical one. To be honest, those are recessive traits. Those people don't procreate. It may in fact happen, but I do think we've known for a while that our happiness function is time with friends and family and physical community, and we will continue to pursue it.

I think we solve it. The third is identity displacement. We talked about that and the fourth is bad acting. And what I don't think we appreciate just yet is that while cancer research is going to accelerate, so too will low resource bad acting. And for every individual trying to do something amazing with AI, an individual is going to try to do something bad.

And the good news is we know how to solve for this. I actually, what I remind everyone is the world was so scary when we started moving things across the West. The reason that we introduced capital punishment during the Wild West is because it was the only way that we could effectively scare robbers and barons from actually not raiding all the covered wagons.

And it turns out if you raise the cost of doing a bad thing to a high enough point, then you can actually limit the behavior. We're going to have to artificially do that, because the actual cost of doing bad things is coming down.

Brian Levitt

If history tells us anything, it reminds us that any problem you identify in the current moment, there's always a solution that is not identifiable to you at the current moment. Seems like that's exactly what you're suggesting.

Zack Kass

Yeah, except maybe the meaning of life.

Brian Levitt

Well, that's a whole deeper conversation.

Zack Kass

Death and taxes I suppose.

Brian Levitt

Death and taxes. Well, it sounds like we may be living longer, but that's also another conversation for another day. I want to conclude by asking you, what do you think that businesses right now are getting right or wrong with regards to artificial intelligence?

I see statistics that say that many businesses are deploying it, but they're not exactly sure how to be deploying it. And there's this 95% number that's hanging out there that 95% of businesses report that they're not necessarily sure they're getting any benefit from it. To me, that seems incredibly high and it seems almost impossible to believe, just given even the smaller tasks right now that I can ask artificial intelligence to accomplish. So how do you respond to that? And what do you tell business leaders?

Zack Kass

So the MIT report actually found that 95% of pilots fail. So it's not that 95% of businesses don't see success with AI. It's that 95% of pilots inside of businesses fail.

Brian Levitt

Okay.

Zack Kass

And on an adjusted basis, it basically came out to about half of businesses were seeing success with AI on some basis, but that a lot of their pilots were failing.

Brian Levitt

Pilots being their workers.

Zack Kass

Sorry. Pilots being their attempts to solve problems with AI.

Brian Levitt

Oh, okay. So I'm not a pilot. There's a group that has a pilot going on.

Zack Kass

That's right. A pilot in this case would be a test. Invesco tries to do a thing with AI and it doesn't work.

Brian Levitt

Okay.

Zack Kass

Now my response to this is pretty simple. My issue with this study, this MIT study, is that it failed to do two things. It failed to actually describe the cost of these pilots, and it failed to describe the value of the successes. And that makes it a pretty inconclusive and incomplete study that basically is meant to capture headlines, which it did very well.

My argument is for a long time, software was very expensive to deploy, it was expensive to buy, was expensive to deploy, and a 5% success rate in software would have been very bad. I'm not sure that's actually still true, and I don't know how pilots are defined in this case, but I actually think that a 95% failure rate might be perfectly tenable in a world where the 5% success rate is providing incredible lift to the business, and the 95% failure rate is actually not really costing much.

And that's sort of my response to this, which is unless you can define what the value of this is, it's pretty tough. At the same time, Wharton released a study that said, actually, 75% of companies are seeing high ROI from their AI efforts, which sort of speaks to this issue. And I do think it is a who knows right now.

But I will argue this. Most companies are getting right the sort of new sense of urgency, and most companies are getting wrong this frenetic attempt to buy every tool. There is this mad dash to buy lots of software right now. I think the software is going to end up being fairly either obsolete or, misplaced inside of an organization.

And I think what we're going to see is this sort of consolidation event in SAS and AI, in AI products, once companies realize that they can do a whole lot more with a lot less. The other thing I would say is leaders need to be way, way more clear about setting a vision. Too many companies right now are like, look, we're just going to cut cost.

And I'm like, yeah, to what end? What are you actually trying to accomplish here? One, your employees need it. Two, your vendors need it, but three, your actual company needs to know what it's trying to do with AI if you’re actually going to have any success. And what I argue if you're unsure what you should do, the easiest place to start is describe a world where your customers have more access to more of your goods and services. Describe simply a higher access environment through whatever means you want.

Expanding your TAM, lowering the cost of the service, improving the actual service itself. But start with saying we want more people to have access to our products and services. What plays out is actually pretty impressive.

Brian Levitt

And the negativity around it reminds me of some of these terrible calls in history where, you know, with the Beatles, nobody wants to hear guitar rock anymore. With the advent of the internet, it's a flash in the pan. The iPhone wasn't going to sell well. So yeah, I always try to remind people when they're overly negative about something that seems pretty revolutionary to be mindful to put their negativity in place.

I really appreciate the positivity you bring. I really appreciate the excitement that you bring around this. I want to thank you very much for joining us on the Greater Possibilities podcast. You know, look forward to future conversations.

Zack Kass

Likewise. Thanks so much for having me.

Brian Levitt

That brings us to the end of this episode. Thanks to Zack Kass for joining us for this very special episode of Greater Possibilities, brought to you by Invesco QQQ.

Important information

You've been listening to Invesco's Greater Possibilities podcast. The opinions expressed are those of the speakers, are based on current market conditions as of November 12, 2025, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund’s return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.

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The Nasdaq-100® Index comprises the 100 largest non-financial companies traded on the Nasdaq. An investor cannot invest directly in an index.

Artificial intelligence, or AI, technology companies are sensitive to specific risks such as small markets, business cycle changes, economic growth, technological progress, obsolescence, and regulation. These companies may have limited products, markets, resources, or personnel, making their securities more volatile, especially for smaller start-ups. Rapid technological changes can adversely affect their results. AI companies often rely on patents, copyrights, trademarks, and trade secrets to protect their technology, but there is no guarantee these protections will be sufficient. Significant R&D spending does not ensure product or service success.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified time period.

A Pew Research study from 2020 showed that Gen Z is on track to be the best-educated generation yet, as they are less likely to drop out of high school and more likely to be enrolled in college than the generations before them.

More than 100 different identifiable biases have been reported in health care, according to a 2021 paper published by the National Library of Medicine.

The Alliance for Clinical Trials in Oncology comprises nearly 10,000 cancer specialists at hospitals, medical centers, and community clinics across the United States and Canada.

“Baby KJ” is a child who was diagnosed with a rare genetic disorder and was successfully treated with a customized CRISPR gene editing therapy in 2025. The case was detailed in a study published by The New England Journal of Medicine.

Discussion about the MIT AI study and the success rate of AI pilot projects refer to “The GenAI Divide: State of AI in Business 2025,” published in July 2025.

Discussions about the Wharton study refer to “Accountable Acceleration: Gen AI Fast-Tracks Into the Enterprise” published in October 2025.

Data on the percentage of the world in abject poverty sourced from the World Bank as of 2024.

The US unemployment rate in November was 4.6% according to the US Bureau of Labor Statistics.

Return on Investment, or ROI, measures the profitability of an investment relative to the money put in.

GPU stands for graphics processing unit.

GPT-4, 5, and 5.1 are versions of the artificial intelligence chatbot Chat-GPT

A K-curve describes an uneven trend in which different groups experience widely different outcomes.

The Willow chip is a quantum chip developed by Google. Quantum computing is an advanced computing method using quantum mechanics to solve complex problems.

UBI stands for Universal Basic Income, a government program that would provide regular payments to everyone, regardless of income or work status.

SAS is data and artificial intelligence software developed by SAS Institute.

TAM stands for total addressable market.

Invesco is not affiliated with Zack Kass or OpenAI.

The Greater Possibilities Podcast is brought to you by Invesco Distributors, Inc.

In this special episode, we welcome Zack Kass, one of the world’s leading artificial intelligence (AI) futurists, to discuss hype, hope, and the human experience in the age of AI.

Discussing the future of AI with Zack Kass
Santa rallies, recovery regimes, and a K-pop economy

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Transcript : Disclosures

Brian Levitt:

Welcome to Invesco's Greater Possibilities podcast. I am Brian Levitt and with me as always is my co-host, Jodi Phillips. Hey, Jodi.

Jodi Phillips:

Hey, Brian. So coming up in a bit, we're going to have a conversation with Alessio de Longis from our Investment Solutions team. He's here to talk about a notable change in his tactical indicator.

Brian Levitt:

Yeah, always good to have Alessio on. As they sort of say on AM radio, I'm a longtime caller, longtime listener of Alessio, so happy to have him on.

Jodi Phillips:

AM radio? I thought you said you were trying to attract younger audience members.

Brian Levitt:

Well, that's a good point. So my attempt at the younger audience, well, I did some six, seven stuff in my Above the Noise. I also asked you personally if we could call the 2026 Outlook K-Pop.

Jodi Phillips:

Yeah.

Brian Levitt:

You didn't like it. Something about search engine optimization.

Jodi Phillips:

No, no. Let me be clear. I liked it. I thought the nod to the K-shaped economy was actually really creative. I was more afraid to use the word pop when there's so much debate right now about an AI bubble.

Brian Levitt:

Yeah.

Jodi Phillips:

Thought that might-

Brian Levitt:

No, I know.

Jodi Phillips:

... indicate a message.

Brian Levitt:

Yeah, I agree. I was worried about that too. I was maybe thinking pop higher, but as the politicians say, once you're explaining, I think you're losing.

Jodi Phillips:

That is very true. I think you have a limited amount of time to get your message across, so we went with Resilience and Rebalancing.

Brian Levitt:

Yeah. Not as catchy as K-pop. Resilience and Rebalancing.

Jodi Phillips:

It's not. It's not as catchy. I'll admit that. But at least it's immediately clear that you're optimistic about the state of the economy heading into the new year. So mission accomplished. Speaking of which, let's turn to our first topic.

Narrator:

Trending conversations.

Jodi Phillips:

Brian, what's on everyone's mind?

Brian Levitt:

Yeah, it is the 2026 outlook. It's interesting when calendars change how people want to hear your views more than they wanted to a few weeks prior to that. But also speaking of calendars, the so called Santa Claus rally is also being asked. It's on people's mind.

Jodi Phillips:

Good. All right. Well, let's start with the Santa rally. So just to clarify, does that mean the time period between Thanksgiving and Christmas?

Brian Levitt:

I actually had to look that up too. No. Thank God for artificial intelligence. I could ask that question. What do people mean when they ask me about a Santa rally? It's actually the last five trading days of December, the first two trading days of January. So we're getting really, really short-term focused here when talking about a Santa rally. Thing about Santa rallies, markets are positive 75% over those seven days historically.

Jodi Phillips:

Okay. So some context. Is that good? 75% of the time?

Brian Levitt:

I don't think so. It doesn't seem all that interesting to me. The S&P 500 index typically goes up more than it has gone down. If you look over any rolling one-year period back to 1957, it's also about 75% positive. So I don't know if it matters all that much.

Jodi Phillips:

Okay. Well, does Santa at least bring better returns?

Brian Levitt:

Yeah, I think that's what people think about. Historically, the markets on average are positive by over 1% during those seven days versus 0.2% over any other seven-day period. I could already hear the compliance department asking for all this data. Yeah-

Jodi Phillips:

Stay tuned to the end of the show to hear it all.

Brian Levitt:

Yeah, exactly. But yeah, I'm not all that intrigued by this. I'm not going to spend a lot of time on it.

Jodi Phillips:

It's an awful lot of attention for a seven-day period, but glad we got it cleared up.

Brian Levitt:

Yeah, that's what's trending.

Jodi Phillips:

All right. So beyond that, what are you thinking about for 2026?

Brian Levitt:

We think the business cycle's intact. We think the market advance is likely to continue.

Jodi Phillips:

Cool. All right. There it is.

Brian Levitt:

That's it. 2026 outlook, we did it.

Jodi Phillips:

We spent a lot more time on seven days than we did on an entire year.

Brian Levitt:

No, we're done. No, you know the challenge, Jodi, and I'm curious your thoughts on it. I always fear that people will think I'm not being serious enough if the outlook is positive. I think that people are waiting for the big negative outlook to come out.

Jodi Phillips:

We only take negative, that's sad, we only take negativity seriously. But look, as you just said, markets are up more often than down. So there would have to be something pretty ominous on the horizon for your whole annual outlook to turn negative, wouldn't there?

Brian Levitt:

Yeah, correct. And we've said a lot on this show that we monitor end of cycle indicators pretty closely. You would usually see monetary policy tightening. Does not seem to be in the cards this year. Credit spreads blowing out, not happening. Bankers tightening lending standards. None of that's happening. And in fact, and you'll hear some of this from Alessio, we believe that the world is recovering from what we have categorized as a mid-cycle slowdown.

Jodi Phillips:

And what's driving that?

Brian Levitt:

Yeah, I would say monetary policy support in the US. So watch the Fed (Federal Reserve). You already have lower rates in the European Union plus fiscal policy support, defense spending in Germany, fiscal support in China and Japan. So I don't think being on the wrong side of the policymakers is a wonderfully comfortable place to be.

Jodi Phillips:

All right. Well, I don't want to put a dent into the optimism too much, but you haven't mentioned valuations yet.

Brian Levitt:

Yeah. Valuations are an inconvenient truth to an extent, to borrow a phrase from a former vice president who became a filmmaker. The reality though is valuations are not timing tools. So the challenge for investors is that conditions can last that way for a while. And you could potentially miss out on the ability to compound returns in the middle to later stages of a cycle if you choose to sit it out. So I think it's going to last that way until major central banks tighten policy, the major economies roll over, and that not our view.

Jodi Phillips:

Great. Well, let's go to our next topic.

Narrator:

Phone a friend.

Jodi Phillips:

So we caught up with Alessio de Longis for a conversation on market leadership. We asked him how he would characterize the direction of the global economy, and here's what he had to say.

Alessio de Longis:

We have just entered what I believe is a recovery regime, meaning growth remains low, possibly below trend around the world and even in the United States, but growth expectations are improving. This is important because we just came from a period of over 12 months where growth expectations were constantly being revised down. Now the market has done very well, but as we have seen, that was not related to job growth or GDP growth. The labor market has weakened substantially. Seeing now this possibility of improving growth expectations and hopefully a bottoming out in the economy can really help elongate this cycle. This is not the beginning of a new cycle, that's very clear, but rather the market is, and market participants are betting that the Fed may actually be able with a few more interest rate cuts to engineer a soft lending in the economy and continue the current cycle.

Jodi Phillips:

We asked him what parts of the market have tended to perform best in the recovery stage of the cycle, and here's his insights.

Alessio de Longis:

We believe this type of environment is particularly attractive for risk assets without obviously extending yourself too much, because valuations are expensive in most parts of markets. In equities, I think this is an environment to be overweight equities over fixed income, but crucially at this time in the cycle, given where valuations are, we favor value, small and midcaps, where valuations are less than half of the valuations that we see in gross stocks that have been led by momentum and the artificial intelligence theme. International markets are also quite attractive.

Jodi Phillips:

Thank you, Alessio, for joining us. And we're going to move on to our next topic.

Narrator:

I disagree.

Jodi Phillips:

All right, Brian, who do you disagree with this time?

Brian Levitt:

Do you remember Michael Burry? Big Short fame.

Jodi Phillips:

I do.

Brian Levitt:

Yeah. You know where this is probably going, right?

Jodi Phillips:

I do. I do. What did he say?

Brian Levitt:

He said the only winning move is not to play.

Jodi Phillips:

Well, given his call on the US housing market in 2008, I almost said 2028, but no, 2008.

Brian Levitt:

That hasn't happened yet.

Jodi Phillips:

Yeah.

Brian Levitt:

Are we having a housing bubble in 2028? No.

Jodi Phillips:

Well, based on what he said back then, investors certainly pay attention now whenever he speaks.

Brian Levitt:

Yeah. I was actually reading something from Jonathan Levin at Bloomberg. He said, "We're obsessed with contrarian investors who make concentrated hero bets on macro outcomes." I'm thinking maybe every day, you and I work together on my LinkedIn profile. Maybe every day we just put out some really, really bearish comment. When it doesn't happen, delete it. If it does happen, we become heroes.

Jodi Phillips:

All right. So we're going to go from K-Pop to Bear of the Day, so we're really switching-

Brian Levitt:

I can't do it. It's not in me.

Jodi Phillips:

Yeah. But back to Michael's comments, I mean, it's not that easy for us to just not play. I mean, we're trying to send our kids to college and retire one day. So I mean, even if he were right, we would have to know, well, when do you get out and where do you go and when do you get back in? And that's never easy.

Brian Levitt:

Yeah, it's never easy. And look, I remember, not to pick on Burry, but that was a great call in '08. But I remember Burry saying in 2022 that the market bottom wasn't near, and it was. I remember him telling investors to sell in 2023. And look, that's not to throw shade. It's just to try and put a high profile call into perspective. You like that, Jodi, throw shade? I'm trying to attract younger viewers.

Jodi Phillips:

His call was predicated on markets being detached from fundamentals. So are you going to throw shade on that?

Brian Levitt:

Well, look, we said valuations, not timing tools. Also, just a couple of other points that could help ease some of the AI bubble, late 1990s fear. Valuations are elevated. If you look at the NASDAQ 100, they're roughly half of 1999 levels. The other thing, people are talking about this over-investment to suggest that we're getting into troublesome areas. If you look at tech sector CapEx, capital expenditures as a share of free cashflow, so it's important to put it into perspective, get a denominator, it's currently 38%, so expenditures to cashflow, 38%, that's in line with the 35-year average. That's also a stark contrast to the late 1990s when many of the companies struggle to finance growth sustainably.

Jodi Phillips:

All right, Brian, I was with you until about the point where you started talking about denominators. So break it down for me. What's the message to investors?

Brian Levitt:

You got it right. I mean, Burry may choose to sit it out, but many of us have to play for all the long-term things that we're seeking to accomplish. And to me, discipline, participation, not avoidance is how long-term goals are achieved.

Jodi Phillips:

Okay. So let's conclude our podcast today by putting Brian on...

Narrator:

The hot seat.

Jodi Phillips:

All right, Brian, here's some quick questions for you. Government shutdown. Remember that?

Brian Levitt:

I do.

Jodi Phillips:

Yeah. One of the after effects, of course, was that the government has been slow to release data. So how does that affect what you do when assessing the state of the economy?

Brian Levitt:

Yeah, we're just driving through thick fog right now, Jodi. No, we're adjusting our line of vision through the fog And the fog is starting to clear. But for the labor market, look at private sector data, ADP, national employment report. It's slowed to a six-month average of about 20,000 private sector jobs, which is quite weak. Consumer tracking credit cards, spending data, listening to the earnings releases of the credit card companies shows resilience, inflation, focus on the bond market. What are the inflation expectations telling us? They continue to come down actually. So that's a few. I don't feel as if we haven't been able to assess the state of the economy. And I'm thrilled that the government is back open again, at least for now.

Jodi Phillips:

All right. So next question. We talked about your outlook. What's the biggest risk to your views?

Brian Levitt:

Yeah, so I would say from a macro perspective, it would be if we're wrong about inflation and inflation expectations rise above the Fed's comfort zone. If the Fed has to not only not lower rates, but have to even raise rates, that's a very different outlook. That's a risk to it. The other one would be related to AI. On two sides of it, one is AI can just go gangbusters and this whole idea of rebalancing away from mega cap growth wouldn't necessarily be the best view. The other one would be if AI just doesn't live up to the expectations. Now, in that environment, I'd be happy to have rebalanced, but it would be a drag on a large part of the economy. So our focus base case, improving environment, broaden out.

Jodi Phillips:

Okay. So final question. Will the midterm elections in 2026 play a role in how you're thinking about markets?

Brian Levitt:

Oh, you know me better than that, Jodi. Unlikely. I think the most reasonable expectation as we sit here right now is a divided government, not much done. Most investors will remind me or tell me that markets seem to like divided government.

Jodi Phillips:

Very good. You're off the hot seat. But before we go, Brian, where can our listeners follow you for more?

Brian Levitt:

Yeah, thanks, Jodi. Visit me or visit us at invesco.com/brianlevitt to read my latest commentaries. Of course, you can follow me on LinkedIn and on X @BrianLevitt, and please tell your friends about the Greater Possibilities Podcast.

Jodi Phillips:

Thanks for joining. See you next time.

Narrator

You've been listening to Invesco's Greater Possibilities podcast. The opinions expressed are those of the speakers, are based on current market conditions as of December 4, 2025, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

Statements on the frequency and magnitude of market increases during the Santa rally timeframe, any other 7-day period, and a full year sourced from Bloomberg, based on the returns of the S&P 500 Index from 1957 to 2024. The Santa rally time frame includes the last five days of the year and first two days of the new year. All other 7-day periods based on rolling 7-day returns. Full year time frame based on rolling monthly one-year returns.

Statements on job increases sourced from the US Bureau of Labor Statistics, as of November 2025. Based on US nonfarm payrolls.

Statements that valuations are expensive in most parts of markets sourced from Bloomberg as of Nov. 30, 2025. Based on the price-to-earnings ratio of the S&P 500 Index (27.1x) and the option-adjusted spread of the Bloomberg US Corporate Bond Index (80 basis points).

The price-to-earnings (P/E) ratio measures a stock’s valuation by dividing its share price by its earnings per share.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

A basis point is one-hundredth of a percentage point.

Statements that credit spreads are tight sourced from Bloomberg as of Nov. 30, 2025. Based on the option-adjusted spread of the Bloomberg US Corporate Bond Index (80 basis points).

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

Statements that valuations for value, small-caps, and mid-caps are less than half of the valuations for the broad market sourced from Bloomberg as of Nov. 30, 2025. Based on a comparison of the price-to-earnings ratio of the S&P 500 Value Index (21.5x), S&P SmallCap 600Index (20.9x), and S&P MidCap 400 Index (20.5x) compared to that of the S&P 500 Index (27.1x) and the Nasdaq 100 Index (37.9x).

The S&P 500® Value Index consists of stocks in the S&P 500® Index that exhibit strong value characteristics based on three measures: Book value-to-price, earnings-to-price, and sales-to-price.

The S&P SmallCap 600® Index is a market-value-weighted index that consists of 600 small-cap US stocks chosen for market size, liquidity, and industry group representation.

The S&P MidCap 400® Index is an unmanaged index considered representative of mid-sized US companies.

The Nasdaq-100 Index includes 100 of the largest domestic and international non-financial securities listed on the Nasdaq Stock Market based on market capitalization. An investment cannot be made into an index.

Statements that the valuation of the Nasdaq 100 Index today is roughly half of 1999 levels sourced from Bloomberg. Based on the index valuation as of Nov. 30, 2025 (37.9x) compared to Dec. 31, 1999 (90.4x).

Statements about the capital expenditures of the tech sector compared to free cash flow sourced from Bloomberg, Datastream, and Invesco calculations, Oct. 31, 2025.

Statements about growth expectations improving sourced from Bloomberg, MSCI, FTSE, Barclays, J.P. Morgan, and Invesco Solutions research and calculations, from Sept. 1, 1992–to Nov. 30, 2025. The Global Leading Economic Indicator (LEI) is a proprietary, forward-looking measure of the growth level in the economy.

Statements about market participants expecting a soft landing sourced from Bloomberg, as of Dec. 11, 2025. Based on Fed Funds implied rates, which are market-derived estimates of future Fed Funds rates. The Fed Funds rate is the rate at which banks lend balances to each other overnight.

Statements that inflation is contained and growth is not strong enough to support an acceleration sourced from Bloomberg as of Nov. 30, 2025. Based on the breakeven inflation rate, which is a market-derived estimate of future inflation, calculated by comparing the yield on a standard government bond to the yield on a Treasury inflation-protected security of the same maturity.

Private-sector jobs sourced from Automatic Data Processing as of November 2025.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers.

Fixed income investments are subject to the credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified time period.

A risk asset is generally described as any financial security or instrument that carries risk and is likely to fluctuate in price.

A K-shaped economy refers to one in which wealthy households are thriving and lower-income households are struggling.

The Greater Possibilities Podcast is brought to you by Invesco Distributors, Inc.

It’s the most wonderful time of the year, when asset managers release their prognostications for the next 12 months, and investors hope that a Santa rally delivers a late-December boost to their portfolios. In our last episode of 2025, Brian Levitt explains why he wanted to name Invesco’s 2026 outlook “K-Pop,” but decided on “Resilience and Rebalancing” instead.

Santa rallies, recovery regimes, and a K-pop economy
The AI “bubble,” commercial real estate, and extraordinary monetary policy

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Transcript : Disclosures

Brian Levitt:

Welcome to Invesco's Greater Possibilities podcast. I'm Brian Levitt, and with me as always is Jodi Phillips. Hey, Jodi.

Jodi Phillips:

Hey, Brian. So coming up in a bit will be a conversation with Charlie Rose and Chase Bolding of Invesco Real Estate. So Brian, we know that you personally judge the strength of the office market by how long it takes you to get into the office on your commute, but the conversation with Charlie and Chase was a bit more detailed than that.

Brian Levitt:

Yeah, it was. So a hopefully deeper analysis than that. I also suspect it probably wasn't just about the office market-

Jodi Phillips:

Nope. No, it was not.

Brian Levitt:

... for commercial real estate, but I will tell you, not that you care, but it's not getting any quicker. I think either everyone in New Jersey received the back to work edict or they've all just been deemed essential by the federal government during the shutdown.

Jodi Phillips:

And there's our first government shutdown reference for today. You'll remember the last episode, we were kind of wary about discussing it at all. We thought it might be over before the episode even posted. I mean, these things are often quite short, but as we record this, it's still going. It is now the third longest in history as we record this.

Brian Levitt:

Setting some records. Yeah, I don't know if we thought or we hoped, but honestly you wouldn't really know it by observing the market. The market's been volatile in certain instances for a variety of different reasons, but I would say over the length of this shutdown, for the most part, US stocks and US Treasuries have generally been rallying together.

Jodi Phillips:

So I mean, are investors starting to get worried that that type of advance is a little nonsensical at this point with everything going on?

Brian Levitt:

Yeah, I mean they might be, but sometimes it's a good thing if people think it's nonsensical. But that doesn't necessarily mean that it is nonsensical just because people believe it.

Jodi Phillips:

Fair enough. Okay, so give us the facts. Why do you say that it's not?

Brian Levitt:

I mean for the most part, growth has been pretty good. It may be driven by AI investment more than traditional economic things, but growth is good. Earnings have been strong, decent start to the quarter. Inflation expectations are contained. You know that's a big one for me. Yields are low. They're not exactly prohibitive. Oil prices have fallen. That's usually pretty good for the consumer. Fed is planning to cut interest rates more. What's there not to like? That all seems like a pretty good background for a market advance.

Jodi Phillips:

Yeah, notwithstanding government shutdowns and tariffs.

Brian Levitt:

Yeah. Now we could add notwithstanding tariffs and government shutdowns and a couple of little blowups in the credit market that I would categorize as being more idiosyncratic to those businesses than anything that looks like it's going to be significant challenges for the broad markets.

Jodi Phillips:

All right. Well, that brings us to our first topic.

Audio:

Trending Conversations.

Jodi Phillips:

So Brian, what's on everyone's mind right now?

Brian Levitt:

I think it's probably the AI bubble.

Jodi Phillips:

Is AI in a bubble?

Brian Levitt:

I would say no. I was just answering what's on everybody's minds. Look, there's some echoes to past bubbles. I would point to the circular nature of some of these deals that are happening. For example, I'll commit to buying your semiconductor chips and you commit to investing in my business. So the echoes are suppliers, investors, customers becoming intertwined. We saw a little bit of that in the late-1990s.

Jodi Phillips:

Well, sure. Then if one of those parties gets into trouble, then it cascades to all the rest.

Brian Levitt:

And I would say that that's the concern maybe with companies such as OpenAI. A company like OpenAI has big commitments to buy semiconductors over the next years. And so that's not the type of company that's generating the cash flow to do so. They're relying on funding in the capital market. I suppose there's a risk if a company like that runs into challenges.

Jodi Phillips:

Of course that situation works unless funding dries up, if it ever does.

Brian Levitt:

Right, correct, and there's no guarantee that it will. Right now, there doesn't seem to be signs of stress in the capital markets related to AI funding.

Jodi Phillips:

Sure. But that is a risk to watch out for. And you said this situation has, how'd you put it? Echoes, echoes of past bubbles, but you're saying it's not a bubble right now?

Brian Levitt:

No, I don't view it as a bubble. If you use 1999 as an example, one of the things that was happening in the late-1990s was the laying of fiber as part of the internet build-out. Most of that would go unused for years. And today's just the opposite. The demand for computing power and semiconductor chips is almost insatiable at this point. So you build it and it's used.

Jodi Phillips:

So the demand's coming before the supply. It's nice to see.

Brian Levitt:

Yeah, that's nice. And we also started with OpenAI to discuss the risks, but if you think of most of the big companies investing in this, the companies that believe that they have to, names that everybody's familiar with, Microsoft, Meta, Google, these are well-capitalized, well-funded companies that generate significant cash flow.

Jodi Phillips:

Well, sure. I mean they certainly have the money to invest, but what about the valuations?

Brian Levitt:

All right, I'll give you an example. So let's think about a company like Cisco, which was a bellwether darling in the late in-1990s. You saw a significant break between the price and earnings of Cisco. At one point, Cisco was trading at roughly 80 times earnings. Now if you take a company like NVIDIA, which is a current bellwether, they're trading at 23 times forward earnings. So it's not even in the same vicinity. So are there some places of froth? Sure. Do we have to worry about businesses that are accessing capital markets to fund their spending? Sure. But I don't think this is anywhere near the exuberance that we saw in the late '90s or yet a bubble. Maybe we'll get there, but that's not what it looks like today.

Jodi Phillips:

Okay. So risks to monitor, but maybe some of the worst concerns, the bubble talk is just a touch overblown at this point.

Brian Levitt:

Yeah, let's go to the champagne bubbles. That sounds better.

Jodi Phillips:

It certainly does. Well, instead we're going to be going to our next segment, which is-

Audio:

I Disagree.

Jodi Phillips:

So we're going to find something that Brian read recently and disagrees with. So what is it this time?

Brian Levitt:

All right, this time I'm going to go with Treasury Secretary Scott Bessent.

Jodi Phillips:

Okay. Well, that's interesting. I thought you would be happy with Bessent. He's been calling for a truce between the US and China. US won't increase tariffs if China doesn't restrict access to the rare earth minerals. So maybe a bit of a surprising one.

Brian Levitt:

Yeah, I'm happy with that. Just because I read something that I disagree with Scott Bessent, doesn't mean that I disagree with everything he does. We're apolitical on this, right, Jodi?

Jodi Phillips:

Well, that is a refreshingly reasonable sentiment. You disagree with one thing, doesn't mean you disagree ... Love it. All right, so what is the very specific comment that you disagree with right now?

Brian Levitt:

Here on this podcast, we try to hold multiple thoughts in our heads at the same time, right? Okay, so what I had read from Bessent, it was an op-ed that he had written, and it's a little bit long, but I'm going to read it.

"As we saw during the COVID pandemic, lab-created experiments can wreak havoc when they escape their confines. Once released, they can't easily be put back." So what's he referring to here? "The extraordinary monetary policy tools unleashed after the 2008 financial crisis have similarly transformed the Federal Reserve's policy regime with unpredictable consequences." So he's comparing the pandemic to the Fed's response to the global financial crisis.

Jodi Phillips:

That is a lot to unpack there. There's a very interesting analogy. Okay, walk me through where the disagreement is.

Brian Levitt:

Well, I was there in '08. You were there in '08, right, Jodi?

Jodi Phillips:

Yes. Yes I was.

Brian Levitt:

Do people forget that we were staring at a deflationary abyss?

Jodi Phillips:

It felt more like a depression that we were potentially staring at, for sure.

Brian Levitt:

Yeah. And so you think back, I mean remember fiscal support was scarce. That made monetary policy really the only game in town at that time. And even for nearly a decade afterwards, which I also remember, the Fed really struggled to get inflation even back to 2% or back into their comfort zone.

Jodi Phillips:

Yeah, no, we all remember the low growth, low inflation world that followed the financial crisis.

Brian Levitt:

Right. And I was also there in 2020 during the pandemic. You were too. I think we were probably FaceTiming each other or teams or whatever we were doing.

Jodi Phillips:

There was a little bit to talk about back then, yes.

Brian Levitt:

And we were facing the second deflationary spiral of my adult life. And again, the Fed responded very forcefully, and I would say thankfully at the time. Now in that instance, unlike in 2008's aftermath, inflation did emerge. But I would argue that a lot of that had to do with fiscal spending and supply chain disruptions. I don't know that we pin that all on the US Federal Reserve.

Jodi Phillips:

Well, that's been quite the trip down memory lane, that 12 years from the financial crisis to the pandemic. That was unprecedented times.

Brian Levitt:

And so if you look back, so where all these years later we've come through it, inflation expectations are contained. Three year inflation breaks even at two and a half or even lower. We have a low 4% unemployment rate. And I would say that's really no small feat given the magnitude of those two deflationary shocks that we lived through.

Jodi Phillips:

Okay. Well, that sounds like a win to me and clearly you're in no mood to bash the policies of former Fed chair Ben Bernanke or his successors.

Brian Levitt:

No, I am not. If anything, I'd like to thank Ben Bernanke. I feel like the nation owes a lot to the response that we had in '08. I'd maybe even support building a monument for him on the National Mall.

Jodi Phillips:

Well, and maybe if Bessent solves the US-China trade war, he can be up for one too.

Brian Levitt:

Yeah.

Jodi Phillips:

We'll see how that works out.

Brian Levitt:

See? Two ideas in our heads at the same time. I like it.

Jodi Phillips:

And now we're going to move on to-

Audio:

Phone a Friend.

Jodi Phillips:

So we talked to two friends this time, Brian. We had Chase Bolding, who's the Head of North America for Invesco Real Estate on the equity side, and Charlie Rose, Global Head of Real Estate Credit. So we covered both equities and credit side of commercial real estate. First we talked to Chase about what he believes is driving individual investors' interest in commercial real estate and private markets more broadly. Here's what he had to say.

Chase Bolding:

I think the short answer here is that for private investors, we see commercial real estate playing a much larger role in individual portfolios, and you can expand that to the private markets in general. The asset class offers something different. And maybe we'll get to this, but we think the timing for individual investors to start increasing that allocation is really good from a cycle standpoint.

Jodi Phillips:

Then we talked in more detail about what’s different about this asset class. And so here's Charlie with the details.

Charlie Rose:

Real estate behaves differently than many other asset classes for a variety of reasons. From one, there remains a lot of information asymmetry in real estate, in a way that, is different from other asset classes.

The old adage of real estate being location, location, location, is very true. But on top of that, it's also building attributes that can make a significant difference in returns. Accordingly, those managers who have deep proprietary data sets and broad expertise in sticks and bricks real estate investing can drive sustainable alpha.

I think a great case study is what we've experienced over the last couple of years, and which is driving today, as a particularly attractive entry point to both real estate debt and equity. Real estate has just gone through a recession with real estate values falling from peak to trough 22% before starting to recover over the last, several quarters.

That is positioning real estate at the start of its next cycle at the same time that several other industries and asset classes are perhaps in later cycle dynamics. So we see the entry point today being particularly attractive.

Jodi Phillips:

Next, Chase told us that for real estate equities, he's more optimistic than he's been in three years and here's why.

Chase Bolding:

On the equity side, we're more optimistic today than we've been in three years. Values have found a support level. You can see that across private market indices over the last three to four quarters. That's after a material correction in values that started about three years ago with the Fed hiking rates in its battle against inflation. So it's been a long and pretty sharp correction. You have to go back to the Great Financial Crisis to find something remotely like this. And so after a very long period of time, we do see values having found some kind of a support level.

At the same time, the fundamentals are mostly healthy, so demand is strong across most of the sectors where we're investing. I think almost all sectors, maybe with the exception of traditional office buildings, have higher occupancy rates today than they did in 2019 before the pandemic. And across all sectors, I believe maybe with the exception of data centers, and that's a more specific trend with AI, supply is declining rapidly, trending back below long-term averages. So healthy demand, rapidly declining supply, that's good for underlying cash flows.

And then from a more macro standpoint, which does matter, look, there's plenty to be distracted by, but inflation is substantially lower. Could it be a little higher than people want or a little stickier? Sure. But it's not 9%. So people feel like they can underwrite it today, including the Fed. And so that's what's made the Fed comfortable that they can start an easing cycle with the short end of the curve.

On the private side, we care less about the precision of these rate cuts, how quickly they get to their end point. What's more important is that if you look back historically and you look at what a rate cutting cycle means, the cost of debt drives the cost of equity, lower rates reduce the cost of debt, reduce the cost of equity, catalyzes investment activity, and that volume is typically good for values. We believe that would be no different today with the setup for go forward fundamentals and valuation. So we're very optimistic about that.

Jodi Phillips:

Then we talked about themes driving real estate equities. Chase told us about the three A's, aging, affordability, and artificial intelligence, and here's that story.

Chase Bolding

In terms of where to spend time, we have this little saying, but it's the triple As. You have aging. So you've got a demographic trend that's durable. Demographics are destiny. So we're investing in front of that demographic trend with healthcare related assets, outpatient medical facilities, possibly seniors housing. That's going to continue over the next decade.

We note the affordability issue. So home ownership is increasingly expensive relative to the cost of renting. This could result structurally in more renters going forward, and we're invested across the rental housing spectrum. So we think that demand is going to be very durable.

And then AI. So AI is going to impact everything, it already is. We can go sector by sector, but I think the real important thing with AI from an investment standpoint is to think about the way technology is interacting with our physical spaces and make sure we are buying real estate that is future proof or works for evolving requirements and we avoid that physical obsolescence risk. That's the key risk that we need to eliminate in our portfolios.

Jodi Phillips:

Finally, Charlie talked about real estate credit and how that market is becoming more accessible to retail investors.

Charlie Rose:

We find that a lot of investors are not particularly familiar with real estate credit. It is perhaps the largest asset class in the US that most investors have no exposure to. Real estate credit is a $6 trillion asset class here in the United States making it 50% larger than the municipal bond market. In addition, we're global investors, so we also lend into the European markets which represent another $2 trillion, making this an $8 trillion investible asset class or 2X the US municipal bond market.

Historically in the US, over 50% of the real estate debt market has been dominated by banks. But we have seen a significant pullback from the banks over time, which has resulted in bank market share in this very large asset class today being closer to a third of the overall market as compared to that historical 50% plus level. That is creating a significant void in the market for other lender profiles to fill.

So we have not seen anywhere close to the level of capital formation in real estate credit that you've seen, for example, in traditional corporate private credit or direct lending strategies. But we do think over time the size of the market, the growth of the opportunity set, and the changing dynamics in the primary market participants will result in an opportunity set that is sufficiently attractive to increasingly become a portion of retail portfolios.

And we are seeing that happen real time in the market today. Real estate credit is an asset class that, like many other alternative asset classes, has benefited from innovation in product offerings making the asset class today much more accessible to retail investors than it's ever been right at the point in time when for all of the reasons mentioned, it is a particularly attractive entry point.

Jodi Phillips:

Thank you for joining us, Charlie and Chase. And so now we're going to conclude by putting Brian on-

Audio:

The Hot Seat.

Jodi Phillips:

All right, Brian, here we go. List of rapid fire questions for you and we'll start with credit card balances at record highs. Is that a problem?

Brian Levitt:

No. Most of it was driven by inflation. It really was not consumers being too reckless with their money. In fact, if you look at real credit card balances, so that's when you adjust for inflation, they've actually declined over the past year for all borrowers but those deemed the riskiest, so at the subprime level. And so as inflation ease, probably no surprise that the growth in the credit card delinquency rate has essentially flatlined.

Jodi Phillips:

Okay, next question. Would the economy be in a recession without AI investment?

Brian Levitt:

I like that. That's like asking if the Kansas City Chiefs would be a losing team without Patrick Mahomes, but the reality is they have Patrick Mahomes and the US economy has AI investment. So yeah, the traditional measures of the US economy, things like payrolls, housing construction, they have been weak. But I'd also say without AI investment, the Fed would've likely been easing more substantially. So perhaps that would've helped to reinvigorate housing and other rate sensitive parts of the market by now.

Jodi Phillips:

Okay, and here's another question we've gotten. Do you believe in the debasement trade? And a follow up question for me, what is the debasement trade?

Brian Levitt:

Like the basement, that's where I go to play guitar and watch movies. But okay, so the debasement trade is the idea that the US dollar will be so debased by policies by the US government that you should buy gold, Bitcoin, commodities. And obviously gold and Bitcoin have rallied a lot, but I would say I think it's clear to say that the dollar has hardly been debased. In fact, US dollar's actually up 2% since July. And US Treasuries, US stocks, which are denominated in US dollars, have been rallying. So I don't believe in the debasement trade. I would say gold, Bitcoin, these things can have a place in your portfolio, but I wouldn't make big bets on them because of a debasement trade.

Jodi Phillips:

Okay. We don't tend to have basements here in Texas, so I did not see that play on words coming. All right, so last question. Will the government shutdown be over by the time of our next podcast?

Brian Levitt:

That's not fair. I have no idea. Although I am seeing some headlines that suggest it may be, but I have no idea. But I don't really care all that much.

Jodi Phillips:

Okay, see how that 11th vote turns out.

Brian Levitt:

Yeah, I shouldn't say I don't care all that much. From a macro and market perspective, I don't think the market is going to care all that much. I care.

Jodi Phillips:

Yep, that's the context. Well, that's what got us through election year.

Brian Levitt:

Exactly.

Jodi Phillips:

People care about elections, markets don't. I remember that.

Brian Levitt:

Exactly.

Jodi Phillips:

Okay.

Brian Levitt:

Exactly.

Jodi Phillips:

All right, you're off the hot seat, Brian. But before we go, where can our listeners follow you for more?

Brian Levitt:

Yeah, please visit invesco.com/brianlevitt to read my latest commentaries. And of course you could always follow me on LinkedIn and on X, @BrianLevitt.

Jodi Phillips:

Thanks for joining. We'll see you next time.

Important information

You've been listening to Invesco's Greater Possibilities podcast. The opinions expressed are those of the speakers, are based on current market conditions as of October 24, 2025, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

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Statements that stocks and US Treasuries have rallied together since the government shutdown sourced from Bloomberg as of October 24, 2025. Based on the returns of the S&P 500 Index and the Bloomberg US Treasury Index which have posted month-to-date returns 1.61% and 1.10%, respectively.

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The US unemployment rate sourced from the US Bureau of Labor Statistics as of August 31, 2025.

Statements about credit card balances sourced from the TransUnion Credit Card Industry Insights Report, 2025.

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Statements about housing construction sourced from the US Census Bureau as of August 31, 2025.

Statements about gold and bitcoin rallying sourced from Bloomberg as of October 15, 2025. Year to date, the gold spot price has risen by 59.93% and bitcoin has risen 17.21%.

Statements on the US dollar sourced from Bloomberg as of October 15, 2025. Based on the US Dollar Index, which measures the value of the US dollar versus a trade-weighted basket of currencies. The US dollar declined 11.99% from its 2025 peak on January 13, 2025, to its 2025 trough on July 2, 2025. Since the 2025 trough, the US dollar has increased 2.11%.

Statements that US stocks and US Treasuries have been rallying sourced from Bloomberg as of October 15, 2025. Based on the returns of the S&P 500 Index and the Bloomberg US Treasury Index which have posted year to date returns of 14.10% and 6.30%, respectively.

Statements about real estate values sourced from the MSCI Quarterly Property Indices, which track the performance of various property markets globally and regionally on a quarterly basis. Their recent peak was in mid-2022, falling over 22% in four quarters.

Occupancy rates sourced from the CBRE Q3 Retail Report and the Cushman & Wakefield Q3 Industrial Report.

Statements that supply is trending back to low long-term averages sourced from JLL Global Real Estate outlook from July 2025.

Statements about the size of the US real estate credit asset class sourced from Green Street, Navigating Current State of CRE Debt Markets, May 2025. The size of the European asset class sourced from the Bayes Report in the first half of 2023.

The size of bank market share in real estate credit sourced from Bloomberg and Invesco as of March 31, 2025.

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The Greater Possibilities Podcast is brought to you by Invesco Distributors, Inc.

As talk of an “AI bubble” hits the headlines, we discuss key differences between today’s artificial intelligence spending and the tech bubble of the late 1990s. We also talk to Invesco Real Estate’s Chase Bolding and Charlie Rose about opportunities in real estate credit and equities. And, with extraordinary monetary policies facing some recent criticism, we remember the role of the Federal Reserve in dealing with the deflationary threats of 2008 and 2020.

The AI “bubble,” commercial real estate, and extraordinary monetary policy
The government shutdown, gold prices, and the state of the economy

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Transcript : Disclosures

Brian Levitt:

Welcome to Invesco's Greater Possibilities podcast. I'm Brian Levitt, and with me, as always, is Jodi Phillips. Hey, Jodi.

Jodi Phillips:

Hey, Brian. So, coming up in a bit will be a conversation with Jen Flitton, who is Invesco's Global Head of Public Policy. As we record this, it's the third day of the US government shutdown, so it's a great time to have Jenn with us.

Brian Levitt:

Yeah. No visits to the National Parks this weekend, Jodi, I suspect.

Jodi Phillips:

No, unfortunately not.

Brian Levitt:

Yeah. I think the challenge we have is it does take a few minutes to produce these episodes before they hit the air. So, people who are listening to this may actually be living in a world where the shutdown is already over by the time they've heard this. So, we'll try to proceed accordingly.

Jodi Phillips:

No, you're right. That is very true. And that's why, when we talk to Jen, we focused our conversation on the bigger picture issues that are driving the shutdown, and what she expects to happen over the next weeks and months.

But look, I mean, as you well know, these shutdowns showdowns are pretty common anyway, so there could be another one around the corner. Isn't that what partly inspired you to quote Newman, of all people, from Seinfeld, in your latest commentary?

Brian Levitt:

Yeah, Newman.

Jodi Phillips:

Newman.

Brian Levitt:

Newman. That's right. Markets always grappling with issues. And so, I like that quote that Newman has about the mail. He says, "The mail never stops. It just keeps coming, and coming, and coming." And that's how it's felt maybe a little bit this year, with tariffs, and Fed independence, and are we getting non-farm payrolls. It just keeps coming, and coming, and coming.

Jodi Phillips:

It does on a normal basis. And then as Newman tells us, "Then a barcode reader breaks, and then it's Publishers Clearing House Day." It's always something extra to introduce a whole new level of chaos. So, would you liken the government shutdown to Publishers Clearing House Day, then?

Brian Levitt:

Yeah. I like that one, because Publishers Clearing House, we knew growing up that it was coming every year. We just didn't know when. Right?

Jodi Phillips:

So with that in mind, give me the quick rundown of how markets tend to react to shutdowns?

Brian Levitt:

Yeah. So far this market hasn't been particularly perturbed, at least over the first couple of days. That's the S&P 500 up quite a bit over the first three days of it. But yeah, here it goes.

So since 1976, there's been 21 shutdowns. So, this is now the 22nd. I think it's always critical for people to remember that essential government functions continue to operate. I made the joke about national parks, but Social Security checks still go out.

The reality is, the non-essential parts of the government do constitute a small percentage of the economy. Now, don't get me wrong, the longer people aren't getting paychecks, that will have some impact. They will be ultimately be paid IOUs for now.

But the US equity market, I think people would be surprised to hear represented by the S&P 500 Index, actually posted positive returns over 12 of the 21 government shutdowns. Average return during the shutdown is basically flat, 0.1%. So generally a non-issue for markets. We'll ask Jenn if she thinks that this one will pass without incident as well.

Jodi Phillips:

Good. Well, a reassuring sound bite that I'm definitely going to save for the next time this comes around.

Brian Levitt:

Yeah. Put it on your refrigerator.

Jodi Phillips:

So, we're going to go into our first segment.

Audio Effects:

Trending conversations.

Jodi Phillips:

Brian, what's on everyone's mind?

Brian Levitt:

Can I say government shutdown?

Jodi Phillips:

No. No, let's diversify a bit. Let's do something different.

Brian Levitt:

Okay. So, no government shutdown, which is on people's minds. Maybe I'll go tangential to that. One of the things I've been hearing questions about is the sharp move higher in gold prices. I would say that that corresponds pretty closely with any investors we have who are concerned about the market's faith in US institutions.

Jodi Phillips:

So, we basically just came full circle, back to the shutdown.

Brian Levitt:

Yeah. Back to the shutdown. I think the shutdown may play a small part in it. But the reality is, gold has been performing very well since 2022. I think people might be surprised to know, that since the beginning of 2022, the returns of spot gold price is almost as strong as the so-called Magnificent 7 stocks.

Jodi Phillips:

Wow. Okay. So, what's driving that?

Brian Levitt:

A lot of it is central bank purchases. There's this growing conviction in gold's role as a strategic asset reserve for central banks. In fact, 95% of the central banks say they intend to increase their exposure to gold over the next 12 months. I mean, that's up from 52% in 2021. So, that's a pretty big deal.

Jodi Phillips:

But that starts to sound a lot like a loss of faith in the US dollar, or in US institutions, doesn't it?

Brian Levitt:

Yeah. Well, and that's the exact right question, Jodi, and that's where these, what's trending, where does this go to. I would categorize it as central banks diversifying a bit, limiting their exposure to the machinations of US policymaking and governing. It's clear to see, that even as gold has risen, I think this is critical, the markets have not lost faith in US institutions.

Jodi Phillips:

Give me some examples of that. How do we see that that faith hasn't been lost?

Brian Levitt:

Well, look, the US Treasury rates have rallied. So, Treasury bonds have rallied a lot this year. We came into the middle of January with 10-year rates peaking at close to 4.80, and that was when you had some pundits saying it was going to 7%. I mean, it's since fallen by 50, 60 basis points, depending on the day. So people still demanding full faith and credit.

Jodi Phillips:

Demand for US Treasuries. That's definitely a sign.

Brian Levitt:

Yeah, that's a sign. If you want other examples, I mean, you know that my preferred indicator in this cycle is inflation expectations. Inflation expectations in the US bond market are very contained, well within the perceived comfort zone, which I think is critical, as well.

Jodi Phillips:

Okay. So, if the market were losing faith in the Fed, for example, then we would expect the inflation breakeven to be rising, and they're not.

Brian Levitt:

Yeah, exactly. And finally, the US dollar, you remember, it declined 10, 11% to start the year, also from what appeared to be a very overvalued position. It's been relatively range-bound over the last four months.

So, yeah, what's trending. Gold is skyrocketing, or has skyrocketed. Worried about US financial institutions. But when you look at a rally in treasuries, contained inflation expectation, and a relatively stable dollar over the last four months? I don't believe that that's the market telling us we're losing faith in US institutions.

Jodi Phillips:

Right. Well then, we'll move on to our next topic.

Audio Effects:

I disagree.

Jodi Phillips:

So here we find something that Brian has read recently and disagrees with. What do you got today?

Brian Levitt:

So, I'm going to go with JP Morgan's CEO, Jamie Dimon. He said, "I think the economy is weakening, whether it's on the way to recession or just weakening, I don't know."

Jodi Phillips:

That doesn't sound too bad.

Brian Levitt:

You don't want me to disagree with that? I'm going to disagree with that. I was thinking...

Jodi Phillips:

I just want to know why.

Brian Levitt:

Yeah. I was thinking maybe it was just all the times I did have to answer for him saying interest rates were going to 7%. But I already mentioned that one.

Jodi Phillips:

When you run the largest bank in the world, people listen. But for this particular quote, I mean, is your disagreement with the use of the recession word?

Brian Levitt:

Yeah, I think partly. My challenge with it is, investors hear the word recession, they're probably thinking of the last three, which were 2001, 2008, 2020. So, that's a pretty bold statement to put out there. People are like, if I hear recession, or you hear recession right now, you may be thinking about a 30 to 50% decline in your equity portfolio, because of what happened in the last three recessions.

Jodi Phillips:

Sure. Right. Well, I mean, it's the last three. Of course, not all recessions bring that 30 to 50% decline in the market. But certainly, yes, I get your point. There's a recency bias there. You've said in the past you don't see signs of recession?

Brian Levitt:

No. Again, I would stake, if the US was going in recession, I would have to see the Fed, for example, tightening to restore price stability. I would have to see credit spreads widening, bankers tightening lending standards. There's none of that happening right now.

Jodi Phillips:

Okay. So, you said recession was part of it. What about the weakening part? Do you disagree with that as well?

Brian Levitt:

Maybe a little bit with the verb tense.

Jodi Phillips:

The verb tense. Oh, okay. So, I guess you object to the present participle, "weakening," being used as a verb along with, "is." So, it's the present continuous verb tense that describes, "is weakening," as an ongoing action. That's the problem?

Brian Levitt:

I might have to look up what a present participle is. I do love your editorial background. So, the -ing versus the -ed is an interesting one. It's pretty clear that the economy has weakened. Right? I mean, that's an old story. Our leading indicators were telling us to expect a weakening economy over the second and third quarter, and that was to be expected following the Liberation Day announcements.

Is it still weakening? I actually wouldn't be surprised to see a re-acceleration of activity. We're already starting to see globally leading indicators picking up, in some instances. As the Fed lowers interest rates, you probably would expect leading indicators in the US to put in that bottom. And whether you look at ISM manufacturing, or leading indicators from the conference board year over year, they look like it's already starting to happen.

Jodi Phillips:

Okay. Great. Well, we're going to stop diagramming sentences and verb cases, and move on to our next segment.

Audio Effects:

Phone a friend.

Jodi Phillips:

So, here's where we caught up with Jen Flitton for a conversation on the US government shutdown and beyond. So first, we asked Jenn more of a process question. Even if the shutdown does get solved with a continuing resolution, maybe by the time you're listening to this, doesn't this just happen again in a few months? And so, here's what Jenn had to say.

Jen Flitton:

I think what we'll probably see is several weeks taking us into the month of November. And there will be time for the appropriators in both chambers to work through the negotiation process, that we've seen sort of prolong itself in recent years and decades, into sort of a Christmas-time package.

That is the forcing mechanism, that members of Congress want to get back home to their families. So, we do expect a resolution by the end of the year on appropriations. Now, does that mean that some appropriations bills will be negotiated into a new package with new priorities and new funding sources?

That's very possible in certain areas. But there are certain appropriations bills that just historically, in recent modern times, have been really difficult for the two sides to negotiate. And so, we could see a continuing resolution of certain areas of funding, while expanding and reprioritizing in other areas.

There are also going to be issues that are important to the Democrats, like the one that they're really holding out on for this current shutdown, which has to do with the expansion of COVID-era ACA subsidies. But then there are areas that the president has made clear that he wants to prioritize.

He has introduced this idea of some agriculture subsidies for farmers out west, primarily, who are really affected by the trade and tariff issues, and just sort of the long term trade imbalances that they've been experiencing over the past couple decades.

So, both sides have things that they want in a final package. Once we get past this shutdown, hopefully there'll be weeks in which they can really negotiate on those, to kick us into a strong FY '26.

Jodi Phillips:

Next we asked her what the ongoing issues to watch will be as this situation develops, and here's what she said.

Jen Flitton:

Well, it's going to be funding levels. So, one thing that the administration was able to get in the reconciliation package was a plus-up on immigration funding, Homeland Security, Department of Justice, and plus-up on defense spending.

So that is a lot of what the Republicans really prioritize in funding bills. They often trade on the discretionary plus-up that Democrats really care about. So, that's sort of the push and pull, the balance that I'm going to be watching over the next seven weeks, as they continue to negotiate appropriations, after this shutdown stops.

Jodi Phillips:

Next, we talked about the fact that shutdowns have generally passed without too much of an incident, and should we expect that to continue? So, here is what she believes.

Jen Flitton:

Yes. I do think we're going to get to a final appropriations bill that will take us through FY '26, by the end of this year. I'm not saying it's not possible that it could be kicked the can into, say, a March deadline? But I don't think it's likely.

Also, if you look into a midterm year, there's only so much you want to be dealing with as you enter into the primary season. And depending on the state in which you reside, that primary season could be very early in the year. And so, that has to be a consideration as well.

Jodi Phillips:

And finally, we asked her thoughts on the midterms. Looking ahead a little bit, any big legislation ahead of midterms that investors need to know about? And here's what she told us.

Jen Flitton:

Obviously in a midterm year, it's hard to get big things done, especially big bipartisan things. That doesn't mean that you can't move the ball down the field, right? We're seeing maybe in the crypto space, market structure, some discussion around some big tech issues in solving for some of the privacy and data issues.

We see that the conversations on NEPA reform, which that is the permitting reform around energy and environmental issues, that they are moving the ball down the field there. Can they get to that finish line? I'm not quite sure if they can do that in a midterm year. But I do think the conversations, I think the negotiations between the two sides will continue on that, and then we'll have to see what happens after the midterms.

Are we still in a trifecta situation? Or are we now in a House Democrat majority, Senate Republican majority, and a continuation of a lame duck presidency? Because that dynamic completely shifts then, and creates more of a gridlock situation in Washington.

Jodi Phillips:

Thanks, Jen, for joining us. And now we're going to conclude by putting Brian on...

Audio Effects:

The hot seat.

Jodi Phillips:

All right, Brian. A list of questions for you. We're going to run through these quick. You ready?

Brian Levitt:

I'm ready.

Jodi Phillips:

All right. First, why does investor sentiment still appear to be not overly bullish?

Brian Levitt:

Well, some might think it is. But if you look at survey data, bulls minus bears, still not there. I would say one would be valuations. Investors probably know that they're not timing tools, and they do tend to get extended in mid-cycle. But I would say valuations have people concerned.

Two would be geopolitical and policy uncertainty. You know my thoughts on the geopolitical, I tend to ignore unless it changes directions of the economy. Policy uncertainty, I think the path for the Fed has actually gotten clearer here, which should help.

And three, there may be an expectation that the lagged effects of tariffs are still to come, which is part of that policy-making, although I would argue a decent amount of that probably was priced in with the drawdown earlier this year.

Jodi Phillips:

Okay. You said the path for the Fed appears to have gotten clearer. What's the path?

Brian Levitt:

Yeah. The market believes that the Fed funds rate will be about three and a half percent by early next year. I would argue that's probably getting closer to what the Fed views as the neutral rate, where they're neither tight nor easy.

Jodi, honestly, I'm not overly concerned about the number of cuts and in which month, at what meeting. To me, I'm concerned about the future direction of travel for rates at the short end, which I believe will likely be lower.

Jodi Phillips:

Okay. Small caps. They've been outperforming large caps since August. Why is that?

Brian Levitt:

Lower rates. Signs of... We talked about it may be economic weakness bottoming. Leading indicators picking up a little bit, and attractive valuations.

Jodi Phillips:

All right. Next question. As mortgage rates fall, are you beginning to see any signs of life in the US housing market?

Brian Levitt:

Yeah. We actually are, at least for new homes. So, new sales for single-family homes jumped in August to the highest level since early 2022. That seems like a pretty big deal. Now, existing home sales remain weak, largely because US homeowners are locked into low mortgage rates, and aren't looking to move.

But the new home sales, yeah. There's something happening here, and that's, of course, lower mortgage rates driving that.

Jodi Phillips:

Okay. Now you're off the hot seat. But before we go, Brian, where can our listeners follow you for more insights?

Brian Levitt:

Yeah. Thanks, Jodi. Please visit us Invesco.com/BrianLevitt to read my latest commentaries. And of course, you can follow me on LinkedIn and on X, at Brian Levitt.

Jodi Phillips:

Thanks for joining. We'll see you next time.

Important information

You've been listening to Invesco's Greater Possibilities podcast. The opinions expressed are those of the speakers, are based on current market conditions as of October 3, 2025, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

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Past performance does not guarantee future results.

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The S&P 500 has gained 0.43% from the market close on Sept. 30, 2025 through October 3, 2025.

Statements about the price of gold sourced from Bloomberg as of Sept. 30, 2025. Since the beginning of 2022, the Bloomberg Magnificent 7 Total Return Index returned 126.37% compared to 110.75% for gold prices. The Magnificent 7 stocks are Alphabet, Amazon Apple, Meta, Microsoft, Nvidia, and Tesla.

Statements about central bank purchases of gold sourced from the World Gold Council, as of June. 17, 2025. Based on the Central Bank Gold Reserves Survey 2025. Latest data available.

Data about US Treasury rates sourced from Bloomberg as of Sept. 30, 2025.

Statements about inflation expectations sourced from Bloomberg as of Sept. 30, 2025. Based on the 3-year US Treasury Inflation Breakeven. Breakeven inflation is the difference in yield between a nominal Treasury security and a Treasury Inflation-Protected Security of the same maturity.

Statements about the value of the US dollar sourced from Bloomberg as of Sept. 30, 2025. Based on the US Dollar Index, which measures the value of the US Dollar versus a trade-weighted basket of currencies.

Jamie Dimon’s quote sourced from CNBC as of Sept. 9, 2025.

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The S&P 500® Index is an unmanaged index considered representative of the US stock market.

Statements on price stability based on the 3-year US Treasury Inflation Breakeven. Credit spreads based on the option-adjusted spread of the Bloomberg US Corporate Bond Index. Lending standards based on the Federal Reserve Senior Loan Officer Survey. Sourced from Bloomberg as of Sept. 30, 2025.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

Statements about leading indicators and statements about signs of economic weakness bottoming sourced from the Conference Board as of Sept. 30, 2025. Based on the year over year percent change in the Conference Board Leading Economic Indicator Index, which tracks 10 different components that help assess and predict the economic outlook.

Statements about the expectation for the Federal Funds rate sourced from Bloomberg as of Sept. 30, 2025, based on the Fed Funds implied rate.

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Statements about attractive valuations based on the price to earnings ratio of the S&P 500 Index and the Russell 2000 Index, sourced from Bloomberg as of Sept. 30, 2025.

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Statements about housing sales sourced from the US Census Bureau as of August 31, 2025.

Statements about small-caps outperforming large-caps since August sourced from Bloomberg as of Sept. 30, 2025. From August 1, 2025, through September 30, 2025, the Russell 2000 Index had a total return of 12.76%, while the S&P 500 Index returned 7.46%.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

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Fluctuations in the price of gold and precious metals may affect the profitability of companies in the gold and precious metals sector. Changes in the political or economic conditions of countries where companies in the gold and precious metals sector are located may have a direct effect on the price of gold and precious metals.

Fixed income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. show less

A basis point is one-hundredth of a percentage point.

A continuing resolution is a temporary funding measure that Congress can use to continue pre-existing appropriations at the same levels as the previous fiscal year (or with minor modifications) for a set amount of time.

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

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The Magnificent 7 stocks refer to Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia, and Tesla.

The neutral rate is the theoretical federal funds rate at which the stance of Federal Reserve monetary policy is neither accommodative nor restrictive.

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The government shutdown may or may not be over by the time this hits the airwaves, but the negotiations process on appropriations bills promises to last for several weeks. Global Head of Public Policy Jennifer Flitton tells us why she believes we’ll get a final appropriations bill by the end of this year. We also explore what’s driven the strong price of gold over the past few years. And we discuss which verb tense is best to use when describing the US economy: “is weakening” or “has weakened.”

The government shutdown, gold prices, and the state of the economy
Long rates, the US dollar, and the global debt market

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Transcript : Disclosures

Brian Levitt:

Welcome to Invesco's Greater Possibilities podcast. I'm Brian Levitt, and with me as always is Jodi Phillips. Hey Jodi.

Jodi Phillips:

Hey Brian. So coming up at a bit, we will have a conversation with Hemant Baijal, who's the head of Macro Alpha and the co-head of Emerging Markets debt for Invesco Fixed Income.

Brian Levitt:

That was my former job! Very timely, and with the US dollar under pressure at the start of the year, it's been a little bit more range-bound recently, but a lot of conversation about diversifying away from the dollar. And so it'll be great to ask Hemant where we go from here.

Jodi Phillips:

Absolutely. So does that mean we get to talk about one of your favorite topics, the end of American exceptionalism? I noticed that one always gets your ire up.

Brian Levitt:

Ooh, my ire. Do I have ire?

Jodi Phillips:

Well, I mean there's a few topics that I've noticed can ignite your wrath. I'd put Fed independence in that bucket for sure. And also those seasonal calendar-based investment strategies that people like to reference every now and then.

Brian Levitt:

All right, so I've got ire and I've got wrath. You're picturing a really nice picture of me today.

Jodi Phillips:

So am I wrong?

Brian Levitt:

No, I guess you're not. There are certain things that raise my ire, Jodi, and seasonality is a good one. I think we'll talk about Fed independence again today. But the seasonality one, so let me ask you this, if it raises my ire, should I have sold in May and gone away this year?

Jodi Phillips:

Well, if you had, you would've missed a big US equity market advance. So I would say no.

Brian Levitt:

Yeah, I would've. And so now I'm supposed to be afraid of a September and October?

Jodi Phillips:

Allegedly.

Brian Levitt:

Allegedly, yeah. I mean, look, historically on average we hear. We've run the data back to 1957, it's been a bad month. The media likes to repeat it over and over. The reality is though, as you know, averages lie.

Jodi Phillips:

I hope they don't all lie. I mean, our average podcast rating on Apple is 4.9. And that's out of 5, not out of 10. So I hope not all averages lie.

Brian Levitt:

Well, even if they do, I never read the extreme comments, good or bad anyway. But back to this seasonality thing, look, I'm old enough to remember last year, as are you, when the market was up 2% in September. 2010, the market was up over 8%. So look, again, averages are what they are, but I don't think these seasonality arguments are all that helpful. But I will try to control my ire going forward, Jodi.

Jodi Phillips:

All right. We'll see how successful that is, at least with our first topic, which is...

Speaker 3:

Trending conversations.

Jodi Phillips:

So Brian, what's on everyone's mind?

Brian Levitt:

I think it's been long rates.

Jodi Phillips:

Long rates? I'm totally going to date myself here, but whenever you say long rates, I get a flashback to long distance telephone rates that we grew up with.

Brian Levitt:

Yeah, not those. Although I do remember my dad being angry every time that bill came. So I'm glad that we don't have to deal with long distance rates anymore. And actually, Jodi, I'm making this call to you during that 30 minute period that the phone company gives us lower rates. You remember those things too?

Jodi Phillips:

I do. I do. So that's why we need to step on it.

Brian Levitt:

Yeah, let's move.

Jodi Phillips:

Get this podcast a little more efficient here. So obviously you are talking about long-term rates in the global bond market.

Brian Levitt:

Yeah, it's been a big conversation, although maybe a little bit less in the United States on this day that we're recording it. We've seen the 30-year Treasury rate flirt with 5% on certain days. Maybe there's something psychological about that 5% less so now in the US But French bond yields are up. Japanese bond yields of all things are now over 1.5%.

Jodi Phillips:

Even the Japanese yields? Didn't we used to wish for that?

Brian Levitt:

Yeah, maybe we need to be careful what we wish for. Actually no, it's reflective in Japan of a better nominal growth backdrop, and the markets have benefited from that as well. So I wouldn't consider that a bad thing, just a pretty big sea change.

Jodi Phillips:

So tell me a bit about France? I mean there's been a collapse of the government, so what do you see going on there?

Brian Levitt:

Yeah, so it's a political issue. There are high budget deficits. What the governments are finding out, and I'm saying governments plural because we seem to be doing this a few times, is that it is difficult to cut spending. Government loses a political vote of confidence when that happens. Now, perhaps you could tax wealthier people, but as of now it's a challenge for the French government.

Jodi Phillips:

And so that brings us to the US, which let me guess, budget deficits from the One Big Beautiful Bill Act plus Fed independence.

Brian Levitt:

There we go, my ire.

Jodi Phillips:

The attempted firing of Lisa Cook, the Fed governor. So that all weighs in, right?

Brian Levitt:

Yeah, you got it. Absolutely. Those are the primary reasons for why we had seen the long 30-year rate near 5% in the United States.

Jodi Phillips:

But the 30-year yield has largely been range bound for months, as you said. And as we record this, it's below 5%.

Brian Levitt:

Yeah, it's absolutely true. So this idea of long rates, I mean the way to think about it was coming into the month, it was such a concern for people. If you listen to the Greater Possibilities podcast, we've said, nah, let's not get so overly concerned about this. And right now, the market does not seem to be overly concerned, at least in the US.

Jodi Phillips:

Okay, great. And no need to talk about bond market vigilantes now, or do we need to talk about them?

Brian Levitt:

I don't think. I mean there's clearly this fear in the market and yet we've seen a pretty big bond market rally. It hasn't happened. So look, we know that the Fed independence is going to be critical. I think the way the market's behaving, it does not believe that Fed independence is going away. So I would say meaningfully higher long rates are a tail risk, but certainly not the base case.

Jodi Phillips:

Great. Well, then that brings us to our next segment, which is...

Speaker 3:

I disagree.

Jodi Phillips:

And in this segment, we highlight a quote in the news that has sparked Brian's ire, or at least one that he disagrees with a bit. Which one is it this time, Brian?

Brian Levitt:

Yeah, I'm going to stick with this topic of interest rates and the Fed. This was Commerce Secretary Howard Lutnick who on CNBC in late August said, "Current interest rates are too high costing the US economy an estimated $700 billion annually."

Jodi Phillips:

Okay. So usually when we do this segment, I can immediately see where your disagreement is, but I've heard you say that you think the Fed should lower rates. So where's the disagreement here?

Brian Levitt:

Yeah, maybe this disagreement's a little bit more nuanced than usually. I do think the Fed should lower rates, thanks for having listened Jodi. Yeah, inflation expectations seem to be anchored, the economy is slowing, so why should the Fed be relatively restrictive with regards to policy with that backdrop?

Jodi Phillips:

Okay, so where is the disagreement?

Brian Levitt:

Yeah, okay, so look, this idea of it costing the US economy $700 billion, look, the Fed controls short rates as we know. They don't control intermediate and long-term rates. For example, the US Treasury right now has $10 trillion in 10-year Treasury bonds outstanding. And if the Fed were to cut rates for the wrong reason, then Jodi, what would happen to intermediate and long rates?

Jodi Phillips:

Right. The interest costs would be higher.

Brian Levitt:

Yeah, they would jump. And if the Treasury still wanted to issue intermediate and long-term bonds, yeah, like you said, the interest costs would be higher, the opposite of what Howard Lutnick said.

Jodi Phillips:

So I suppose going forward, the Treasury could just issue short-maturity government bonds, which would be controlled by the Fed.

Brian Levitt:

Yeah, exactly. So maybe that is the plan, of course they could. I think the challenge with that is you'd be funding long-term liabilities such as our Social Security and Medicare, which we're not going to get for a while, Jodi, but you're going to be funding that with short-term bonds and you'd have to keep rolling them.

Jodi Phillips:

When has that gone wrong?

Brian Levitt:

Yeah, exactly. We've seen that story before. And if it does go wrong, which I'm not necessarily suggesting it would, if it does go wrong, it'd be harder to fund those long-term liabilities. Meaning interest rates would be higher across the curve.

Jodi Phillips:

Okay, got it. So the Fed can lower rates for the right reason, but you disagree that lowering short rates would necessarily save the US on interest expense.

Brian Levitt:

Exactly.

Jodi Phillips:

Does that summarize it? Okay, great.

Brian Levitt:

Exactly.

Jodi Phillips:

Well, the last podcast I said that I guess a silver lining here would be that the Fed may have to cut rates for economic reasons and not political pressure.

Brian Levitt:

Right. And that brings us right back to our trending conversation on long rates, which is why the US bond market has been behaving, because the Federal Reserve is likely to lower rates for slowing growth, not political pressure.

Jodi Phillips:

So our next topic is...

Speaker 3:

Phone a friend.

Jodi Phillips:

So we caught up with Hemant Baijal for a conversation on the US dollar and the global debt market. We talk about some big shifts this year that have upended some key trends of the past decade, one of which is that international markets have broadly outperformed the US this year. So here are his thoughts on the global economic cycle.

Hemant Baijal:

So I think we are in a pretty asynchronous global cycle, so it's not that surprising that the old trends are being upended. I mean since the GFC, the global markets have been pretty much in sync, the US has been leading. But after COVID, that started to get out of sync. And particularly since I think the last election in the US, that's been materially out of sync. So it's not surprising. So in that scenario, international markets are doing better because the dollar has started to go down. I think the very high valuations that we had for the dollar, there'd been a lot of flow into US assets. It's not that the flow is going to reverse, it's just the valuation, the starting point is extremely expensive.

And when you combine it with ultra-loose fiscal policy and expected looser monetary policy in the US, you get this sort of cycle which can take the dollar lower, which has significant benefit to the rest of the world. Credit quality improves, the central banks have greater room to ease policy outside the US So generally, you get a mix which is different than the mix you had for almost 15 years.

Jodi Phillips:

Another shift we talked about was the US dollar. Is this a short-term event or are we at a potential inflection point? Here's what he had to say.

Hemant Baijal:

Dollar cycles are never very short-term. They are never also linear in that they don't start and just go in one direction, but we are at a point where all the building blocks are there for the dollar to go lower. You've got, again, as I mentioned before, huge overhang of international funds owning unhedged US dollar assets. You can see that the net IIP position of the US now is minus 30 trillion. It's a huge overhang of assets. You combine that with the fact that the differential in monetary policy between US and rest of the world is narrowing once the Fed starts to ease policy. And if there is greater pressure on the Fed, I think then because you've got the tariff policy, which can also slow the economy down, et cetera, then you've got a set of circumstances which cyclically and structurally mean that the dollar can go lower over a period of time. So I think it's an inflection point, it's the start, but definitely not in the middle innings yet.

Jodi Phillips:

Finally, we discussed where he's seeing opportunities across fixed income markets.

Hemant Baijal:

It's almost like where do you not see opportunities? Because in an asynchronous global cycle, as you would expect, there are opportunities on both sides of the market, right? There are opportunities in countries like Mexico and Brazil where there's a lot of room for central banks to cut interest rates. There's places like Japan where the central bank has not even started the hiking cycle, and it's a country where they need to hike because inflation is actually above target and the curve is extremely steep, indicating there are some issues that they need to address.

So there's opportunity sets in all different areas of the bond market. I would say there's opportunities in Europe where the curve is relatively steep and you can get pretty good roll down on the curve, so Europe looks good. Some emerging markets look good. And then there are of course countries, places like Australia where the credit quality underlying government credit quality is excellent, but the curve is still very steep because of external factors. So we see opportunities everywhere, both in rates and in FX. Not so much in credit though.

The questions that need to get asked over a period of time is whether market moves can become disorderly. And I think that is probably not the case today. But if we enter into a situation where the Fed is easing policy for the wrong reasons, then market moves are going to get disorderly in the market. But that, we will not know. It's one of those things where you won't know it till you see it. It's hard to plan for, it's hard to construct portfolios for that.

Jodi Phillips:

Thanks for joining us, Hemant. And now we're going to conclude by putting Brian on...

Speaker 3:

The hot seat.

Jodi Phillips:

In this segment, Brian's going to answer some key client questions as quickly as he can. So here's the first one. The job market is slowing. Are you expecting to see a big increase in the unemployment cycle?

Brian Levitt:

I'm not. I mean, we had some big revisions on jobs. So it is pretty clear that the demand for workers is going down, but so too is the supply of workers. So if they're both going down together, you wouldn't necessarily see a big increase in the unemployment rate. And it's possible that the economy just likely needs less jobs than it used to, given that people are retiring and the amount of people immigrating to the country is decreasing.

The other thing I would say, Jodi, is that the sectors of the economy that have been responsible for a significant amount of hiring, parts of the economy like healthcare, social services, those tend to not be overly cyclical. So no, I don't expect this slowdown to lead to a meaningful pickup in the unemployment rate or a coincident recession.

Jodi Phillips:

Okay. So the next question, there was a big move in small cap stocks back on August 22nd when Fed Chair Jerome Powell indicated at Jackson Hole that they were likely to cut rates. So why didn't that rally continue?

Brian Levitt:

Little bit of a head fake. Small cap companies do tend to benefit from lower interest rates, so that was the big move as the Fed Chair was speaking at Jackson Hole. But lower interest rates alone or the prospect of lower interest rates isn't enough for small cap businesses. They tend to also require a pick up in the domestic economy, because a lot of their business is going to be done within the borders of the United States. And right now, not really conducive for that. In fact, the US economy is slowing right now. And so I'd argue that's why the small cap, the one-day small cap rally didn't sustain.

Jodi Phillips:

Okay, next question. Are you concerned that credit spreads are too tight?

Brian Levitt:

I'm not. Credit spreads rarely trade at average. You've seen those charts, our listeners have probably seen those charts where you look at credit spreads, they're either really tight for a long period of time during good periods of economic activity, resilient growth. Examples of that would be 1995 to 1999 or 2003 to 2007, you can remain tight for a long time. So you're either tight or then you're quickly blowing out to much higher levels if a significant deterioration in economic activity were to occur, like you saw ahead of 2001, like you saw in 2008. So again, spreads are rarely average.

I would say if you looked at the current level, they are tight. Again, which is pretty consistent of the middle part of a cycle. So investors may not look at it and view them as enticing, but credit spreads are just a valuation tool, and those are never timing tools. And so if you believe this economic cycle is going to continue, that incremental yield that you're getting in corporate and high-yield bonds should continue to look enticing to you, regardless of spreads being "too tight."

Jodi Phillips:

Okay. Last question. In the US, residential investment is weak. Now in the past, a weak housing market typically coincided with recessions. Why isn't that the case now?

Brian Levitt:

Yeah, it's a great question, and the reality is perhaps the makeup of the economy has shifted a bit. So yes, it's right, weak residential investment typically coincides with a recession, but what we're seeing right now in the United States is big investment related to artificial intelligence. That doesn't totally offset residential investment, but is expected to over time. So it's coincident with a slowing economy, but one that is not collapsing.

Jodi Phillips:

Okay. You're off the hot seat. But before we go, Brian, where can our listeners follow you for more insights?

Brian Levitt:

Yeah, thanks, Jodi. Visit invesco.com/brianlevitt to read my latest commentaries. And of course, you can follow me on LinkedIn and on X @BrianLevitt.

Jodi Phillips:

Thanks for joining. We'll see you next time.

Important information

You've been listening to Invesco's Greater Possibilities podcast. The opinions expressed are those of the speakers, are based on current market conditions as of September 9, 2025, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

Diversification does not guarantee a profit or eliminate the risk of loss.

Fixed income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

According to Bloomberg, the S&P 500 Index advanced 15.79% between May 1, 2025, and August 31, 2025.

Statements about the historical performance of markets during the month of September sources from Bloomberg as of August 31, 2025. Based on the average monthly returns of the S&P 500 Index since 1957.

30-year US Treasury rates sourced from Bloomberg as of September 8, 2025.

French and Japanese bond yields sourced from Bloomberg as of September 8, 2025. Based on the 10-year government borrowing rates in France and Japan.

The statement the inflation expectations appear to be anchored based on the US 3-year inflation breakeven, sourced from Bloomberg as of September 8, 2025.

Statements that the US economy is slowing based on nonfarm payrolls sourced from the US Department of Labor.

The amount of Treasury bonds outstanding sourced from the US Department of Treasury as of August 31, 2025.

Statements that international stocks have outperformed US stocks this year sourced from Bloomberg as of September 9, 2025. Based on the year-to-date US dollar returns of the MSCI ACWI ex US Index (23.40%) compared to that of the S&P 500 Index (11.73%).

The net international investment position, or IIP, of the US sourced from the International Monetary Fund as of August 31, 2025. Net (IIP) measures total external liabilities versus total external assets.

Statements about Japan’s inflation and yield curve sourced from the Ministry of Internal Affairs and Communications and Bloomberg as of August 31, 2025.

Statements about the yield curve in Europe sourced from Bloomberg as of September 9, 2025.

Statements about government credit quality and the yield curve in Australia sourced from Bloomberg and the International Monetary Fund as of August 31, 2025. Based on the debt-to-gross domestic product of the Australian government.

Statements about the rise in small-cap stocks on August 22, 2025, sourced from Bloomberg, based on the one-day return of the Russell 2000 Index, which advanced 3.87% that day.

Statements about historical and current credit spreads sourced from Bloomberg as of September 8, 2025. Based on the option-adjusted spread of the Bloomberg US Corporate Bond Index.

Statements about investments in artificial intelligence sourced from the US Bureau of Economic Analysis as of June 30, 2025.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

The MSCI All Country World (ACWI) ex USA Index is an unmanaged index considered representative of large- and mid-cap stocks across developed and emerging markets, excluding the US. The index is computed using the net return, which withholds applicable taxes for nonresident investors.

The Russell 2000® Index measures the performance of small-capitalization stocks and is a trademark/service mark of the Frank Russell Co.®.

The S&P 500® Index is an unmanaged index considered representative of the US stock market.

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified period of time.

Inflation is the rate at which the general price level for goods and services is increasing.

Breakeven inflation is the difference in yield between a nominal Treasury security and a Treasury Inflation-Protected Security of the same maturity.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

Tail risk generally refers to events that have a very small probability of occurring.

The yield curve plots interest rates at a set point of time for bonds of equal credit quality but differing maturity dates in order to project future interest rate changes and economic activity.

GFC stands for global financial crisis.

FX stands for foreign exchange.

The Greater Possibilities Podcast is brought to you by Invesco Distributors, Inc.

Rising long rates globally have caused some concern among investors. We discuss why meaningfully higher long rates are a tail risk, but not our base case. Plus, we talk to Hemant Baijal, Head of Macro Alpha and Co-Head of Emerging Markets Debt, about some big shifts this year in international market performance and the US dollar.

Long rates, the US dollar, and the global debt market
A surge in IPOs, stablecoins, and two key sector opportunities in mid-caps

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Transcript : Disclosures

Brian Levitt

Welcome to Invesco Greater Possibilities podcast. I'm Brian Levitt. With me is Jodi Phillips.

Jodi Phillips

Hey, Brian. So coming up in a bit, we will be having a conversation with Justin Livengood, who's the senior portfolio manager for the Mid-Cap Growth Strategies.

Brian Levitt

Yeah, Justin has been very excited about renewed activity in the initial public offering markets. He's been saying that this could be very good for or potentially very good for mid-cap growth investors.

Jodi Phillips

So companies coming to the IPO market as mid-cap businesses, I guess there's benefits to staying private for longer.

Brian Levitt

Yeah, that's what it seems like. So we'll be hearing from Justin on the IPO markets in a few minutes.

Jodi Phillips

And, recent IPO activity has put a spotlight on stablecoins, so we’re going to talk to Justin about that topic as well.

Brian Levitt

So my goal in that conversation is to feel a little bit less like a dinosaur with that.

Jodi Phillips

So one tip if that's your goal, you might start by stopping quoting movies from 1997. I couldn't help but notice your latest above the Noise commentary started with an Austin Powers quote. And it's one that might sound familiar to longtime listeners of this podcast. You've quoted him before. Austin only fears two things nuclear war and carnies.

Brian Levitt

Yeah. So I guess what you're telling me is I need new material and I need more modern references, I got it. Look, Jodi, I mean, from my perspective, I could never go wrong quoting Austin Powers.

Jodi Phillips

Well, in a business environment, I think you potentially could go very wrong with quoting Austin Powers, but. But not this time. It was a good quote.

Brian Levitt

Yeah, I don't think the carny community was offended by that. When I actually like carnivals. But, what I said was, you know, Austin Powers fears nuclear war and carnies. I fear the loss of the independence of the Fed.

Jodi Phillips

Yeah, we do know that that is a big fear of yours.

Brian Levitt

Yeah. It matters like the last thing we need in this economy, the last thing we need for these markets is inflation expectations becoming completely unanchored. Borrowing costs rising. And that's what I fear.

Jodi Phillips

Okay. Nuclear war, carnies and the loss of Fed independence.

Brian Levitt

Well, I mean, I try to not think about nuclear war. We are recording this on the day of Hiroshima. But I try to not think about nuclear war. I do like carnivals. So, yeah, the loss of Fed independence is what I fear.

Jodi Phillips

Okay. Understood. And very nice transition to our first segment.

Narrator

Trending conversations.

Jodi Phillips

All right Brian, what's trending? What's on everyone's mind.

Brian Levitt

So I think maybe we need to go back to this stagflation thing. Although I would categorize any comments about stagflation as hyperbole.

Jodi Phillips

Yeah, you've said it at least a million times to stop exaggerating about this.

Brian Levitt

I like what you did there. So, Yeah. Good one.

Jodi Phillips

All right, well, say more about this. Why do you characterize this as hyperbole?

Brian Levitt

Well, it's certainly not “stag”, right? I mean, you say stagflation. It's certainly not stag.

Jodi Phillips

It's not even with the weak jobs report and the significantly lower revisions to the prior months?

Brian Levitt

No. I mean, does it feel like stag to you?

Jodi Phillips

Maybe not. It does feel a little like things are slowing.

Brian Levitt

Yeah, I think things are slowing. No, I mean, we've been expecting this, right? The leading indicators of the economy where we're sort of pointing lower. We've been expecting a slowdown.

Jodi Phillips

Okay. So that's that's the stag part. What about the “flation”? What's inflation looking like?

Brian Levitt

I mean, the reality is goods prices are going to rise. Right. They're already starting to that's what happens with tariffs. But more importantly inflation expectations three years out, five years out. We look at that in the bond market comparing a nominal yield to a TIPS yield. Those have been very contained. And they actually declined following the that jobs report that you referenced. So you know look it's not “flation”. It's maybe a little bit of a goods price shock here. But the bond market is telling us it's not inflation.

Jodi Phillips

All right. So pull this all together for me then.

Brian Levitt

I’ll pull it all together for you. Look, this is what's trending. We've always said tariffs are going to result in less optimal outcomes slower growth higher goods prices. It's not ideal but it's also not stagflation. Right. Stagflation is a major policy mistake causing inflation expectations to become unanchored for years. Right. This is not stagflation. I believe the economy is going to muddle through.

Jodi Phillips

All right then, on onto the next segment.

Narrator

I disagree.

Jodi Phillips

So in this segment we find something that Brian has read recently in the news and disagrees with. So what is it this time, Brian?

Brian Levitt

Yeah, we've done some of these. As “I agree.” I'm going to strongly disagree. Taking us back to the intro on this. So I'm going to go with Bill Pulte on X, formerly known as Twitter. He said “I believe Jerome Powell is conducting economic warfare against America.”

Jodi Phillips

Okay. Yeah. This does sound like something you would disagree with for sure.

Brian Levitt

Can we change the title of this to I strongly disagree? I strenuously object?

Jodi Phillips

You strenuously object? Sounds like A Few Good Men reference.

Brian Levitt

Totally unfair. Yes. A Demi Moore, A Few Good Men reference. Yes. It was.

Jodi Phillips

We literally just talked about this. That movie is from 1992. So you're. Yeah.

Brian Levitt

Well, Rome wasn't built in a day. I'll get there. I am going to modernize my references, but. But look, Bill Pulte is the director of the Federal Housing Finance Agency. He's also a grandson of William Pulte. That's the founder of the Pultegroup. So though the Pultegroup is one of the nation's largest homebuilders.

Jodi Phillips

Okay, well, sometimes where you stand depends on where you sit, as they say.

Brian Levitt

Yeah, absolutely. I mean, look, I understand the head of the Housing Finance Agency wanting lower mortgage rates, who doesn't want lower mortgage rates? But the Fed doesn't control long rates. That's such a misperception. When I hear these things about economic warfare, the Fed sets short rates based on a dual mandate of price stability and full employment. If the Fed is pressured by the executive branch to lower rates, if that's the reason why they're lowering rates, Jodi, then what do you think happens to long rates?

Jodi Phillips

They go higher?

Brian Levitt

Yeah. So yeah, if the Fed loses credibility then long rates go higher. So to me that would be economic warfare. If the Fed lowers rates for the wrong reason, short rates and long rates go up because of it, that would be economic warfare not keeping short rates slightly elevated to make sure we don't have inflation.

Jodi Phillips

Okay, well then I guess the silver lining in this situation is if the Fed may have to cut rates for economic reasons, not political pressure.

Brian Levitt

Yeah, exactly. I mean, maybe that's the silver lining, right? You said it. That's the silver lining. So. All right. Sorry Jodi. If I got a little fired up there. But you know, this is a big topic for me.

Jodi Phillips

Well, that that's the whole point of I disagree, I think. But in our next segment, we'll give you a second to regain your composure. We're going to call in Justin Livengood with.

Narrator

Phone a friend.

Jodi Phillips

So we caught up with Justin for a conversation on the IPO market and how he thinks it could be beneficial to the mid-cap growth market. So first we asked him his thoughts on the reopening of capital markets. And here's what he had to say.

Justin Livengood

With the new administration and with sort of more stable Fed policy outlook for 2025, there was a lot of hope coming into this year by the investment banks and by the investment community that there were going to be a lot of IPOs, a lot of secondaries. The private equity firms definitely were hoping for that, because it's been a long time since they've really been able to start to monetize investments.

So we had a decent first quarter, particularly March, in terms of activity. But nothing quite as exciting as hoped for because we were still sort of feeling out some of the administration policies and where the economy was going to go. Then of course, April hits that the tariff disclosures occur. And that completely froze the market for the month of April.

And expectations at that point changed dramatically, such that there was much less optimism about the rest of the year for the capital markets. Could not have been more misleading. Starting in May, things came back a little bit. You know, you walk before you run, and a handful of deals came out the gate on the IPO market that were reasonably successful and that gave encouragement to the investment banks and some of the sponsors that had some deals teed up to go a little more in June.

And in June, suddenly we saw a flurry of deals that were very successful and that just got the ball rolling down the hill super fast. July has been a huge month of activity, such that May, June and July collectively as three months are up year-over-year significantly in terms of IPO issuance. Even August here as we sit one week in August, is still churning out a bunch of deals.

I've had five meetings in the last week and a half with either companies that are in the midst of an IPO roadshow or that are doing what's called a “test the waters” meeting. They're, you know, private, but getting ready to go public. Five in a week and a half. I can't remember that pace in the last ten years, frankly.

So things are absolutely, back there happening. And a lot of the deals are meaningful in size. So it's a mix of small caps. But even mid-caps, it's across industry.

So we're seeing a lot of financial service things. We're seeing some things in tech even frankly, some things in health care, which surprises me given how health care has not been a good sector in the market generally. So it's diverse in industry. It's diverse geographically. Asia and Europe are actually as busy as the US.

And there's a lot more to come, both globally, but also, you know, across industry from those PE backed sources.

So that's why I think there's a runway here. I don't think this is just a temporary little pop.

Jodi Phillips

Next, we asked Justin for some background on stablecoins, which is a topic that's gotten a lot of attention as of late. And here's what he told us.

Justin Livengood

Stablecoins are, in my opinion, one of the first good use cases of cryptocurrencies. It's an item. It's a coin that is not - it has a value that doesn't fluctuate. It's a $1 per coin, fixed ratio instrument that enables primarily cross-border payments, which is to say you can do a transaction with the stablecoin with someone not in your country.

And the value can be transferred instantaneously across the blockchain. So it's secure. You know, the recipient of that transaction is getting that value instantly, securely. And then they can take that coin and transfer it into their home currency or keep it in the form of a stable coin, which is very appealing for a lot of different industries’ transactions, both service but even goods-related, things.

And so there's actually been a lot of use of stablecoins for 7 or 8 years for cross-border transactions. You know, there are trillions of dollars of transactions cumulatively have been done using stablecoins. To conduct cross-border activity.

It's just now rising to the level, I think a lot of people are more aware of it. And seeing them, the use cases begin to expand. The other thing that just happened, which brought a lot of attention to this, was that Congress passed a bill called the Genius Act, which is offering for the first time regulation and sort of a set of guideposts on how these are all going to be policed and how they operate both in the US and globally.

And that's helping give some confidence to people, to use these stablecoins more, now that the rules have been laid out.

Jodi Phillips

And then finally we asked Justin what else besides the IPO market has been exciting to him lately, what sectors he's looking at in particular. And here's what he had to say.

Justin Livengood

My two favorite sectors all year have been industrials and financials. That remains true today. Nothing has changed.

So to take that one step lower, you know, the couple areas in industrials I'm most excited about are aerospace and defense. The aftermarket aerospace commercial aerospace market remains super, super tight. Super in demand as we're all flying a lot. And there's just not enough new supply of planes from Boeing and Airbus to keep up with that demand. So that whole supply chain is just really robust. We're finding lots of good opportunities.

There's also opportunities in defense right now, given the way that sort of, the new administration here in the US has required NATO and Europe to step in and foot more the bill for providing their own defense and security that's generating a lot of incremental orders and demand, for products that are often sourced out of the United States by, you know, defense companies here.

So there's some interesting things going on in defense as well as aerospace. The other big theme in industrials that's still very compelling, and probably incrementally more so even than the aerospace defense is this whole AI infrastructure play. You know, we've now heard over the last couple of weeks the big hyperscalers talk about increased CapEx budgets yet again.

And we're now talking many, many billions of dollars of extra spending on data centers and power sources. And that means all that money, all that CapEx is eventually going to be spent on, or for companies that are in our universe and the, you know, the small and mid-cap universe that are providing engineers and equipment to build out the grid to, you know, provide cooling equipment to data centers. You know, providing, all sorts of components, to, to the real estate and, again, data center industry. It's a fascinating land grab. And a lot of those companies live in the industrial sector.

The other thing we really like to see, of course, is companies that have visibility. And what's happening with this build out of AI infrastructure is companies are getting orders now for 2027, 2028. These are take or pay orders from, you know, the Microsofts and the Amazons of the world where that is as good a visibility as you could probably ask for.

And at very high prices. You know, margins are terrific. So when that game continues, at the rate it's now approaching, you can have a lot of confidence about the next couple of years, you know, revenue and earnings growth from some of these companies. So industrials in general a really exciting area and a place we’re overweight.

The other sector I said was financials.

And it goes back to this discussion about the capital markets being open. You know, the banks are doing really well, particularly the larger banks that have big capital markets, businesses and even some of the smaller boutique banks that focus on M&A and advisory work. There is a lot going on and a lot of pent up demand things where, you know, they've been on retainer for a long time waiting to actually start getting deal fees.

The deal fees are coming and their backlogs are huge. Again, we like businesses that have visibility. So the investment banks, the M&A boutiques have, big, big backlogs. They're talking about, you know, projects and sizes of deals that they haven't seen in a long time.

So you're starting to break through, with both IPOs and underwriting but also with M&A. Part of that M&A story is because we have a new, philosophy in Washington around allowing transactions to happen.

So, there's some great stuff going on in financials as well. And we're excited about the near term outlook in that group.

Jodi Phillips

So thank you, Justin, for joining us. And now we're going to conclude by putting Brian on.

Narrator

The hot seat.

Jodi Phillips

All right Brian I've got a list of questions for you as quickly as you can okay.

Brian Levitt

I’ve calmed down.

Jodi Phillips

Don't lose your composure this time. We don't have time.

Brian Levitt

I’ve calmed down, I'm ready to go.

Jodi Phillips

The clock is ticking. So first off, what is your take on recent revisions to the Bureau of Labor Statistics numbers?

Brian Levitt

Oh, you're trying to fire me up again? I see what you're doing there. So. Okay, my take on is I don't believe it was being driven by politics. The bigger issue is that we're getting these big revisions in the data. So it's hard to get a good grasp of what's going on in the jobs market. It's hard for the Fed to set policy.

So it may be worth debating methodology, because we're at a time when businesses seem less interested in participating. Or maybe for the time being, we'll just focus on payroll data coming from the private sector. I mean, ADP puts out a report, there's other reports. So, I'm not going to get too concerned over this. We will be able to monitor it.

Jodi Phillips

Okay. Yeah. I did see on your LinkedIn your chart showing those ADP numbers and the BLS numbers and the pretty tight correlation.

Brian Levitt

Pretty tight correlation. Thank you, ChatGPT for running those numbers for me.

Jodi Phillips

All right. Next question. Why are long term US interest rates going down? I mean what happened to those fears of US fiscal sustainability that were such a hot topic?

Brian Levitt

Yeah. I never thought it was about fiscal sustainability, that that is more hyperbole. The US Treasuries are going to trade based on the nominal growth potential of the economy. People get it wrong thinking the US Treasury bond trades like a credit. That is not the case, right? It's not about fiscal sustainability. So long rates are going down because US growth is slowing, right.Plain and simple.

Jodi Phillips

Okay. Next, if you only had one indicator that you could watch for this cycle, what would it be?

Brian Levitt

Inflation breakevens. Now this is every cycle. It's something new. 2008 we watched interbank lending rates. 2020 we watched social mobility. Right. It's something different in every cycle. This one to me it's all about breakevens given what's going on with terrorists if they stay contained inflation breakevens and we define them earlier, then the Fed is likely to ease. And I would expect this cycle to continue.

Jodi Phillips

Okay. Last question. What is the biggest risk to your market outlook.

Brian Levitt

Easy. And that's that goes right back to that inflation breakeven story. So the biggest risk is that we're wrong about tariffs and the implication for prices. My expectation I think most economists’ expectations is it's a price shock right. It's not broad-based inflation. But if it leads. And why is that. Because other goods don't get the same price lift. Services don't get the same price lift. It's really more of a tax on us. We spend less on other things if we're wrong. And it leads to broad-based inflation. And the Fed either has to sit here at higher rates or even have to raise rates, then I fear that would be the end of the cycle. That's not our call, Jodi, as you know. That is a risk to the cycle. As you know, there's always some type of risk to the cycle. And that would be this one.

Jodi Phillips

That's it. You're off the hot seat.

Brian Levitt

Oh, yeah. It's good to be off the hot seat. I got a little bit heated there again.

Jodi Phillips

All right, Brian, so before we go, remind our listeners where they can follow you for more commentary.

Brian Levitt

Yeah. Thanks, Jodi. Visit invesco.com/BrianLevitt to read my latest commentaries. And of course you can follow me on LinkedIn and on X at Brian Levitt. That's two T's.

Jodi Phillips

Well thanks for joining. See you next time.

Brian Levitt

Thanks, Jodi.

Important information

You've been listening to Invesco's Greater Possibilities podcast. The opinions expressed are those of the speakers, are based on current market conditions as of August 6, 2025, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Should this content contain any forward looking statements, understand that they are not guarantees of future results. They involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

References to the weak US jobs report and lower revisions sourced from the US Bureau of Labor Statistics as of June 30, 2025. Based on US nonfarm payrolls.

References to leading economic indicators pointing lower sourced from the Conference Board as of June 30, 2025. Based on the US Leading Economic Indicators Index, which aggregates 10 key economic indicators.

References to rising goods prices sourced from the US Bureau of Labor Statistics as of June 30, 2025. Based on the US Consumer Price Index, which measures the change in consumer prices.

References to bond market inflation expectations sourced from Bloomberg as of August 6, 2025. Based on the 10-year US Treasury rate.

Correlation between payroll numbers from ADP and the BLS sourced from the Bureau of Labor Statistics and Automatic Data Processing as of July 31, 2025. Based on the correlation of the 6-month rolling average of the BLS Nonfarm Payrolls and ADP National Employment Report.

References to long rates going down sourced from Bloomberg as of August 5, 2025. Based on the 10-year US Treasury rate, which peaked this year at 4.79% on January 14th and fell to 4.21% the first week of August.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.

The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

Stablecoins are cryptocurrencies whose value is tied to another currency, commodity, or financial instrument, such as the US dollar or gold.

Cryptocurrencies are considered a highly speculative investment due to their lack of guaranteed value and limited track record. Because of their digital nature, they pose risk from hackers, malware, fraud, and operational glitches. Cryptocurrencies are not legal tender and are operated by a decentralized authority, unlike government-issued currencies. Cryptocurrency exchanges and cryptocurrency accounts are not backed or insured by any type of federal or government program or bank.

Stagflation is an economic condition marked by a combination of slow economic growth and rising prices.

Correlation is the degree to which two data points have historically moved in relation to each other.

Breakeven inflation is the difference in yield between a nominal Treasury security and a Treasury Inflation-Protected Security of the same maturity. Treasury Inflation-Protected Securities, or TIPS, are US Treasury securities that are indexed to inflation.

The Greater Possibilities Podcast is brought to you by Invesco Distributors, Inc.

Mid-cap manager Justin Livengood joins the podcast to discuss the surge in initial public offerings — a trend that he believes is more than just a temporary pop in activity. We also discuss why industrials and financials are his two favorite sectors right now, as well as his thoughts on stablecoins.

A surge in IPOs, stablecoins, and two key sector opportunities in mid-caps

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