Podcast Series Greater Possibilities

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• A software-driven selloff, an incoming Fed chair, and economic resilience

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  Transcript

  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.

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  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.

  The silver spot price per troy ounce peaked at $116 on January 28, 2026, and fell to $70 on February 5, 2026, according to Bloomberg.

  The spot exchange rate of 1 bitcoin per US dollar hit a 2026-high of $97,557 on January 14, 2026, and closed at $63,083 on February 5, 2026. The all-time high of bitcoin was $125,260 on October 6, 2025, according to Bloomberg

  The return of the Nasdaq 100 Index declined 2.74% year to date as of February 5, 2026,  and is off 6.02% from the October 29, 2025 peak, according to Bloomberg.

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  Leading economic indicators moving into expansion territory sourced from the Conference Board, as of January 31, 2026.

  According to Bloomberg, as of February 5, 2026, year-to-date returns were 5.36% for the S&P 400 Midcap Index, 3.33% for the S&P 500 Value Index, and 5.21% for the MSCI All Cap World ex-US Index.

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  The ISM Manufacturing PMI climbed to 52.6 in January from 47.9 in December, according to the Institute for Supply Management. The index is based on surveys of purchasing and supply executives across US manufacturing industries. 50 is viewed as the demarcation between expansion and contraction.

  The S&P 500 Index averaged a 0.2% return over the past 22 government shutdowns since 1976, according to Bloomberg and Invesco analysis.

  As of February 6, 2026, the 10-year Japanese government bond yield climbed from 1.26% to 2.21% over the past 12 months, 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

  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. 

• Discussing the future of AI with Zack Kass

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  Transcript

  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.

   

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  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

  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. 

• Santa rallies, recovery regimes, and a K-pop economy

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  Transcript

  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

  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. 

• The AI “bubble,” commercial real estate, and extraordinary monetary policy

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  Transcript

  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.

   

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  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.

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  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

  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 government shutdown, gold prices, and the state of the economy

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  Transcript

  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.

  All investing involves risk, including the risk of loss.

  Past performance does not guarantee future results.

  Investments cannot be made directly in an index.

  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.

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  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.

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  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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  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

  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.”

• Long rates, the US dollar, and the global debt market

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  00:00

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  Transcript

  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

  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.

• 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

  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.

• The fiscal deficit, international SMID, and the case for optimism

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  Transcript

  Transcript : Disclosures

  Brian Levitt:

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

  Jodi Phillips:

  Hey, Brian. So we have an awful lot of stuff to cover today, definitely a long list of topics to get through, including later on in the show, we're going to be talking to David Nadel, who's a portfolio manager of the Invesco International Small Company Strategy.

  Brian Levitt:

  Yeah, international managers are in vogue again. I see them walking with a little bit of a straighter posture in the hallways of our offices, and I think that makes sense given the policy uncertainty that we have here in the United States.

  Jodi Phillips:

  Well, sure. I mean, given the performance of international markets since the beginning of this year, getting David on was definitely a top priority for today.

  Brian Levitt:

  Absolutely. And it's not only international markets, you've seen the US markets, in many instances, recover as well from what had been a challenging period. And it just reminds that even during difficult times, keeping an optimistic way of thinking can certainly be helpful to investors, don't get caught too much in the negative news flow, although I do wonder periods like this, Jodi, do you think I have a pessimism aversion?

  Jodi Phillips:

  Pessimism aversion? Oh, there's an interesting question. I don't know, I don't know.

  Brian Levitt:

  I mean, you know me well.

  Jodi Phillips:

  Yeah.

  Brian Levitt:

  Am I adverse to being pessimistic about markets?

  Jodi Phillips:

  About markets? All right, where is this concern coming from?

  Brian Levitt:

  Well, it just seems like when you do what I do for a living, you hear a lot of pessimistic views. So it's not as if there aren't times where I think markets could be overvalued or the economy may be challenged, but it's really these more existential crises that I hear from people, these things that they fear. I just have an aversion to being overly pessimistic about these things.

  Jodi Phillips:

  Okay, so all the talk about the end of US exceptionalism, the US can't fund its fiscal deficit, those kinds of issues?

  Brian Levitt:

  Yeah, but I mean, that's just this week.

  Jodi Phillips:

  Yeah, true.

  Brian Levitt:

  I've been doing this for a long time. I remember when the baby boomers were all going to turn 65 and crash the housing and stock market. Well, they're all 65 now. I remember when we were going to run out of oil. It doesn't seem to be a problem. You and I lived through 2022 together, that was going to be the beginning of a new era of stagflation. Did that happen? I remember when after COVID, every office building in the country was going to be empty. Jodi, anecdotally, my commute is awful again, the lines at lunch are intolerable. So office space, no, not every office building in this country is going to be empty. Certainly not the one I'm coming to every day.

  Jodi Phillips:

  All right, all right, so a little bit of pessimism seeping through on your commute and your lunch line, but when it comes to the big topics, that's where you draw the line.

  Brian Levitt:

  Oh, yeah, yeah, I'm not averse to pessimism in my day-to-day life, I'm all in on pessimism on my day-to-day life. So yeah, yeah, you're right, the better future, I am averse to be pessimistic about a better future.

  Jodi Phillips:

  Well, understandable. I mean, I think history has mostly proven you right on that front.

  Brian Levitt:

  Yeah, it's not fair though. The pessimists just get to sound so smart.

  Jodi Phillips:

  You say that, but I don't think that's true. I just think if the pessimists are wrong, no one cares and brings it up because it means something good happened and we're all distracted by the good thing that happened. I don't think the pessimists necessarily get to sound smart. It's just, they're either right or if they're wrong, we're celebrating something good.

  Brian Levitt:

  Yeah, okay, that's fair. I just wanted to make sure I'm not just too Pollyanna about a lot of these things that people worry about. I just can't get there. I prefer to be on the side of human ingenuity, innovation, advancement. Again, I think the historical context proves me right.

  Jodi Phillips:

  Okay. So with that, let's move on to our first topic.

  Automated Voice:

  Trending conversations.

  Jodi Phillips:

  So Brian, besides pessimism, what's on everyone's mind?

  Brian Levitt:

  I think what's been on everybody's mind, I mean, we've shifted from a tariff conversation. The market generally believes that we've seen the worst of the tariffs and things will get incrementally better here. The focus is now really on the fiscal deficit topic and what the implications are for US growth and for US treasury rates.

  Jodi Phillips:

  Sure. Well, I mean, that's a topic that's clearly in focus given the one One Big Beautiful Bill that's making its way through Congress at the moment, the Congressional budget office has estimated that it'll add 2.4 trillion or so to the deficit over the next decade.

  Brian Levitt:

  Yeah, that feels like a pretty big number. I wanted to put it into context. So 2.4 trillion is enough to give every person in the world 52 Big Macs.

  Jodi Phillips:

  That's your context?

  Brian Levitt:

  That's my context.

  Jodi Phillips:

  Okay, I guess that's one way to measure it. I don't know. Do fast food places have dollar menus anymore, Brian? Did that come up in your research? I miss dollar menus.

  Brian Levitt:

  I think if there was dollar menus, we could give them a lot more than 52 Big Macs.

  Jodi Phillips:

  I mean, 2.4 trillion went a lot further back in my day, but all right, all right, so be it.

  Brian Levitt:

  I don't know. I mean, so we'd be giving them a couple of hundred Big Macs? I don't know if that's-

  Jodi Phillips:

  Fries, fries, a shake...

  Brian Levitt:

  Fries, yeah.

  Jodi Phillips:

  ... something. We could do Happy Meals.

  Brian Levitt:

  I don't know if we would feel great about doing that, but...

  Jodi Phillips:

  Rates, all right, let's get back to rates. How has the US treasury market been responding to this?

  Brian Levitt:

  Well, that's what's so interesting about it is, so the 10-year Treasury rate was at 4.27, that's on election day, November 5th, 2024, and ended last week at 4.47. So that's a whopping 20 basis point move that seems to have everybody so concerned.

  Jodi Phillips:

  Okay, so up a bit, but that doesn't seem like it's enough to worry about. I don't know. What do you think?

  Brian Levitt:

  Yeah, it depends on the day. I mean, I think it's fair to say the term premium has increased. What does that mean? I mean, investors demanding a little bit more to go out on the US treasury yield curve, but it's not like it blew out to this level where everybody should be thinking the US can't fund this 2.4 trillion in additional deficits over the next decade. It went out to a level that's consistent with the historical average. I could actually argue that investors over the last number of years weren't demanding enough to go out on the US Treasury yield curve.

  Jodi Phillips:

  All right. So bring it home, what's the bottom line then with this trending conversation? What do you want people to take away?

  Brian Levitt:

  Yeah, I mean, I think rates are higher now, rates will be higher than they were in the prior cycle, but I would say thankfully, what it means is the world is expecting a better growth than inflation environment in the US or a higher growth than inflation. So maybe you get a little bit more of volatility in rates. But this idea that the US rate market is behaving like an emerging market country that could default, there's just... we need to stop that. There's nothing in the data, there's nothing in the bond auctions that would suggest that to be a case.

  Jodi Phillips:

  Okay. Then let's move on to our next topic.

  Automated Voice:

  I agree.

  Jodi Phillips:

  So this is where we find something in the news that Brian has read recently and agrees with. So what do you got?

  Brian Levitt:

  Yeah, I'm going to go with Steve Rattner in the New York Times. He was talking about the future of employment, why we shouldn't necessarily be looking to bring manufacturing back to the US. So Rattner's comments were we led the Industrial Revolution, we can be leaders again in new sectors, substantial advantages in technology in general, and artificial intelligence, well positioned to remain the world's most dynamic economy. This is the key part, Jodi, the challenge is to ensure that Americans are educated, trained, positioned to take advantage of the jobs of the future, not necessarily trying to bring the manufacturing jobs back.

  Jodi Phillips:

  All right, all right. Well, I mean, that definitely sounds like it tunes into some of the optimism you were talking about earlier, substantial advantages and dynamic economies, so.

  Brian Levitt:

  Yeah. And Rattner talks about the benefits of outsourcing over the past decades. He does admit it was going too fast, not preparing enough of the workforce for it, but for all the talk of bringing manufacturing jobs back to the US, I was wondering if you wanted to take a guess of how many manufacturing jobs are actually open in the US today.

  Jodi Phillips:

  Oh, all right, well, I have no idea, so I'll just guess a nice round number, I don't know, 100,000.

  Brian Levitt:

  Yeah, so it's actually closer to 381,000. Average over the last two years has been about a half a million.

  Jodi Phillips:

  Wow, okay. So we do have some jobs to fill, even before the impact of tariffs.

  Brian Levitt:

  But I think at the end, the most important thing is for all this talk about it is tariff negotiations do seem to be moving in a favorable direction. So I think ultimately we will move beyond the worst of this and again, start to thinking about those advantages that the US does have. Not that there aren't great businesses international as well, but again, just back to this pessimism aversion, this is not the end of US exceptionalism.

  Jodi Phillips:

  Great. Then let's go into our next topic.

  Automated Voice:

  Phone a friend.

  Jodi Phillips:

  So this is where we caught up with David Nadel for a conversation on investing outside of the US. So we asked him several questions. First, we discussed with David the positive start that international stocks have had this year. So what does David attribute that to, and does he think it's sustainable? Here's what he had to say.

  David Nadel:

  Yeah. So I think we attribute it to a kind of reversal of the trends that have been going on for much of the last 15 years that have propped up US equities. So you had much better growth from the US than the rest of world, or at least better than the eurozone, you had a much stronger dollar, and if you wind back the clock 20 years, the EU economy was roughly the same size as the US. The US is now 50% larger. I mean, the US has probably benefited from the global trade disproportionately, although we're now in a tariff war.

  You look at the DXY, the DXY is now broken through support levels on the downside. It's in the high 90s. I mean, they could certainly test low 90s, maybe move back into the 80s because the tariff war is delegitimizing to the US dollar. And I think that the administration wants a weaker dollar to try to stimulate exports. But exports are, of course, going to face their own challenges because of reciprocal tariffs.

  Jodi Phillips:

  Next, we talked about valuations and how international stocks stack up against US stocks. Here's David's thoughts.

  David Nadel:

  So in terms of valuation, I mean, as you would expect given that international has underperformed the US for most of the last 15 years, there's a massive valuation gap between international equities and US equities, with the US being much, much more expensive. So I think the Russell 2500 is at about a 50% premium to the international SMID benchmark on a forward PE basis, roughly 40 or 50%, I mean, quite substantial, and that's on elevated earnings. So we're talking about a big multiple premium on elevated earnings, whereas international earnings are not at peak levels.

  Jodi Phillips:

  Then we moved on to the subject of interest rate cuts, and David shared his opinions on global central banks' capacity to cut rates.

  David Nadel:

  We think that the international SMIDs are in a much more likely position to benefit from rate cuts than US SMIDs are because the tariffs are obviously inflationary, it puts the US Fed in a box. I mean, we're seeing the sort of jousting match and jawboning, but in theory, if you have a independent central bank, inflation is part of their mandate. By comparison, you look at the BOE, you look at the ECB, you look at the BOJ, they're not facing those same inflationary threats and dynamics. They have more capacity to cut rates.

  Jodi Phillips:

  Next, we talked about how US investors have or have not historically embraced the international SMID asset class and his team's research into the performance of this asset class compared to larger stocks. Here's what he had to say.

  David Nadel:

  So the data indicates, it's actually kind of shocking, there's very little allocation among US investors to international SMID. It's less than 1% actually of equity allocation compared to about 13% for US SMID and maybe, I don't know, 7 or 8% for international large. So it's a very small allocation.

  SMID is viewed as higher risk than large, but the data doesn't really bear that out. We looked at rolling performance periods, international SMID versus international large, we found that international SMID beats international large whether international companies in general are beating the US or the US is beating international, but the risk-adjusted return figures are much better than people think. The Sortino ratios they're actually about 15% better for international SMID than they are for international large.

  So the whole perception that people have about the risks of international SMID relative to large, I think these are misplaced.

  Jodi Phillips:

  Finally, the conversation drifted toward tariffs

  David Nadel:

  There's so much in this tariff discussion, there's so much discussion about where the products are sourced from or geographic locations and all this. What's much more important, that is how mission-critical are these products to the buyers? If it's a mission-critical service or a product, a company that's got pricing power, a company that's got a capacity to suffer, people are... and it's a B2B business, tariffs just don't really impact stuff like that.

  Jodi Phillips:

  And that was phone a friend. Thank you David for joining us. Now, we're going to conclude by putting Brian on.

  Automated Voice:

  The hot seat.

  Jodi Phillips:

  So Brian, I got questions for you, answer them as quick as you can. First, when would you become more concerned about the state of the US economy? What would that take for you to maybe get a little pessimism in that thought process?

  Brian Levitt:

  I always watch corporate bond spreads. That's my canary in the coal mine. If corporate borrowing costs relative to a risk-free rate, were going up significantly, I would be concerned. Instead, the high-yield bond market, so the lowest-rated US corporate borrowers is actually positive this year. Last I checked, outperforming equities. So to me, that is not signaling an economy that is rolling over into a recession.

  Jodi Phillips:

  Okay. And now it's time for the mandatory Federal Reserve question, will the Fed cut rates this year?

  Brian Levitt:

  If you look at the world interest rate probabilities, so what are the implied rates telling us? The market is saying maybe twice. I heard a great comment recently that that twice is just kind of an average of what all investors are thinking. And the reality is the Fed may cut zero times or six times more realistically than twice. And what does that mean? That means either the economy remains resilient, and they don't have to cut rates, or the economy rolls over, and they respond quickly and have to take rates down, what, six times. And the reason that you would say six is that would be the normalization of the yield curve, the three-month getting down into the mid-three levels or so. As of this point, I'll take zero, zero rate cuts rather than six.

  Jodi Phillips:

  Okay. All right. And then final question, do you think President Trump's Big Beautiful Bill is going to become a large lovely law?

  Brian Levitt:

  Yes, I do. There may be some changes along the way, but yes. And I like large lovely law. You should probably put a trademark on that and send it over to 1600 Pennsylvania Avenue.

  Jodi Phillips:

  Yeah, yeah, I'm sure. All right, all right, that's it, you're off the hot seat.

  Brian Levitt:

  Good, thank you.

  Jodi Phillips:

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

  Brian Levitt:

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

  Jodi Phillips:

  Great. Thanks for joining. 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 June 11, 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 about the performance of international markets this year sourced from Bloomberg as of June 16, 2025. Based on the year-to-date performance of the MSCI All Country World ex USA Index, which returned 16.9%.

  Statements on the recovery of US markets this year sourced from Bloomberg as of June 16, 2025. Based on the performance of the S&P 500 Index since the market bottom on April 8, 2025.

  Data on US Treasury rates sourced from Bloomberg as of June 9, 2025.

  Statistics on US manufacturing jobs sourced from the US Bureau of Labor Statistics as of May 31, 2025.

  Statements on the performance of the high yield bond market compared to equities sourced from Bloomberg as of June 12, 2025. Based on the year-to-date performance of the Bloomberg US Corporate High Yield Index and the S&P 500 Index as of June 19, 2025. The S&P 500 was up 2.33%, and the high yield index was up 3.31%.

  Statements on the performance of tech stocks sourced from Bloomberg as of June 12, 2025. Based on the performance of the S&P 500 GICS Information Technology Sector Index from the bottom on April 8, 2025. This index comprises those companies included in the S&P 500 that are classified as members of the GICS® information technology sector.

  Statements about implied rates sourced from Bloomberg as of June 12, 2025. Based on Fed Funds implied rates. The Fed Funds rate is the rate at which banks lend balances to each other overnight.

  Fed Funds implied rates are the difference between the spot rate and the futures rate.

  Comments about the historical economic growth of the US compared to the eurozone sourced from the World Bank as of May 31, 2025. Over the past 20 years, Euro Area nominal gross domestic product growth has increased from $6 trillion to $15 trillion. US nominal gross domestic product has climbed from $8 trillion to nearly $30 trillion.

  Comments about the strength of the US dollar sourced from Bloomberg as of May 31, 2025. Based on the US Dollar Index.

  Comments on the valuation gap between US and international stocks sourced from Bloomberg as of May 31, 2025. Based on the price to earnings ratio, or P/E,  of the MSCI All Country World Small Cap Net Total Return USD Index and the Russell 2500 Index.

  Comments about US investors’ allocations to international small and mid caps compared to large caps sourced from the Investment Company Institute as of May 31, 2025, based on mutual fund and ETF assets.

  Over 10-year rolling periods from July 1, 2007, to March 31, 2025, international SMID had average annualized returns of 5.59%, compared to 4.43% for international large. This time period includes periods of US outperformance and international outperformance. Based on the MSCI All Country World ex USA SMID Index versus the MSCI All Country World ex USA Large Index.  

  Over 10-year rolling periods from July 1, 2007, to March 31, 2025, the average Sortino ratio for international SMID was 0.55 versus 0.46 for international large caps — a 16% difference. Based on the MSCI All Country World ex USA SMID Index versus the MSCI All Country World ex USA Large Index. The Sortino ratio is a measure of risk-adjusted return that focuses on downside risk.

  There are 8.2 billion people in the world, and $2.4 trillion divided by 8.2 billion is roughly $300 per person. The average price of a Big Mac is $5.79, per Food & Wine. So that is enough to buy everyone 52 Big Macs.

  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.

  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.

  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 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.

  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.

  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 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.

  The S&P 500® Index is an unmanaged index considered representative of the US stock market.

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

  The US Dollar Index (or DXY), measures the value of the US dollar versus a trade-weighted basket of currencies.

  The MSCI All Country World Small Cap Net Total Return USD Index captures small cap representation across developed and emerging markets.

  The MSCI All Country World ex USA SMID Index captures mid- and small-cap representation across developed and emerging markets, minus the US.

  The MSCI All Country World ex USA Large Index captures large-cap representation across developed and emerging markets, minus the US.

  The Russell 2500™ Index measures the performance of the small to mid- cap segment of the US equity universe.

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

  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.

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

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

  Forward P/E ratio is a variant of a company’s price-to-earnings ratio and is calculated by dividing the company’s current share price by its expected earnings, usually for the next 12 months or the next full fiscal year.

  The term premium is the compensation investors require for bearing the risk that interest rates may change over the life of a bond.

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

  Spread is the difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another.

  EU stands for European Union.

  BOJ stands for the Bank of Japan.

  BOE stands for the Bank of England.

  ECB stands for the European Central Bank.

  B2B stands for business-to-business.

  SMID is short for small- and mid-cap stocks.

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

  International equity managers are in vogue again, so we visited with Portfolio Manager David Nadel about the case for international small- and mid-cap (SMID) stocks. In other news, we ponder how many burgers the One Big Beautiful Bill could buy. And we dive into Brian Levitt’s “pessimism aversion” and why he prefers to stay optimistic about the big trends that promise to impact the future. 

  The fiscal deficit, international SMID, and the case for optimism

  International equity managers are in vogue again, so we visited with Portfolio Manager David Nadel about the case for international small- and mid-cap (SMID) stocks. In other news, we ponder how many burgers the One Big Beautiful Bill could buy. And we dive into Brian Levitt’s “pessimism aversion” and why he prefers to stay optimistic about the big trends that promise to impact the future. 

• Trade deficits, the dollar, and diversification

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  Transcript

  Transcript : Disclosures

  Brian Levitt:

  Welcome to Invesco's Greater Possibilities podcast. I'm Brian Levitt. With me as always, my co-host, Jodi Phillips.

  Jodi Phillips:

  Hey, Brian. So did you have a hard time preparing for this episode today? I'm curious.

  Brian Levitt:

  Just a little bit. Yeah, I'd say.

  Jodi Phillips:

  Yeah. Yeah. Our timing was really impeccable for the last episode. I believe we recorded it about 12 hours, give or take, before Trump announced his 90-day pause in most reciprocal tariffs.

  Brian Levitt:

  Yeah, I think that's Murphy's Law. I was on an airplane when it happened, so I had to wait to land to find out whether we could actually use the podcast or not. But that was a fun day. I was very concerned about where markets were going when the plane took off, and by the time we landed, the S&P 500 was up about nine and a half percent. So, not bad.

  Jodi Phillips:

  Nice. Sounds like the kind of day you don't want to miss.

  Brian Levitt:

  Yeah, we definitely don't want to miss those kind of days. And I was thinking about that the whole day. I mean, the challenge that investors always have is great days like those almost always happen around the worst days. So you think you're timing these things well and then bang, you're missing 9.5% update.

  Jodi Phillips:

  So then you're implying that maybe we shouldn't try to time the markets.

  Brian Levitt:

  Yeah, you've heard that?

  Jodi Phillips:

  Once or twice. Once or twice. Okay. That sounds like it was an interesting plane trip for you. Would you have rather had that fun market surprise or a podcast that wasn't stale?

  Brian Levitt:

  That's probably both. Can I ask for both?

  Jodi Phillips:

  Yeah. You can ask, but good luck. Good luck.

  Brian Levitt:

  Yeah. So you think about it, it's like we're joking, but it's even hard to plan for podcasts right now. Like how could businesses even plan to build factories, right? These are the jokes that are going on amongst my friends.

  Jodi Phillips:

  Is that what counts as humor in macroeconomics circles?

  Brian Levitt:

  Yeah, that's the dark macro humor.

  Jodi Phillips:

  I need to start hanging out with you and your friends. That sounds like great conversation.

  Brian Levitt:

  You're always welcome, Jodi. But I think that's the rub for this market right now. It seems like these markets are looking to bounce on any good news. Challenge is that policy uncertainty persists. So it's hard to know one day from the other. One day, you're kind of considering the prospect of for a long US-China trade war, and the next day Treasury Secretary Bessent starts talking of de-escalation. So it's like you're getting whipsawed a bit on this.

  Jodi Phillips:

  Well, of course, compounding the issue is that we've seen the president directing comments to Federal Reserve Chairman Jerome Powell. So there's been more uncertainty or speculation around that as well.

  Brian Levitt:

  Yeah, that wasn't helpful. The exact quote was, "There could be a slowing of the economy unless Mr. Too Late, a major loser, lowers interest rates now." And then the now is in all caps. And so you saw the market on April 21, and that was another tough day. That was a rare combination of US stocks down, US treasury bonds down, US dollar down. So if you want to risk the Fed's independence, you could affect all major asset classes.

  To me, the biggest concern about that, and I think maybe we're walking back it a bit, if the Trump were to fire Powell, the market, which is now focused on whether this is recessionary, you could see it move from recession concerns to stagflation fears. Now this is not stagflation, but to stagflation fears, and I think that would be a significantly worse outcome for stocks.

  Jodi Phillips:

  Sure. Well, as we record this, and I guess we should always say as we record this, it doesn't sound as if the president intends to fire Powell. So perhaps instead we might see some blame thrown his way for the looming slowdown in economic growth.

  Brian Levitt:

  Oh yeah, that's fine, right? Presidents can always blame the Fed chair. I'm not worried about that at all. Let's just not mess with Fed independence. And let's not have to rerecord the intro to this in a few hours.

  Jodi Phillips:

  Don't get on a plane, Brian. Don't go anywhere. Don't go anywhere. All right, so we entered this year with the notion of American exceptionalism, but the US dollar index, which of course measures the strength of the dollar against other currencies, that's declined from its peak to a recent trough by 10%. So is American exceptionalism being called into question? And if so, what does that mean for investors? So these are the questions that help tee up our first segment of the podcast.

  Automated:

  Phone a friend.

  Jodi Phillips:

  Each episode, we reach out to a friend of the podcast for a deeper dive on the topics that are top of mind for investors. So this time around, we called Ben Jones, who's a director of macro research in our UK office, for his views from across the pond. First we asked Ben whether the current situation in the US brings back any memories for him of Brexit. Here's what he said US investors could learn from that period.

  Benjamin Jones:

  Yeah, look, bad memories of Brexit, I must admit. And I think the Brexit analogy is a good one. So in 2016 when the UK voted to leave the European Union, it now seems as if the US is moving to isolate itself somewhat from the rest of the world. And look, I never thought I would say something like that. Some of that policy move obviously theoretically could be reversed, and we're seeing some semblances of the policy being toned down a little bit at the moment. But I think like Brexit, this is not something that is going to be fully reversed. This is something that we do have to live with.

  And now I think in terms of the lessons that we can learn, the market lessons that I'm focused on at the moment really is that this is not something that is going to be an immediate panic and an immediate break. It's not something that we have to immediately make a knee-jerk reaction to. But what I do think we are going to see is that US assets command a greater risk premium. And I mean that in terms of treasuries, the dollar and US equities.

  And much like in 2016, what I do think we're going to see is a steady drain of capital flows out of the US just like we've seen out of the UK over the last decades or so. So that means that US assets essentially will probably underperform for a protracted period of time. But look, it's not the end of the world. The world still revolves. We still go around and we still buy stuff and London is still a fabulous place to live and you can still buy things and still get things. So it's not the end of the world, but it does appear to be that this is going to be a protracted period of slower growth than would've otherwise been the case. So not nice lessons, apologies.

  Jodi Phillips:

  Next, we ask Ben whether there's a sense in the UK that the era of us exceptionalism is over. Here are his thoughts.

  Benjamin Jones:

  Look, now I generally look at this obviously from a perspective of being outside of the US as a foreign investor. But the way I like to think about this is, look, I started in this industry about 20 years ago and the thing that I was taught 20 years ago was diversification. Diversification, diversification, diversification. But over the last 20 years or so, generally speaking, US assets have outperformed and the US dollar has strengthened over that period, so diversification would've hurt you somewhat.

  I think going forward though, because we're expecting to see lower growth in the US and a lot of those US assets still do trade on higher multiples than other parts of the world, what we should be thinking about is very much diversifying our portfolio more across geographical lines. So generally speaking, favoring rest of world equities over US equities, for example, seems sensible to me. The other thing to start to think about is positioning yourself for a slightly weaker dollar, or at least thinking about how currency implications play out in your portfolio in a different manner than they have done over the last 20 years or so.

  Jodi Phillips:

  Finally, we asked him his views on positioning portfolios for a world in which US exceptionalism may be behind us, and here's what he had to say.

  Benjamin Jones

  So ultimately, what it really boils down to is broaden out the portfolio, think about getting more assets in there to get those diversification benefits. Very much do that across regional lines as well. So perhaps look at places like Europe, China, dare I even say the UK as well. And also think about style along a different line as well. So growth has done very well over recent years, and obviously that's largely been led by the US tech names, but I think perhaps thinking about value to a greater degree in portfolios now makes a bit of sense. So ultimately, look, it all boils down to just look outside of the US for other opportunities. There are lots of opportunities outside of the US today and run a more diversified portfolio.

  Jodi Phillips:

  Thank you Ben, for sharing your perspectives. Next step is a segment we call...

  Automated:

  I agree.

  Jodi Phillips:

  So for the second podcast in a row, I've asked Brian to highlight a recent comment in the news that he agrees with.

  Brian Levitt:

  Are we getting tired of me disagreeing with everyone? Is that why we're moving to I agree?

  Jodi Phillips:

  No, I don't want you to sound like a curmudgeon too much. Yeah. So who do you agree with recently?

  Brian Levitt:

  I'm going to go with Senator Rand Paul this time, the great state of Kentucky. So Rand Paul said, "I have a trade deficit with my grocery store."

  Jodi Phillips:

  That's good.

  Brian Levitt:

  Yeah. When asked about his views of whether trade deficits are bad.

  Jodi Phillips:

  Okay, very good. So perhaps inspired by Nobel Laureate, Robert Solow who said, "I have a chronic deficit with my barber who doesn't buy a darned thing from me."

  Brian Levitt:

  So are we allowed to say darned on the Greater Possibilities podcast?

  Jodi Phillips:

  We did, twice. Yeah.

  Brian Levitt:

  We just did. Exactly. Exactly.

  Jodi Phillips:

  All right, so say more about the Rand Paul quote. Why do you agree with that? And feel free to say darned as much as you want.

  Brian Levitt:

  Right, right, right. So trade is not a darn zero-sum game where there must be a loser or there must be a darn loser. So I think that's the big thing. This idea that trade has to have a winner and loser. It's the opposite. Trade occurs because it's mutually beneficial, right? Like Rand Paul goes to the grocery store with dollars because he wants groceries. It works out for both.

  Jodi Phillips:

  That's really basic, yes.

  Brian Levitt:

  And just think about it from the perspective, I know a lot of the focus of this is going to be on China, but since China joined the World Trade Organization in 2001, the world's gross domestic product has nearly doubled to over $93 trillion in real terms. And much of that growth is attributed to China. And so you think about that massive growth and the significant amount of people who have been pulled out of poverty. Over that period, the US started accounting for about a fourth of the global economy then and, Jodi, guess what the US accounts for now as a percent of or a fraction of the global economy?

  Jodi Phillips:

  I don't know. I don't know. I couldn't even guess, what's the-

  Brian Levitt:

  Exactly the same.

  Jodi Phillips:

  Oh, well, there you go.

  Brian Levitt:

  So basically the pie has grown and the US share's grown proportionally. So it is not as zero-sum game. Trade is beneficial, and I very much agree with Senator Rand Paul.

  Jodi Phillips:

  Very good. Okay, so our next segment is...

  Automated:

  The Inbox.

  Jodi Phillips:

  ... where we highlight a question that Brian has recently received from clients. Are you ready?

  Brian Levitt:

  Yeah, I'm ready. Let's do it.

  Jodi Phillips:

  All right. So, is the US dollar in danger of losing its reserve currency status?

  Brian Levitt:

  I've been getting this question my entire career.

  Jodi Phillips:

  What's been your answer?

  Brian Levitt:

  Well, I mean my whole career, the answer was don't even lose a second of sleep over it. There's no alternative to the US dollar. The US is the world's biggest economy, the world's biggest trading partner, the world's biggest military, controls the trade lanes, all of those things. And one way I've heard it put is to just ask yourself, what's the world's language? When you go around the world, what does everyone speak? English.

  Jodi Phillips:

  Yeah.

  Brian Levitt:

  It's the same concept. That's why dollars are transacted so readily. That's why everybody speaks English, because it's the world's largest economy and we all do business together.

  Jodi Phillips:

  Yeah, Brian, you're right. They do speak English everywhere, which we're very lucky on that as we're traveling. It sure makes our lives anyway a lot easier.

  Brian Levitt:

  It does. Although I always feel a little bit wrong about it. So the reason that investors are asking now, and we heard Ben allude to this a bit, is there's concerns that with the tariffs and with the uncertainty around the rules in the US, that'll result in foreign investors diversifying their currency exposure. So right, we heard Ben say that.

  Jodi Phillips:

  Yep.

  Brian Levitt:

  Yeah, but look, I tell my daughters, Jodi, don't go from A to Z, right? Just because something happens, don't extrapolate that all the way out to the end of the alphabet. So yeah, like Ben was saying, you may see some currency diversification, but to be a reserve currency, the nation needs a lot of things going for it. It has to be attached to liberalized capital markets, free currency, convertibility, rule of law. So I always tell people to consider a few facts.

  One, right now the US dollar accounts for about 95% of trade invoicing in the Western Hemisphere, about 75% in Asia. Those are pretty big numbers. Nearly two-thirds of foreign debt is denominated in US dollars. The US equity market has by far the largest capitalization in the world. So in order to lose the reserve currency, these things would need to change drastically.

  Jodi Phillips:

  Okay. All right. So I'll resist the temptation to go from A straight to Z. It doesn't sound like the US dollar is going to lose its status anytime soon.

  Jodi Phillips:

  All right, so we're going to conclude with our last segment where we put Brian on...

  Automated:

  The hot seat.

  Jodi Phillips:

  So we're going to run through a list of questions, answer as quick as you can. Question one, will the Fed be able to lower interest rates?

  Brian Levitt:

  Yeah, I think so. And then the good news about that is long-term inflation expectations remain very contained. So yes, there will be a price increase, there will be a shock in prices in the near term on imported goods because of the tariffs, but the Fed's going to look through that as a one-off price shock on imported goods rather than broad-based inflation.

  Jodi Phillips:

  Okay. Question two, has the US government hit a fiscal wall where we'll no longer be able to borrow money at the same levels?

  Brian Levitt:

  Yeah, so this one's like the US dollar reserve question. I've been getting it a lot. No, no. I mean, the US treasury rates backed up in mid-April and it did concern some people. I actually think US treasury rates are pretty reasonably valued. So how do you price treasuries, inflation expectations plus real growth, plus some premium over short rates that gets you into the low to mid-four percent area. So I would hardly call that a bond market that is signaling that the US has hit a fiscal wall. If anything, I would consider the ten-year treasury rate to be pretty fairly valued.

  Jodi Phillips:

  Okay. Last question, and maybe the most important one. I don't know, but what is your most important message to investors today?

  Brian Levitt:

  Ooh, good one. So, can I go with think beyond the next minute?

  Jodi Phillips:

  Think beyond the next minute?

  Brian Levitt:

  Yeah, think beyond the next minute.

  Jodi Phillips:

  Sure. Yeah.

  Brian Levitt:

  Look, I mean, you started this talking about long-term investing, right? You said you had heard that a time or two. I was considering the stagflation period from 1973 to 1980. So stagflation is not a base case right now, but that's the worry. The worry is that that '73, '74, '75 period is analogous to this one because growth was weak, prices went up and the Fed lost credibility. And so could you get there with a bad policy mix, I suppose.

  Now, what was that terrible case scenario? Over the eight years, the S&P 500 made no money. So that is a bad, bad outcome for investors. Now, if you have a longer horizon, if you had stayed invested from the beginning of '73 to the end of '92, so you actually held on for another decade plus, you actually made 11% per year over the full period. So per the rule of '72, you're doubling every six and a half years. And that's not withstanding the eight-year period where you returned nothing. So again, not forecasting stagflation, but we still need to think beyond the challenges du jour. Don't focus on what we want right now, focus on what we want most over time.

  Jodi Phillips:

  Okay, great context. So you're now off the hot seat. Before we go, Brian, where can our listeners follow you for more? So as things change when you're midair and you're out there tweeting, where? Where do we see this?

  Brian Levitt:

  Well, dependent on the Wi-Fi on my-

  Jodi Phillips:

  Fair enough.

  Brian Levitt:

  ... carrier of choice. Thanks, Jodi. Visit Invesco.com/brianlevitt to read my latest commentaries. And of course you can follow me on LinkedIn where I'm consistently posting Above the Noise, and on X at Brian Levitt.

  Jodi Phillips:

  All right, thanks for joining. See you next time.

  Brian Levitt:

  Thanks, Jodi.

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  In this episode, we ask a UK market expert whether the current environment in the US brings back any memories of Brexit, and what that means for diversification in portfolios. We discuss trade deficits and refute the idea that global trade has to have a winner and a loser. Finally, we tackle the persistent question of whether the US dollar is in any danger of losing its reserve currency status.

  Trade deficits, the dollar, and diversification

  In this episode, we ask a UK market expert whether the current environment in the US brings back any memories of Brexit, and what that means for diversification in portfolios. We discuss trade deficits and refute the idea that global trade has to have a winner and a loser. Finally, we tackle the persistent question of whether the US dollar is in any danger of losing its reserve currency status.

• The twists and turns of tariff policy

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  Transcript

  Transcript : Disclosures

  Jodi Phillips:

  Welcome to the Greater Possibilities podcast. This episode was recorded right before President Trump announced a 90-day pause on reciprocal tariffs to most countries, which sent stocks surging on April 9th. We'll be tracking this story with updates as it develops, but in the meantime, here's our take on the tariff situation as of April 8th. Enjoy the show.

  Brian Levitt:

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

  Jodi Phillips:

  Hey, Brian. So definitely not too difficult to come up with topics for discussion in today's show or I guess I should say-

  Brian Levitt:

  Oo, are we going to talk-

  Jodi Phillips:

  ... topic. One topic. Yes.

  Brian Levitt:

  Oh, I thought we were going to talk about Houston versus Florida. No?

  Jodi Phillips:

  Nope. Nope. Even better. Tariffs.

  Brian Levitt:

  Tariffs, okay.

  Jodi Phillips:

  Welcome to the Tariff podcast.

  Brian Levitt:

  Tarrific.

  Jodi Phillips:

  No. Oh, that was terrible, Brian.

  Brian Levitt:

  Tarrible?

  Jodi Phillips:

  That was terrible.

  Brian Levitt:

  That was terrible?

  Jodi Phillips:

  Terrible, yes.

  Brian Levitt:

  Well, the market certainly thinks it's terrible.

  Jodi Phillips:

  They certainly do. Markets were hoping for clarity on Liberation Day, and what we got was escalation instead.

  Brian Levitt:

  Escalation or-

  Jodi Phillips:

  Escalation.

  Brian Levitt:

  ... obliteration.

  Jodi Phillips:

  Some speculation-

  Brian Levitt:

  Or is it speculation.

  Jodi Phillips:

  ... that this may be the starting point for negotiations. And don't forget retaliation, there's some retaliatory tariffs as well.

  Brian Levitt:

  This is like an Adam Sandler song, Cajun Man.

  Jodi Phillips:

  Well, so the upshot of all that anyway is that the average tariff rate has now reached levels higher than those during the Great Depression.

  Brian Levitt:

  Yes. Little Smoot-Hawley history for us there. And yet, unfortunately, the uncertainty persists. So if you are hoping Liberation Day would give you clarity and lower tariff rates than expected, you basically got the opposite on that.

  Jodi Phillips:

  So how did you respond to all of this?

  Brian Levitt:

  Denial.

  Jodi Phillips:

  Denial. That's healthy. Okay. Denial about which part?

  Brian Levitt:

  Well, I mean, I initially hoped going into it that we wouldn't get an escalation, then I was just kind of confused. The announced tariff rates on the countries were perplexing. It was hard for me to even understand what went into the calculations. What is a non-tariff barrier? How do you quantify currency manipulation? Why was there a 50% tariff on goods from Lesotho, an African country?

  Jodi Phillips:

  There's a question.

  Brian Levitt:

  Small, very small African country. And so, denial. I just felt there had to be something I was missing.

  Jodi Phillips:

  Yeah, yeah. The Lesotho one sent me to Google for sure to learn more about what we're actually importing. Yeah, textiles. It looks like we get our jeans from there in large part. So yeah, you learn something new every day. So, all right, so you started at denial, which of course is the first stage of grief. And then did it turn to anger? Where did you go next?

  Brian Levitt:

  Yeah, a little bit of anger. I mean, certainly anger when we saw the market's response to it. It felt unnecessary. It felt like a little bit of a shot on the own goal. Just even consider that Lesotho example. How is that tariff rate even calculated? It's like the trade deficit divided by the nation's imports from the US and then half, right?

  Jodi Phillips:

  And then divided by two, yes, for the discounted reciprocal tariffs.

  Brian Levitt:

  Right. So I mean, their trade deficit versus ours, that's what their economies is largely based on, right? We're buying a lot from them, they're not buying all that much from us. So it seems like a pretty good deal.

  Jodi Phillips:

  All right. All right. Well, okay, so what next? What is the next stage of grief? Bargaining? Am I remembering that right? Do we go to bargaining?

  Brian Levitt:

  Yeah, so I think a lot of people have been sitting in this area of bargaining with regards to the tariffs. I think what I'm hearing most from people bringing up the Art of the Deal with Donald Trump, that these are just the opening salvo in negotiations. And if you think about it from the perspective, expectations now have gotten really bad in these markets. And maybe if the tariff rates just get a bit better or move directionally in a better way, then that'll be more beneficial to markets. So that's first part of bargaining. I don't know. Have you heard any of the bargaining?

  Jodi Phillips:

  Any of the bargaining? I don't know. I mean, there's people saying perhaps the Senate could vote to overturn it. I think that would take two thirds though, if I remember correctly. So that would be a pretty high bar.

  Brian Levitt:

  Right. I think you'd need 60 to overturn it, then Trump could veto it and then you would need two thirds to overcome the veto. So, good luck getting those numbers. And then also I hear, a lot of people, the Fed's going to come to the rescue by lowering interest rates. That's all part of the bargaining. It's the opening salvo, the Senate maybe could overturn it, the Fed's going to save us. So I think a lot of people are sitting in that bargaining space right now.

  Jodi Phillips:

  Sure.

  Brian Levitt:

  I mean maybe bouncing between anger and bargaining.

  Jodi Phillips:

  So that last one you mentioned the Fed, I mean, that one seems like it could be the most likely. I mean, do you think they will?

  Brian Levitt:

  Yeah, they probably will. They're going to see slower growth. Clearly prices are going to rise in the short term. I mean, there's a cost to tariffs, and that cost is either the businesses take on the cost and their profits get hit or consumer prices go up or both. So you've got to assume that prices are going up in the near term, I heard every 1% tariff is a 0.1% increase in the core personal consumption expenditure. So we could see where that's going. But it's also about longer term inflation expectations, which have actually come down a bit if you look at the 10-year break even. So if they see growth slowing and they think longer term inflation expectations are anchored, they could lower rates, they will likely lower rates. Although I'm not sure it's a magic elixir this time.

  Jodi Phillips:

  Okay. All right. Well it sounds a little bit like you might be heading to the next stage, depression.

  Brian Levitt:

  Yeah. I mean maybe I was there for a little bit. I think I'm getting closer to acceptance at this point. I don't have the type of personality to sit in depression for very long.

  Jodi Phillips:

  Well, good. Okay. So what does acceptance look like then?

  Brian Levitt:

  It seems like you're heading to a worse economic outcome. So a recession is potentially there, potentially likely. And where does that come from? I mean, look, confidence is falling, sentiment is falling. Future investment is driven by that. So also a spike in consumer prices in the near term. And really this acceptance that for now the future for the markets and the economy is really being based on the whims of the White House. So that's what acceptance is to me. I'm focused on what we know, which is likely heading towards slower growth and a near term shock in prices. But of course, the whims of the White House can change that in any given moment.

  Jodi Phillips:

  Okay. Well, if I remember this stages of grief model correctly, they don't have to be a linear process. So you're getting to acceptance, but that doesn't necessarily mean you're finished processing all of this.

  Brian Levitt:

  Oh, so you're hoping I move back to depression? I'm telling you, I'm not going back to depression. Depression's very quick for me.

  Jodi Phillips:

  I do not wish that for you, Brian. I was thinking maybe you could just go straight back to bargaining and we could figure something out.

  Brian Levitt:

  Yeah, or denial. Denial being the river that I'll jump into. No. Yeah, I could quickly shift to bargaining if new policies emerge. Look, the reality is we had a good setup for markets that led to a correction in markets amid policy uncertainty, that's now led to a crisis of confidence. So when you go from a correction to a crisis, you need a policy response. And usually that comes from the Fed, I'm not sure that's enough this time. The bargaining element of this is if it's the stages of negotiation, that's how I think you toggle back from this acceptance of a weaker economic outcome and whiffs of stagflation towards back into that bargaining area that I think you want me to get back into.

  Jodi Phillips:

  Okay. All right. Well, while Brian continues to process everything that's going on and what might come next, we're going to reach out to someone else for further context. It's time for.

  Speaker 3:

  Phone a Friend.

  Jodi Phillips:

  So each episode we reach out to a friend of the podcast for a deeper dive on the topics that are at the top of investors' minds. No surprise, the topic is tariffs and the equity markets. So we reached out to Justin Livengood, who's a senior portfolio manager for Invesco's Growth Strategies. First, we asked Justin whether he believes there will be a prolonged downturn for US equities. He mentioned two things he'll be watching.

  Justin Livengood:

  I think that the odds of a prolonged downturn have certainly gone up. I think the next month is going to be really interesting, this is going to be one of the most fascinating earning seasons of my career, and that's going to help give us some important information about what companies and management teams at least initially think their businesses are going to be able to do with these tariffs, at least potentially in place.

  And what I'm really looking for in this earning season is to see whether companies and expectations come down enough, management teams cut guidance sufficiently to give equity investors more confidence that the consensus estimates are realistic both for this year and then perhaps even into '26. What we as investors need to see is some reasonable path I think to growth in '26. '25 numbers are too high, let's work them down hopefully here over the next month with earnings and then see if there's a path to some form of improvement next year. That's going to be critically important. Earnings drive stocks I always like to say. And so we've got to get more confidence around that earnings outlook to avoid a prolonged downturn.

  The other thing I think that's important to mention here is Fed policy. How much help will the Fed provide later this year in terms of cuts? Unclear. But that's going to be, I think, an important piece as well to determining when the equity markets dig in and the magnitude that they recover.

  Jodi Phillips:

  Next, we asked whether he's concerned that today's situation could reach the severity of the 2008 global financial crisis. Here's what he had to say.

  Justin Livengood:

  I am more so than I was a couple of weeks ago, but I still would put the odds of an '08 or certainly even something worse than that below 50%. Some positives, if we're looking at silver linings here. Companies and even consumers are still relatively under levered. So credit risk is starting to percolate, but it's not yet out of bounds in part because, again, we're coming into this with a little bit healthier balance sheet set up than we've had in the past.

  Another factor is at least the Fed at the moment is biased to lower rates. The Fed is trending down, it's a debate of how much and when. But in some other environments, we've had a Fed that was tightening or was reluctant to do anything and made the crisis a little deeper than it perhaps needed to be. I don't sense that's as big of a risk this time. So I think those are a couple of positives. And the last thing maybe I'd say is this is somewhat self-inflicted. I mean, the trade war that Washington has chosen to implement here can be rolled back. If I've learned anything in the last few weeks, it's that tomorrow could be completely different than today in terms of headlines and news flow.

  And there is a scenario, I suppose, where in a month or two the administration has dialed back a bunch of tariffs or done things that mutes the impact of this. The equity markets are pricing in a lot of, I think, appropriate worst case scenarios, maybe that doesn't play out. So those are a few things that I hope keep us out of that '08 type environment.

  Jodi Phillips:

  Finally, we asked him what he's hearing from the companies he covers in regards to tariffs and the Department of Government Efficiency, or DOGE. Here's his thoughts.

  Justin Livengood:

  Tariffs, it's still a little early and that's again why I'm so interested in the next month when we go through earnings season. But DOGE, absolutely. So one of the sectors I cover somewhat closely is healthcare. The things that have happened at the FDA and Health and Human Services in the last month have had really significant negative impacts on the way those agencies operate. Drug companies and medical device companies have to get approval for their products by the FDA. And as part of that process, you don't just show up after you've done all this clinical trial work with a packet of data and say, hey, what do you think of this? You're going to approve it? You work with people in the agency for years, as you design a trial, you execute on that clinical trial and so forth.

  Well, when all the people you've been talking to do those trials disappear, leave, the companies are... So I've talked to many CEOs in the last few weeks of pharmaceutical companies, medical device companies who are pulling their hair out because they've invested all these R&D dollars to develop products with the help of and the guidance of FDA staffers who they expected would be there all the way to the finish line. And now they don't know who to call, they don't know who's going to be the reviewer and they don't even know when the review might happen.

  So there's a lot of concern about how, for instance, new drug and new medical device approvals are going to happen. I think it's going to be much slower and it's going to be much more precarious. I think it's going to cause a lot of healthcare companies to slow the pace of R&D spend. So DOGE is definitely going to have an impact on intermediate term healthcare spending. And that's a very real issue, separate and apart from tariffs.

  Jodi Phillips:

  Thank you, Justin. And now our next topic, it's kind of a new one we call it, I Agree. We're switching it up a little bit today. Rather than find comments that Brian disagrees with, I asked him to find someone that he agrees with. So what did you come up with, Brian?

  Brian Levitt:

  I'm going to go with Jeremy Siegel, professor at the University of Pennsylvania, he said tariffs are the worst policy mistake in 95 years. I hope I didn't alienate any of our listeners, but I do tend to agree with that.

  Jodi Phillips:

  Okay. 95 years clearly referencing the Great Depression, that's 1930. So I'm assuming he means the Smoot-Hawley Tariff Act.

  Brian Levitt:

  Yeah, I mean there was a whole host of policy mistakes in the early 1930s.

  Jodi Phillips:

  Sure. Yes.

  Brian Levitt:

  Fed raising interest rates, Andrew Mellon working to purge the rottenness from the system.

  Jodi Phillips:

  Liquidate everything. Liquidate it all.

  Brian Levitt:

  Liquidate it all. Exactly. Exactly.

  Jodi Phillips:

  Okay, so this particular quote is one that you agree with, but we're not talking about another depression here though, right? Let's please make that clear.

  Brian Levitt:

  Yes. Yes. I mean, we're not going to be lining up at banks, but it's a policy mix that slows growth and increases prices. So that's the bad combination. Look, I don't want to get too overly negative here. Again, this can change on a dime. I think the worst case scenario that you're looking at is a period of slower growth and higher prices that just isn't great for the equity markets. Now if you think of the 1970s, you basically went nowhere for a while. It's not that you lost an excessive amount of money. Long term investors went nowhere for a while. So that's what I would consider the worst case outcome. And again, Siegel said the worst we've made in 95 years. He doesn't say it's worse than what we've made in 95 years. He's just saying it's the worst we made in 95 years. And I tend to agree at this point.

  Jodi Phillips:

  Okay. And with that we'll move on to our next segment called?

  Speaker 3:

  The Inbox.

  Jodi Phillips:

  Where Brian answers questions he's getting from clients. So are you ready, Brian for questions?

  Brian Levitt:

  Yeah, I'm ready. I'm ready.

  Jodi Phillips:

  How do you position for this type of environment?

  Brian Levitt:

  Yeah, I think investors probably got sick of us all harping on diversification during that period when only seven stocks were outperforming. That was the old, just own the money markets, T-bills and chill and own seven stocks in the US and of course all the asset managers, all the investment professionals telling them to do more. So yeah, this is proving it.

  Jodi Phillips:

  All right. So okay, if it's not just the Magnificent Seven and money markets, then what else? What are you looking at?

  Brian Levitt:

  Well, look, intermediate, high-quality bonds make some sense here. I think they've certainly helped to at least cushion some of the downturn. If the Fed's going to cut rates, investors have reinvestment risks, so you probably don't want to be as short as you are. If those rates are going to come down, you're going to reinvest down along with it. And intermediate-term bonds, quality bonds should provide ballast during the more volatile equity market periods.

  Jodi Phillips:

  Okay. What about the equity side?

  Brian Levitt:

  Yeah, the equity side. So if you are concerned about an economic downturn, then you've got to realize that the S&P 500 Index is not positioned, it's not trading for a recession. Valuations are still above average. If you’re in an economic downturn or dare we say a recession, those valuations fall to average or even below average. So you'd want to look at other parts of the market where you can still participate if things improve, but also have less exposure to the higher valuation names. So I'm focusing on higher quality value stocks, not deep value, not value stocks that create big cyclical impulses, but higher quality value stocks, as well as non-US equities. Places like Europe and places like China where they're working to stimulate growth. It's not to say that they're not caught in the crosshairs of all of this, but their starting valuations are better and the policy makers are working to stimulate growth.

  Jodi Phillips:

  And now we're going to conclude with our last segment where we put Brian on.

  Speaker 3:

  The Hot Seat.

  Jodi Phillips:

  So I'm again, only going to focus on one topic this time around. What do you watch to determine if the market has bottomed?

  Brian Levitt:

  I watch a lot. I mean there's a bunch of them. I always want to see how bearish have investors become. So I look at things like the American Association of Individual Investors surveys. Has volatility spiked? Of course that has happened. Is the famed put-to-call ratio above one? Are credit spreads moving out? Those all look pretty good. But has the economic policy uncertainty index peaked? I think that's the critical one here.

  Jodi Phillips:

  Okay, that's a lot to process. So what is the verdict? Do we have a verdict yet?

  Brian Levitt:

  A lot of it has happened and I think investors are getting comforted by the fact that the markets do appear tactically oversold here. That was a pretty fast move down. I just keep coming back to that economic policy uncertainty concept.

  Jodi Phillips:

  Meaning that it's unclear that we've reached peak uncertainty?

  Brian Levitt:

  Yeah. Does it feel like peak uncertainty?

  Jodi Phillips:

  I mean, I don't know. It feels like pretty high uncertainty.

  Brian Levitt:

  Yeah.

  Jodi Phillips:

  I don't know.

  Brian Levitt:

  So that's maybe. Maybe, right? If we start to see these negotiations work out better, if the US and China, if the US and Europe don't pursue a tit for tat reciprocal trade war, then, yeah, we may be getting closer. But until that moment, it's probably going to difficult for the markets to bottom. It doesn't mean that they need to come down substantially. We may just be in a rough stretch trying to find the bottom here.

  Jodi Phillips:

  Okay. That's it. You're now off the hot seat. So before we go, Brian, where can our listeners follow you as you track every aspect of what's going on and your stage of grief or acceptance or bargaining as you process all of it-

  Brian Levitt:

  Every aspect..

  Jodi Phillips:

  Where can we find it?

  Brian Levitt:

  Yeah, join us each moment to see what my mood ring is telling 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.

  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 April 8, 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.

  References to the average tariff rate sources from the Tax Foundation, Peterson Institute for International Economics, and the Budget Lab at Yale as of April 7, 2025.

  References to the impact on tariffs on the Personal Consumption Expenditures Index sourced from  Goldman Sachs Global Investment Research as of April 6, 2025.

  The Personal Consumption Expenditures Index measures price changes in consumer goods and services.

  The Jeremy Siegel quote on tariffs was reported by CNBC as of April 4, 2025.

  References to equity market performance in the 1970s is based on the S&P 500 Price Index, which returned an annualized rate of 1.6% from December 31, 1969, to December 31, 1979.

  Sourced from Bloomberg as of April 7, 2025.

  Statements about intermediate high quality bonds helping to cushion against equity losses based on data from Bloomberg as of April 7, 2025. The Bloomberg US Treasury Intermediate Index outperformed the S&P 500 Index by 16.47% on a total return basis year-to-date through April 7, 2025.

  The Bloomberg US Treasury Intermediate Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. To be included in the index, securities must have at least one and up to, but not including, 10 years to maturity.

  The S&P 500® Index is an unmanaged index considered representative of the US stock market.

  Statements about the valuation of the S&P 500 Index based on data from Bloomberg as of April 7, 2025.The S&P 500 Index trailing price-to-earnings ratio ended April 7, 2025, at 21.65, compared to its 35-year historical average of 20.24. The S&P 500 Index began 2025 with a 21.65 price-to-earnings ratio compared to 14.05 for the MSCI All Country World ex-US Index.

  The price-to-earnings ratio measures a stock’s valuation by dividing its share price by its earnings per share.

  The MSCI All Country World ex US Index captures representation across developed and emerging markets, minus the US.

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

  A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock markets.

  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.

  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.

  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.

  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.

  Credit risk is the risk of default on a debt that may arise from a borrower or issuer of bonds failing to make required payments.

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

  The Economic Policy Uncertainty Index is compiled from three underlying components that quantify newspaper coverage of policy-related economic uncertainty, reflect the number of federal tax code provisions set to expire in future years, and use disagreement among economic forecasters as a proxy for uncertainty.

  The Magnificent Seven stocks refer to Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia, and Tesla.

  The United States Tariff Act of 1930, commonly called the Smoot-Hawley Tariff Act, raised US import duties on foreign agricultural products and manufactured goods.

  Inflation is the rate at which the general price level for goods and services is increasing.

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

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

  A trade deficit is an economic measure of international trade in which a country's imports exceed its exports. Therefore, a trade deficit represents an outflow of domestic currency to foreign markets.

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

  Just hours after we recorded our latest episode on President Trump’s “Liberation Day” tariffs, he announced a 90-day pause on reciprocal tariffs on most countries. But the tariff story is far from over, and high tariff rates continue to cast a shadow over the economy. We’ll continue to track this story, but in the meantime, this episode highlights some of the economic and market challenges that come with high tariffs.

  The twists and turns of tariff policy

  Just hours after we recorded our latest episode on President Trump’s “Liberation Day” tariffs, he announced a 90-day pause on reciprocal tariffs on most countries. But the tariff story is far from over, and high tariff rates continue to cast a shadow over the economy. We’ll continue to track this story, but in the meantime, this episode highlights some of the economic and market challenges that come with high tariffs.

• What could tariffs mean for markets?

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  00:00

  00:00

  Transcript

  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 today we're going to be covering quite a few segments once again, including reaching out to our friend Turgut Kışınbay, who's the chief US economist for Invesco Fixed Income. We're going to be asking Turgut for his thoughts on tariffs and their impact on the economy and markets.

  Brian Levitt:

  The news flow been fast enough for you, Jodi?

  Jodi Phillips:

  I could use a moment or two to process everything, to be honest.

  Brian Levitt:

  Just a few?

  Jodi Phillips:

  Just a few. I mean, we went straight from the DeepSeek news to some on again, off again, tariffs on Canada and Mexico, and then 25% tariffs on steel and aluminum, and then a hotter than expected US inflation report for January. If that wasn't enough in the background, I've been trying to remember my football trivia and markets, whether the markets have done better when the NFC or the AFC wins the championship.

  Brian Levitt:

  I always forget that one. What did you learn?

  Jodi Phillips:

  Well, the good news is it does better when the NFC teams come out on top.

  Brian Levitt:

  Okay. Happy with that.

  Jodi Phillips:

  Yeah.

  Brian Levitt:

  You sound a little concerned. Is there any bad news there?

  Jodi Phillips:

  Well, yeah, there's sort of like a Philadelphia based footnote to that. Yeah, some maybe bad things happen when Philadelphia teams win championships.

  Brian Levitt:

  Besides my feelings being hurt?

  Jodi Phillips:

  Well, yeah, no, not the optimal outcome for a Giants fan, but I'm talking about the markets. So consider this: in baseball, first of all, the Philadelphia Athletics were the top team in 1929.

  Brian Levitt:

  29, okay. Before the Depression.

  Jodi Phillips:

  Yes. And the Phillies won it all in 2008.

  Brian Levitt:

  Okay. Global financial crisis, we're doing great here.

  Jodi Phillips:

  Right, right. Switching to football, the Eagles won in 2018, and of course this year. So, yeah.

  Brian Levitt:

  Good to know. I think I'm going to try to not put too much credence into that. I'll stick to the usual models, rather than the Philadelphia sports teams.

  Jodi Phillips:

  Good idea, good idea.

  Brian Levitt:

  Good news is 1929 and 2008, years in which the economy was pretty over levered. I'd say that is not the case today. Interesting though. Maybe 2018 makes a little bit more sense. Back then we had concerns about tariffs, even the potential for the Fed to raise rates back then.

  Jodi Phillips:

  Raising rates. You don't think that's going to happen, do you?

  Brian Levitt:

  No, no. I can't get there. I know some people talk about it. I just can't get there and I think the bar's pretty high for the Fed.

  Jodi Phillips:

  I'm glad to hear that. I'm glad to hear that. And of course on the tariff conversation, as I mentioned, we'll be talking to Turgut in a moment. But before that, let's start with our first topic.

  Speaker 3:

  Trending Conversations.

  Jodi Phillips:

  Okay, Brian, so what's on everyone's mind?

  Brian Levitt:

  You mean besides the success of the Philadelphia teams and the market?

  Jodi Phillips:

  Yes, besides that. Besides that.

  Brian Levitt:

  So I am going to go with the trending conversation right now is the broadening of the market.

  Jodi Phillips:

  So it's happening, this is it?

  Brian Levitt:

  It's all happening.

  Jodi Phillips:

  Nice. So it's not just a Magnificent Seven this year, then? We're going to get performance from the Unmagnificent 493. Should we call them that? I feel like we need a different name. That's-

  Brian Levitt:

  Yeah, I'm sure they'd all be very happy to be called the Unmagnificent. I think it's actually 495. Aren't there 502 companies in the S&P?

  Jodi Phillips:

  I'd defer to you.

  Brian Levitt:

  Well, whatever, something like that. But yeah, it's more like the parts of the market that hadn't performed in a while have had a very nice start to the year. I'll include mid-cap stocks, value stocks, and this one might surprise you, Jodi, European stocks. So it's MEEGA, Make European Equities Great Again.

  Jodi Phillips:

  I'm going to have to track a whole different kind of football trivia if this is the case. So why do you think that is? Why do you think that is? What's going on here?

  Brian Levitt:

  I'd say a few things. I'll start with the top down. It's a higher nominal growth environment than we've been in for a long while. Meaning real GDP (gross domestic product) is good in the US, higher inflation, which some people worry about, I think is good. So that adds up to higher nominal growth, and that could benefit value-oriented stocks, smaller capitalization stocks. We always talk about, what can unlock the value, and higher nominal growth can help to do that.

  Jodi Phillips:

  All right. So the higher tide lifts more boats, that saying.

  Brian Levitt:

  Yeah, and some of it also would be policy-related. We always say, "Don't fight the Fed." Well, we don't want to fight the ECB, the Bank of England, and everybody else. So ECB, European Central Bank, is lowering rates, that's providing support to European stocks. We've seen some stimulus out of China. I'd also remind this idea about mid-caps, when the Trump administration came in people were excited about deregulation. Well guess which companies tend to face the highest regulation? Those tend to be mid-cap stocks. And also some optimism around mergers and acquisitions. If we're going to get this wave, that should benefit mid-caps also.

  Jodi Phillips:

  Great. So do you think the broader market performance that we're talking about here, can that be sustained?

  Brian Levitt:

  Yeah, so that's the optimistic view, but our base case is optimistic. So that's the idea. And investors right now, I think they want to participate, but they feel like perhaps the market's gotten ahead of itself or somewhat overvalued. Well, that's just one part of the market, that's the S&P 500. So it's not about blowing out of those big tech names, but think about the big tech names, and what else can we have in our portfolios.

  Jodi Phillips:

  Okay. So for the investors who maybe have grown a little bit tired of waiting for broad market performance, I mean we have kind of heard this before. What's the one thing you would tell them that might make it different this time?

  Brian Levitt:

  I would say it's been a long while since we've had a good nominal growth backdrop, but also a Fed that was preparing to gradually lower rates. I mean, think about it, for more than 20 years the Fed has either been raising rates or quickly taking rates to zero to respond to a crisis. So this is different, maybe a slower, gradual easing environment can help unlock some value that exists in parts of the market.

  Jodi Phillips:

  Okay. So that can support a broader market, so that's the idea then. Sounds-

  Brian Levitt:

  That's the idea.

  Jodi Phillips:

  We'll take it. All right, moving on to the next topic.

  Speaker 3:

  Phone A Friend.

  Jodi Phillips:

  So each episode we're reaching out to a friend of the podcast for a deeper dive on topics that are at the top of investors' minds. Tariffs, no big surprise. We reached out to Turgut Kışınbay, chief US economist at Invesco Fixed income, for his views on tariffs and the potential impact on the economy and markets. And it was a really great wide-ranging conversation, so we're going to bring in a couple different clips on what Turgut had to say. First, we asked him if tariffs are more of an inflation concern or a growth concern. And here's what he said.

  Turgut Kışınbay:

  I think tariffs can be both an inflation and a growth concern. So I'm not really worried about the sustained inflation when it comes to tariffs, but it can be a one-off increase in the price level. And the central banks are supposed to see through that, but that's easy to say in theory. But in practice it may not be easy for the Fed to respond, because if the last couple of weeks is an indication, tariffs will be used as a negotiating tool. It can be on and off, that we have tariffs on and then off, and then they're sustained at different countries, different sectors. So for the Fed it'll be a bit difficult to figure which part is transitory, and they have been burned by transitory, and which part is sustained. So I think it is not a sustained inflation risk, but it is still something difficult to manage for the Fed. So, in my view, it can just delay Fed easing cycle a little bit.

  Jodi Phillips:

  So then we asked whether the markets have become a little bit too complacent, perhaps, thinking that tariffs might just be a negotiating tool, an on-again off-again thing. So here's his thoughts on that.

  Turgut Kışınbay:

  I think the market may be a little complacent on the tariffs. So far I think the market is assuming that this is just going to be a negotiating tool. So just like maybe Colombia is an example that tariffs will be used as a threat, and then a couple of days later it's not implemented. But I think going forward that may not be the case. We'll get into more economic tariffs against autos, against countries with large trade deficits, that US has large trade deficits. Eventually tariffs will come, and I think that that will have an impact on growth, inflation, and even business confidence.

  Jodi Phillips:

  And then finally we asked for investors thinking about the type of risk profile they might want in their portfolio, if he thinks tariffs might bring about the end of the business cycle or whether it may create a less optimal outcome for the economy. And here's what he had to say about that.

  Turgut Kışınbay:

  I think tariffs create a bit of a more volatile investment environment rather than necessarily like a bearish market. It's just going to be more volatile. I think US economy is quite resilient and tariffs will be again, if they're implemented aggressively, a challenging environment for consumers and maybe some companies who are importing intermediate goods. But I think US economy has proven that it's quite resilient, and I think the policymakers will be sensitive to the economy, and if they see any signs of consumer or business concerns they will basically, maybe not reverse, or go slower, or do something about it. So it's not like I think they will just go ahead blindly and just implement tariffs across the board.

  But given what we are seeing over the last couple of weeks, that is a more, it is a change. It's a new government. It is a new government that is basically changing the rules of the game compared to the previous decades. So it's a more uncertain environment and there's going to be some volatility. There are going to be winners and losers, but I wouldn't expect an across the board decline in risk assets or a recession in the economy.

  Jodi Phillips:

  All right, thank you Turgut for joining us. So our next topic is...

  Speaker 3:

  The Inbox

  Jodi Phillips:

  So here's where I go to the mail bag, so to speak, and select a question that listeners have had for Brian. You can always reach out to Brian on X or LinkedIn, @BrianLevitt. So, are you ready?

  Brian Levitt:

  Yeah, I'm ready.

  Jodi Phillips:

  All right, here's the question. What can we watch to determine if inflation is again becoming a problem?

  Brian Levitt:

  Price of eggs?

  Jodi Phillips:

  Yeah, I just bought some yesterday, so that's top of mind for me. But I thought we strip out food and energy prices when making the determination on inflation.

  Brian Levitt:

  Yeah, I think we should. Actually, the price of eggs is a perfect example of that. I'm always asked by people, "Why do they strip out food and energy? Does the Federal Reserve, do they not drive? Do they not eat?" They do, I think. They just don't want to be setting policy based on things that are idiosyncratic to the broad inflation picture. So for example, egg prices have risen significantly because of a breakout of avian influenza, bird flu.

  Jodi Phillips:

  Bird flu. All right. So that obviously has led to a significant reduction in the egg-laying hen population. But you're saying that's not a reason to raise interest rates?

  Brian Levitt:

  No, no, no. Culling the chicken population or the hen population should not be a reason to raise interest rates. Again, that's precisely why they strip out food and energy. It's about broad-based pricing pressure, not these idiosyncratic things.

  Jodi Phillips:

  Okay, okay. Then the real answer then, what should investors watch?

  Brian Levitt:

  So I'm watching the ten-year US inflation break even, which we may want to define.

  Jodi Phillips:

  Sure. All right. The difference in yield between a ten-year Treasury note and a ten-year Treasury Inflation-Protected Security. So essentially that's what the market is expecting from inflation, yes?

  Brian Levitt:

  Yeah. And the reason we use the long term is because it's going to kind of ignore some of those near-term shocks, like a spike in the price of eggs, or a spike in the price of auto insurance, or some of the things that have been happening. And so what the Federal Reserve wants is price stability, they want to make sure that long-term inflation expectations aren't becoming unmoored. So right now, long-term inflation expectations are sitting at around 2.5%. That seems okay. And if you break out of that, then the Federal Reserve may need to respond to it. That's something to watch. But as of now, it's sitting within what we would all perceive to be a comfort zone.

  Jodi Phillips:

  All right. So let's conclude with our last segment where we put Brian on...

  Speaker 3:

  The Hot Seat.

  Jodi Phillips:

  I'll ask Brian some quick questions and he must answer in as concise a fashion as he can. So, let's go.

  Are you surprised that market volatility has remained low?

  Brian Levitt:

  No, not necessarily. I mean, we talk about policy uncertainty, and market volatility tends to be driven by policy uncertainty. I think the markets right now, at least on the monetary side, feel comfortable with the Fed being on hold. So not a significant amount of uncertainty there.

  So trade uncertainty remains but the market has been comforted, at least for now, by the president having used the potential tariffs on Canada and Mexico as a starting point, a negotiating tactic, rather than something we were going to follow through with. So yeah, to the extent you get some additional uncertainty around those things, yeah, you could see some market volatility, but I'm not shocked that we haven't seen significant amount now.

  Jodi Phillips:

  Great. All right. I think you answered this question a little bit earlier on, but we'll ask again. Why the great start to the year for European stocks?

  Brian Levitt:

  Yeah, it's never about good or bad, investors need to remember that sometimes you just get these conditions where things are getting a little bit better. And the bar was set low. Say sentiment is improving as the European Central Bank lowers rates to support growth. And I would add to that, we'll see where these negotiations between Russia and the US over Ukraine go, but it seems to be a little bit of a wake-up call that the Europeans want to increase defense spending, that they may want to issue debt collectively. And so those are things that investors have wanted to see and could help to support growth.

  Jodi Phillips:

  Okay. All right. So, next question, we all know how much you like your market milestones.

  Brian Levitt:

  I do.

  Jodi Phillips:

  We talked last episode about Bitcoin at a hundred thousand, for example. So now, this time, what's your take on gold nearing $3,000 per troy ounce?

  Brian Levitt:

  Well, my take is, I've missed the whole thing. But that's okay, because the stock market has done fine as well. You know what's really interesting about gold, it's happened as real yields have risen. So I was always taught that if you can get a positive real yield in Treasuries, why gold? So this is a little bit different. I would say it's being driven by a few things, central bank demand, so particularly from China as they diversify away some from the US dollar. Also, the uncertainty we just talked about with regards to trade. So yeah, gold continues to get a bid.

  Jodi Phillips:

  All right, and that brings us to the end of another episode. So Brian, before we go, remind our listeners where they can follow you.

  Brian Levitt:

  Yeah. Thanks, Jodi. Visit invesco.com/brianlevitt to read my latest commentaries. I'm being told that I'm being paid by the click now, so help a friend out. I kid, of course. Of course you could follow me on LinkedIn and on X @BrianLevitt.

  Jodi Phillips:

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

  Brian Levitt:

  Thank you.

  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 18, 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. These comments should not be construed as recommendations, but as an illustration of broader themes.

  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 market performance at the start of the year sourced from Bloomberg as of February 18, 2025. Based on the returns of MSCI Europe Index, which gained 10.17%; the Russell Midcap Index, which gained 5.21%; and the Russell 1000 Value Index, which gained 5.75%.

  The MSCI Europe Index captures large- and mid-cap representation across a universe of developed market countries in Europe.

  The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell Midcap® Index is an unmanaged index considered representative of mid-cap stocks. Both are trademarks/service marks of the Frank Russell Co.®

  Statements about long-term inflation expectations sourced from Bloomberg as of February 18, 2025. Based on the 10-year US inflation breakeven.

  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 are US Treasury securities that are indexed to inflation.

  The price of gold sourced from Bloomberg as of February 18, 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.

  A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock markets.

  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.

  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.

  Bitcoins are considered a highly speculative investment due to their lack of guaranteed value and limited track record. Because of their digital nature, they pose risks from hackers, malware, fraud, and operational glitches. Bitcoins aren't legal tender and are operated by a decentralized authority, unlike government-issued currencies. Bitcoin exchanges and bitcoin accounts aren't backed or insured by any type of federal or government program or bank.

  Bitcoin is a digital currency (also called cryptocurrency) that is not backed by any country's central bank or government. Bitcoins can be traded for goods or services with vendors who accept bitcoins as payment.

  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.

  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.

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

  GDP stands for gross domestic product, which 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.

  Idiosyncratic developments refer to unique events that do not affect an entire market or portfolio.

  Inflation is the rate at which the general price level for goods and services is increasing.

  The Magnificent Seven stocks refer to Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia, and Tesla.

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

  Real yields are the returns that a bond investor earns from interest payments after accounting for inflation.

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

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

  A troy ounce is a unit of measurement used to weigh precious metals 

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

  In this episode, we get an economist’s perspective on what tariffs could mean for growth, inflation, and markets. We also talk about what’s driving the recent outperformance of European stocks and the main indicator to watch regarding US inflation. 

  What could tariffs mean for markets?

  In this episode, we get an economist’s perspective on what tariffs could mean for growth, inflation, and markets. We also talk about what’s driving the recent outperformance of European stocks and the main indicator to watch regarding US inflation.