The good news and the bad news

US markets are behaving much as expected six weeks into the year, with a “Goldilocks” backdrop of solid growth, easing inflation and gradually lower rates, even as the S&P 500 undergoes a healthy pause. Beneath that calm surface, however, capital is rotating sharply away from asset‑light growth and AI leaders toward asset‑heavy “old economy” businesses that offer more diversified cash flows, cheaper valuations and often stronger income. This shift reflects rising uncertainty over which companies will be disrupted by AI versus those that will harness it, leading to lower valuation multiples for many software and high‑growth names even as overall earnings expectations improve.

Against this backdrop, the firm is maintaining an equity overweight with a value tilt and raising S&P 500 earnings forecasts through 2028, but trimming index targets by lowering its assumed market multiple. The macro environment — including resilient employment, moderating inflation and robust AI‑linked investment — should particularly favor industrials, cyclicals, small caps and select international markets. At the same time, the recent Supreme Court tariff ruling adds another layer of policy uncertainty around trade that further justifies more conservative valuation assumptions while reinforcing the case for patient positioning rather than wholesale allocation shifts.