By Ellen Hazen, CFA®, Chief Market Strategist
Vladimir Lenin was rumored to have said, “There are decades where nothing happens; and there are weeks when decades happen.” Despite not having actually been written by Lenin at all, it nonetheless expresses a sentiment that resonates today.
The political, economic, and market events of January were a flurry of data points. We saw the capture of the Venezuelan president by the US military, public musings about the US seizing Greenland, the Department of Justice subpoenaing the Federal Reserve Bank, announcements from the administration claiming it would cap credit card interest rates at 10%, forbidding institutional buyers from purchasing single-family homes, and even more announcements of increased capital spending on artificial intelligence (AI). And this is not even mentioning other major events like Chinese President Xi firing a senior military general, the fatal shooting of two protestors in Minneapolis by government agents, and what looks to be another (perhaps short-lived) partial government shutdown.
When evaluating the impact of recent events on the investment landscape, sometimes it helps to take a big step back and look at the large-scale forces shaping the economic and earnings data that we typically spend so much time examining. This is particularly true at turning points, when the external environment is changing and old rules of thumb may be losing relevance.
Today we discuss four high-level trends: state capitalism; the dismantling of the post-war order, fractious US governance, and continued, increasing spending on AI. We explore what recent events reveal about these underlying large-scale themes and what these themes mean for investing.
We have written before about the rise in state capitalism. Governments globally are increasingly taking a more active role in economic activity. Examples from January include the President’s Truth Social post calling on credit card companies to cap credit card interest rates at 10% for one year; executive orders that instruct federal housing agencies (HUD, VA, others) to prevent federal financing for institutions seeking to purchase single family homes and that instruct the Secretary of Defense to forbid underperforming defense contractors from paying out dividends or repurchasing their own stock until underperformance has been addressed.
In Europe, energy policy has turned government into de facto capital allocators, as several countries have imposed windfall taxes on energy producers, guaranteed minimum prices for strategic power projects, and offered direct state financing for grid buildout. France has outright renationalized its electricity utility EDF, while both the German and Italian governments have taken equity stakes in utilities and gas importers. China has been active in state capitalism for many years; indeed, that arguably has driven China’s rapid economic development over the past two decades. The Chinese government continues to intervene in equity markets and to direct banks to roll over loans to some sectors while imposing funding constraints on other sectors. India, too, has directed lending into preferred sectors like electronics and renewables.
Unlike most of the 2025 interventions, which focused almost exclusively on areas of national security, some of January’s US actions seem aimed at increasing affordability, namely the credit card interest rate cap, the prohibition on institutional investors purchasing single family homes, and the purchase of mortgage-backed securities, which should lower mortgage rates for borrowers. Thus, the underlying rationale in US interventions has spread beyond national security to affordability (and perhaps electoral considerations).
As we have previously discussed, in the short term, investors can benefit from state capitalism if they are able to identify areas in which state capitalism is likely to make investments. The federal Cybersecurity & Infrastructure Security Agency has identified infrastructure areas vital to US interests; we can expect more investments in those areas. They include critical minerals, defense, nuclear, and communications. Likewise, we may anticipate additional investments in affordability; might the government intervene in key affordability areas like healthcare or student loans? In the longer term, we believe that active government intervention in markets may lead to lower equity returns over time as money is being deployed into areas for non-economic reasons.
Dismantling of the post-war order. Many observers have noted the multitude of ways in which the post-World War II order of multilateralism, free (or at least freer) movement of people and goods, rule of law, and global protection is being dismantled. Recent actions include repudiating prior agreements (whether on trade, defense, or immigration), reduced respect for other countries’ sovereignty, and more generally, non-US actors seeking to dethrone the US as the social, geopolitical, military, and economic hegemon to the world. This, too, has accelerated in 2026: just in January we can cite President Trump’s efforts to wrest Greenland away from Danish/European control; the abduction of Nicholas Maduro and his wife from Venezuela; Trump’s Davos speech that critiqued European efforts toward economic, military, and energy self-sufficiency; Canadian Prime Minister Mark Carney’s Davos speech in which he termed the current state of affairs a “rupture,” subsequent trade talks that pointedly excluded the US between Europe and China, between Europe and South America (formalized by the Mercosur pact), and between Canada and China.
We don’t know what a post-post-war order will look like economically; modern economic and finance theory have been developed assuming these foundational elements of global commerce as a given. Peering into a crystal ball, the least we can expect is a period of uncertainty during which the new rules have yet to be formed and broadly understood. During that period of uncertainty, we should expect a higher discount rate (i.e., lower valuations) for investments. How to reconcile this prediction of cheaper valuations with the higher stock prices seen globally? Weaker fiat currencies across the board. The trade-weighted US Dollar has been weakening versus other currencies since the US froze Russian central bank assets invested in Treasury bonds, effectively weaponizing the dollar, and has weakened by over 9% in just the past year. A few weeks ago, the largest Danish pension fund announced its intent to start selling US Treasuries from its holdings, citing weak US government finances. And all major currencies have weakened when compared to real assets, particularly precious metals. Shorter-term, we can expect this dismantling to be stimulative, as country after country seeks to become more self-sufficient and prints money to invest accordingly.
The US government is becoming increasingly fractious. We had the longest government shutdown in history in 2025 and have just entered another shutdown as of the end of January. In 2026, the Department of Justice subpoenaed the Fed regarding its $2.5 billion building renovation, to which Fed Chair Jerome Powell responded with an unprecedented public video address alleging intent to interfere with Fed independence. A Republican US Senator who is a member of the Senate Banking Committee has announced his intent to block all Federal Reserve Governor nominations until this matter is resolved. Federal Immigration and Customs Enforcement is openly clashing with state and local elected officials and law enforcement, most recently in Minnesota but also in Maine.
What does a more fractious government mean for investors? The most obvious outcome is higher interest rates and again a weaker US Dollar. Interest rates should be higher (especially long-term rates) as certainty is reduced. A dysfunctional government – for example, one that cannot keep federal spending in check but also one that cannot keep a government funded – will need to pay bond investors a higher yield to compensate for this instability. Recall that all three major rating agencies have downgraded the US government from AAA to AA over the last fifteen years. In addition, overseas central banks have been selling Treasuries with gold or other sovereign bonds for several years. Of course, these dynamics can reinforce one another: higher interest rates mean that a larger share of US government spending will go toward interest payments, which will further increase distrust of US finances.
Artificial intelligence spending continues to increase in 2026 and beyond. Governments are racing to be the first to build superintelligence, encouraging private investment with reduced regulations. Companies are indeed accelerating their spending: in January, analysts increased their estimates for Meta’s 2027 capital spending from $121 billion to $136 billion and increased their estimates for Microsoft’s 2027 capital spending from $116 billion to $121 billion. OpenAI is said to be planning a $100 billion funding round ahead of a possible IPO, while Anthropic, xAI, and others are also raising money to spend on datacenters.
Translating higher AI spending into investment opportunities is more straightforward than drawing investment conclusions from some of the earlier themes. One recurring investment theme in AI is rotating bottlenecks. First, insufficient NVIDIA chips were identified as a bottleneck, and investors invested in NVIDIA stock to take advantage of that. In 2025, electricity and power generation became bottlenecks; consequently, independent power producer (IPP) stocks soared, along with “picks and shovels” companies that design and build power plants. Most recently, insufficient memory chips have been a bottleneck, and we have seen DRAM, NAND, and other memory stocks similarly climb.
Early market action suggests that 2026 may be the year of investors focusing more on Return on AI (ROAI) than on pure AI spending. When Meta provided evidence during its earnings call that its AI spending produced a positive return, its stock rose by 9%, while Microsoft’s increased spending with little to show for it resulted in a 10% stock decline. We are watching the users of AI to identify companies that reduce costs and increase efficiencies; they may be some of the winners in 2026.
In summary, many of the structural changes occurring both domestically and globally may lead – over the medium to long term – to higher interest rates, an even weaker US dollar, less efficient use of capital, and opportunistic areas of investment like areas of national security, affordability, and AI bottlenecks. Some investment conclusions are shorter-term in nature while others will play out over years.
Next month we will return to more in-depth analysis of our daily diet of corporate earnings, the labor market, interest rates, and our other favorite indicators, while bearing in mind that the backdrop is changing. In the meantime, we hope you find this big-picture discussion thought-provoking and that it provides a framework in which to evaluate events.