Loose money, strong growth, AI adoption, and productivity. What more do you want?

Please note, this interview was recorded Thursday 26 February 2026

Whilst there is always plenty to contend with in markets at any given moment, things seem to be dialled up to 11 at the moment. AI-disruption is being talked about so much that it is giving people a headache, valuation concerns remain ripe, whilst concentration worries linger. 

But the market is not the economy. And whilst, again, there are some worries, for the most part the picture - particularly in the US - looks pretty strong. 

That's the view of Longview Economics' Director and Senior Market Strategist, Harry Colvin, who describes the backdrop as a genuine Goldilocks setup. 

Disinflation is gathering pace, particularly across US services. Central banks are shifting from tight to looser policy. At the same time, artificial intelligence is driving a meaningful capital expenditure cycle, with early signs that productivity may finally be lifting after years of stagnation. As he put it:

“Loose money, strong growth from CapEx, AI adoption and productivity. What more do you want from a Goldilocks scenario?”

It is a powerful combination. If disinflation persists and policy continues to ease, Colvin believes we could see a broadening of earnings, stronger global growth and a more supportive regime for risk assets than investors have enjoyed in years.

In this interview, he also unpacks the risks around the US consumer, what bond–equity correlations are signalling, where he would allocate capital across regions and asset classes, and why private credit makes him uneasy at this stage of the cycle.

INTERVIEW SUMMARY

The disinflation regime

Colvin believes the defining macro shift is the move from inflation anxiety to disinflation dominance.

“We have just had one of the biggest downward revisions in the labour market since the Global Financial Crisis. Employment is not growing in the United States. The annual growth rate is zero.”

Slack is building beneath the surface. The employment-to-population ratio is falling, underemployment is rising and confidence in job security is weakening. That softness is feeding into wage moderation and softer services inflation.

“With that flip into negative bond–equity correlation, it is really the market saying we are not worried about inflation anymore. We are now focused on disinflation as the key theme.”

For Colvin, the return of negative bond–equity correlation and a steepening yield curve are confirmation that the regime has changed. Disinflation opens the door to further easing, liquidity support and a reacceleration in credit growth.

Broadening beyond the mega caps

During the tightening cycle, earnings growth was narrow and heavily concentrated in US mega-cap technology. That is now shifting.

“With this rate-cutting cycle, we are starting to see the broadening out in earnings growth, and earnings are now really starting to reaccelerate in other sectors in the United States, within large caps but also within small and mid caps.”

Cheaper money, improving manufacturing activity and a recovering credit cycle are driving the change at the margin. Colvin expects that broadening will continue for a couple of years if disinflation holds and policy remains supportive.

This is not just a US story. Europe and emerging markets are also beginning to see earnings momentum improve, particularly as dollar strength fades and financial conditions ease.

The capex and productivity engine

At the centre of the Goldilocks thesis is AI-driven capital expenditure.

“CapEx is going to be adding one and a half to two percent to GDP in the United States over this year and next. So it is a real boost to activity.”

Importantly, this spending is not confined to a narrow slice of the technology sector.

“You are drawing on quite a lot of different sectors of the economy. Non-residential investment spending is just starting to reaccelerate. Construction jobs are now picking up.”

Colvin sees positive feedback loops emerging: stronger investment lifts employment and incomes, which in turn support demand and credit growth.

On productivity, he is cautious but constructive.

“Businesses are starting to take on digital employees now that turn up in meeting rooms and ask questions on Zoom, and you would not know they were there - AI is happening”

If AI adoption continues to spread, labour displacement could lift output per worker and help offset demographic drag, particularly in economies with ageing populations.

The consumer swing factor

Despite the optimism, Colvin acknowledges vulnerabilities.

“One of the risks has to be the consumer. If AI really is displacing labour and the unemployment rate carries on trending up, that is something that is quite alarming.”

US mortgage rates remain elevated, house prices are flat to falling in some regions and delinquency rates are edging higher. A rise in precautionary savings could dampen growth.

Yet he also sees policy as a potential buffer.

“When you get the rate cuts, you get asset prices up, improved liquidity, wealth effects from the equity market. You also stimulate the credit cycle.”

In that scenario, housing and consumption could stabilise or even reaccelerate alongside the CapEx cycle.

Where he would allocate capital

If the macro regime is shifting toward disinflation, stimulus and broader earnings growth, positioning should reflect that.

“I really like emerging markets because this is an equity market that has basically gone nowhere for a very long time. It is very cheap.”

Many emerging markets trade on modest forward multiples and are beginning to see earnings reacceleration. A weaker US dollar would provide an additional tailwind. He would keep China underweight, describing it as being in the midst of a balance sheet recession.

Within developed markets, he prefers smaller and mid-cap equities over a narrow reliance on mega-cap leadership.

On asset classes, he favours oil over gold on a multi-year view, is cautious on high yield given tight spreads, prefers India to China for structural growth and is more concerned about private credit than public credit.

“Private credit is a little bit worrying, because you have got a lot of investment into AI business models and there could be capital destroyed if you end up with too much supply and margin squeezes.”

If the Goldilocks thesis holds, the opportunity set broadens. For investors prepared to look beyond the obvious winners of the last cycle, Colvin believes the next phase could be far more diverse.