Weekly Economic Report 8.21.26

The recent news flow has increased our concerns that the global manufacturing cycle is approaching its peak – and more importantly that the financial markets are beginning to consider what will happen on the back side of the cycle. Let us be clear that the news on US economic growth – particularly in manufacturing – is still quite strong, driven by the AI investment boom. However, as current growth exceeds expectations, the big question is whether one revises their expectations higher or do you count the unexpected success as earlier than anticipated progress toward the old goal —which leaves less upside for the future? Optimists will always revise higher, and pessimists will take the other side of the argument. Which means optimists will be more willing to pay up to borrow the funds of the less optimistic – who will demand more protection in the form of higher rates, which at least initially will be paid. Higher rates raise the bar for future valuations – and crowd someone out of credit markets as their expectations dim.

EU08-21-2026.pdf

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