New Highs, Old Questions

From the desks of Stanley Katz & Lauren Madera

HAPPY FAKESGIVING! YES, THIS IS A TONGUE-IN-CHEEK HOLIDAY DRYLY SUGGESTING THAT FAMILY AND FRIENDS CAN BE CELEBRATED AT ANY TIME.

Markets advanced in a holiday-shortened week (DJIA: +1.49%, S&P 500: +1.80%, Nasdaq: +2.58%) as inflation data continued to run hot. April’s Personal Consumption Expenditures (PCE) index rose to its highest level since May 2023, further reinforcing inflation concerns. Several Fed officials maintained a hawkish tone, with Governor Lisa Cook signaling readiness to raise rates if inflation continues moving in the wrong direction. These concerns, however, were outweighed by rising optimism that the U.S. and Iran are moving toward a 60-day ceasefire extension, including reopening the Strait of Hormuz. This news pushed oil prices lower, which propelled the S&P 500, Russell 2000, and S&P MidCap 400 to record highs.

With AI-driven names underlying many of the new market highs, Capital Group offers a timely reality check. Their piece, “The Global Leaders of Today May Not Be Leaders of Tomorrow,” traces the world’s ten largest companies by market capitalization across six decades. The turnover is striking. The oil giants of the 1980s gave way to Japanese banks by 1990, which yielded to internet and telecom names at the turn of the millennium, many of which then posted negative returns over the following decade. By 2010, the list was dominated by Chinese state enterprises and commodity producers. Today it is U.S. technology companies, with Nvidia sitting at the top. Capital Group’s takeaway is straightforward: market leadership tends to change, and today’s dominant names are no guarantee of tomorrow’s returns. The full chart, spanning 1980 to 2025 and including forward 10-year returns for each era’s leaders, is worth a look.

A separate question worth contemplating this week is the long-term trajectory of U.S. federal debt. J.P. Morgan Asset Management’s Chief Global Strategist, David Kelly, published “Five Scenarios for the Federal Debt,” a detailed look at where the debt goes from here and what it means for investors. Federal debt has risen from 31% of GDP in 2001 to 101% today, and the 2026 fiscal deficit is expected to reach approximately $1.89 trillion. Kelly acknowledges the debt is almost certain to keep climbing but argues the pace and market impact will depend on which of five paths unfolds:

1. Baseline scenario: Steadily rising debt with rising borrowing costs in which Treasury yields could climb and annual bond returns suffer.
2. Optimistic scenario: Slowly rising debt with little market reaction where AI-driven productivity or continued foreign demand for U.S. bonds keeps yields contained and equities resilient.
3. A fiscal crisis: Triggered by Congressional debt ceiling brinkmanship, a challenge to Fed independence, or a broader loss of confidence in U.S. Treasuries.
4. Slower debt growth through spending cuts: Possible but difficult given the scale of interest payments, entitlements, and defense commitments.
5. Slower debt growth through higher taxes: Politically challenging, though targeted increases on corporate or upper-income filers remain on the table.

Kelly’s broader point is that rising federal debt, on its own, is not a reason to abandon long-term investing but a reason to pay attention. Taken together, this week’s two research pieces make a similar underlying argument: the landscape will change, the leaders will shift, and the wisest response to both is probably to stay informed and stay diversified.

Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.

Capital Group:

• The global leaders of today may not be leaders of tomorrow

J.P. Morgan Asset Management:

• Five Scenarios for the Federal Debt

Argus:

• Earnings Push Stocks, Despite Inflation and War

Schwab:

• Higher For Longer: Markets Navigate a New Era of Uncertainty

First Trust:

• Time’s Irreplaceable Value

Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500

Source for weekly stock market returns: Barron’s.

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