Good morning, investors. I meet investors every day across the retail world and Wall Street. A surprisingly small amount are optimistic about an economy that’s “running hot.”
Most are concerned about inflation or Black Swan events that could derail growth.
In this scenario, I’m in the minority of optimists — right there with Ed Yardeni.
2% growth outdated?
Wall Street is pricing assets for historically average economic growth and productivity.
The economy, though, is starting to behave like something much hotter.
US GDP growth is on pace for a 3.5% to 4.5% growth regime for 2026 — far above the 2.1% average that has defined the post-2000 era and closer to the 3.6% pace that prevailed during the second half of the 20th century.
Atlanta Fed expects another quarter above 4% GDP growth (Chart courtesy of Exhibit A)
To veteran strategist Ed Yardeni, that shift marks a return to boom-time conditions after two decades of relative stagnation.
He’s dubbed the current stretch another “Roaring 20s,” arguing the US is entering a period where growth will continue to surprise to the upside as productivity accelerates and capital spending surges.
Markets, however, are still positioned for slower growth.
Indeed, nearly all of the GDP acceleration in late 2025 was driven by productivity rather than labor growth.
Output rose without a corresponding rise in unit labor costs
Margins expanded faster than inflationary pressures
That combination, Yardeni said, confirms that this iteration of “hot” growth doesn’t automatically imply overheating.
Bulls have been right on growth over the last several quarters (Chart courtesy of Exhibit A)
Asset prices have responded accordingly.
Productivity-led growth lifts revenues, widens operating leverage and raises the ceiling for earnings without forcing valuation multiples to compress.
It also helps explain why market leadership has rotated from narrow, long-duration growth stocks toward cyclicals, value and small-caps — sectors which tend to outperform when growth accelerates.
Credit markets tell the same story.
Faster nominal GDP improves debt dynamics even as absolute debt levels rise.
Companies grow into their balance sheets
Default risks remain contained
Spreads remain tighter than expected
And all of the above is bolstered by massive AI spending.
In Yardeni’s view, hyperscaler spending levels are “appropriate and sustainable” rather than excessive, and so far seem “very stimulative to overall business activity.”
Capital expenditures are climbing faster than even bullish forecasts anticipate (Chart courtesy of Exhibit A)
The investment cycle pulls forward demand for energy, materials and industrial capacity.
Misallocation and conservative investing, then, could ultimately pose a bigger risk than overheating.
To be sure, the bull thesis falters if economic growth slows to 2%.
But if the economy remains in an AI-fueled, productivity-driven expansion, portfolios built for average growth will stay anchored to a regime that no longer exists.
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Market snapshot
Elsewhere
📉Hims & Hers stock tumbled 17%. The drop followed Novo Nordisk’s announcement Monday that it would sue the telehealth provider for mass marketing cheaper, unapproved copies of its Wegovy obesity pills and injections in the US. (CNBC)
💰Google is borrowing far and wide to fund its AI ambitions. Alphabet aims to raise $20 billion from a US dollar bond offering and will also pitch investors on what would be its first-ever offerings in Switzerland and the UK. This would include 100-year bonds. (Bloomberg)
📊January inflation tends to run hotter than usual. Since 1985, price data has been higher to start the year on average than other months. That’s led some analysts to expect an upside surprise for the upcoming data. (WSJ)
🇨🇳As China’s influence continues to expand, its decisions increasingly shape markets, policy and innovation beyond its borders. Launching soon, Semafor China explores how shifts in China intersect with global trade and technology. Subscribe free.
Interview
I sat down with JC Parets of TrendLabs to unpack the most important charts driving this bull market, what small-caps are signaling, how emerging market performance factors into portfolio weights, and much more.
Tune in on YouTube, Spotify, or Apple Podcasts.
Rapid-fire
Monday.com fell 21% as the latest in the software sell-off (CNBC)
Oracle stock jumped 10% after getting an upgrade from an analyst at DA Davidson (Bloomberg)
Bangladesh secured a 19% US tariff exemption for some apparel made with US goods (Reuters)
Shares of Samsung ticked higher after reports of its fast-approaching next-gen chip (Barron’s)
Real estate prices in the Hamptons hit a record high, up 34% from a year ago (CNBC)
Dow 50K is just one sign of the global bull market (Opening Bell Daily)
On this day
🗓 February 10, 2009: Led by Timothy Geithner, the US Treasury unveiled “stress tests” for banks aimed at restoring confidence in the financial system.
Last thing
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