1. Rates and Recession – a date to avoid. Time to rebalance.

The 30-year rate: Our magic eight ball for equity markets

Mohamed El-Erian has been clear in his assessment: we are experiencing a structural — not cyclical — shift toward higher-for-longer inflation, rates, and deficits. The market has so far avoided a significant tantrum largely because corporate America, and the AI-driven tech sector in particular, has been doing the heavy lifting. As El-Erian observes, investors are betting heavily on the enormous promise of AI and strong earnings to carry markets forward. That may continue. But it is a narrow foundation on which to rest an entire market’s valuation.

At Alphavest, we have become increasingly uncomfortable with current equity valuations—not in of the valuations themselves, but when considered with one specific metric; The 30-year Treasury yield. With oil prices elevated and inflation proving stubborn, we believe the 30-year north of 5% is going to serve as a reliable barometer — a kind of magic eight ball for where equities are headed. History supports that discomfort. During every sustained period of 5%-plus long rates — the late 1970s, 1999–2000, and again in 2022 — real equity returns compressed sharply. Valuations came under pressure as bonds became a genuine alternative, borrowing costs rose, and consumer spending softened.

The critical question investors should be asking right now is straightforward: will interest rates stay below 5%? We at Alphavest would very much like the answer to come back — to borrow from the magic eight ball — “Decidedly So.” But the confluence of sticky inflation, elevated oil, and rising deficits suggests the answer may be less certain than equity prices currently imply.

We are watching this closely on your behalf and will continue to communicate our views as conditions develop. Worth the mention as we are being asked quite a bit about the equity allocation of our flagship Alphavest Dynamic Equity Model—our tactical model that shines both in times of growth and market downturns. 2022 is the closest market to what we are currently seeing; hot post COVID equity valuations and interest rates heading toward 5%.

The S&P 500 sold off -18%+ in 2022. Currently the Alphavest Dynamic Equity Model is 86% equities and 14% commodities and YTD returns +12.85% v. 11.72% S&P500. More, in 2022 the Dynamic Equity Model was down -3.97%  v. -18.11% S&P500. No matter what the magic eight ball reveals, we’ve got you managed.

2. SpaceX and Antropic IPO’s–BUY or HOLD?

3. Choosing Optimism

If you have glanced at the headlines lately, optimism may feel like a reckless choice. Markets have endured sharp selloffs. Wars and geopolitical tensions continue to dominate global conversations. Political polarization has reached levels that leave many people questioning not only where we are headed, but whether we can find our way forward together.

Yet a recent article in The Economist makes a compelling case that optimism is not naïve—it is often one of the most productive forces in human progress.

Research consistently shows that optimistic people tend to be healthier, more resilient, and more successful. They view setbacks as temporary rather than permanent. They believe they have some ability to influence outcomes rather than simply endure them. In business, optimism fuels entrepreneurship. In leadership, it inspires confidence. As Nobel Prize-winning psychologist Daniel Kahneman once observed, a certain amount of “delusional optimism” may even be an engine of capitalism.

Of course, optimism has its limits. Investors who ignore risk can make costly mistakes. Business leaders who refuse to acknowledge reality can drive projects into the ground. The article reminds us that unchecked optimism contributed to excesses before the financial crisis, just as excessive pessimism can prevent people from taking opportunities that ultimately improve their lives.

The challenge, then, is not choosing between optimism and realism. It is learning to hold both at the same time.

As investors, we must acknowledge uncertainty. Markets will decline. Economies will stumble. Political cycles will swing. Global conflicts will arise. Yet history also shows that innovation continues, businesses adapt, and human beings repeatedly solve problems that once seemed insurmountable.

At Alphavest, our Perfect Day philosophy begins with a simple belief: the future can be better than the present. Without that belief, goals become irrelevant, plans lose meaning, and investing becomes little more than risk management. Optimism is not ignoring what could go wrong. It is maintaining confidence in what could go right—and, ‘creating your own economy.’ Ever heard that from me?

In a world increasingly rewarded for cynicism, optimism may be one of the most underappreciated investment strategies of all—not because it guarantees success, but because it creates the conditions that make success possible. Another Alpha opportunity we’re investing in. Dollar cost average a small dose of optimism each day. Returns guaranteed.

Excerpts from this section appeared in the Business section of the print edition of the Economist under the headline “Almost always look on the bright side of life”