Is Your Portfolio Positioned for Rising Geopolitical Risk?
Welcome to The Weekly!
Geopolitical tensions intensified this week as conflict in the Middle East escalated, amplifying market anxiety related to a protracted energy supply shock and a repricing across sovereign debt curves. Brent crude oil shot up to the mid-90-dollars per barrel as investors grappled with the conflict’s duration and potential for sustained disruption to global energy supplies.
While consensus is variably pricing a broader conflict, the highest probability outcome in our view is “this too shall pass”, ultimately leaving asset markets in a healthier condition after unwinding the historic degree of crowded bullish positioning we’ve consistently warned about since early November. In the near term, geopolitical suspense will likely give the Powell Fed cover to further delay normalizing monetary policy.
Onshore, corporate layoffs (namely Morgan Stanley $MS) tied to the AI disruption trade continue to reinforce the Jobless Recovery thesis. Regarding the February Jobs Report, weak negative impulses in Private Sector Employment, Average Weekly Hours, Private Sector Labor Income, and strong negative impulse in Private Sector Average Hourly Earnings in February supported our Jobless Recovery, Structural Uptrend in Productivity Growth, and Continued Disinflation Driven by Housing and Labor theses.
As always, members of our global investor community can trust that our institutional-grade risk management overlays—KISS and Dr. Mo—will help our portfolios navigate these emergent risks better than investors attempting to manage risk without systematic rules or relying on fundamental research alone.
In Case You Missed It
Will AI Drive the Next Wave of Global Equity Leadership?
On Thoughtful Money (watch here), Darius joined Adam Taggart to answer several of the key questions being asked within our global investor community amid accelerating macro and geopolitical uncertainty.
42 Macro is also pleased to announce our new partnership with Thoughtful Money, expanding the reach of our platform to hundreds of thousands of independent investors around the world. Be sure to check out the discussion to learn more.
Chart of the Week
Along Globalization, The Diffusion Of Internet Technology — Which Is Far Less Productivity-Enhancing Than AI — Contributed To A Jobless Recovery In The Early 2000s
A similar dynamic may be emerging as AI accelerates productivity while simultaneously reducing labor demand across white-collar industries. If AI proves even more productivity-enhancing than internet technology, the U.S. economy could once again feature strong economic growth alongside persistent labor market slack, reinforcing our Jobless Recovery thesis.
Successful Signals From Dr. Mo
On January 28th, 2026, our Discretionary Risk Management Overlay signaled a bullish breakout in Crude Oil $USO. Since the pivot, $USO has appreciated 42%.
Community Spotlight
This week, we’re excited to share feedback from a member of our global investor community. Specifically, the incredible ROI that 42 Macro provides to our community.
It’s always rewarding to see KISS and Dr. Mo deliver meaningful outcomes for investors around the world. We truly appreciate your feedback.
EXPLORE 42 MACRO RESEARCHCan Markets Thrive Amid Policy Uncertainty and AI-Driven Labor Disruption?
Welcome to The Monthly!
This past month’s market action reinforced just how much uncertainty there remains surrounding the long-term outlook for U.S. monetary policy, even as renewed scrutiny regarding ballooning AI capex budgets drove meaningful dispersion within global equity markets. Cross-asset volatility intensified after the nomination of Kevin Warsh for Fed Chair, while investors simultaneously parsed the deflationary risk AI disruption poses to non-technology industry profits.
The Resilient US Economy continues to recover from its U-shaped slowdown, propelled by fiscal expansion and employment growth in government-adjacent sectors like health care, education, and social services while private-sector hiring remains stagnant. The risk of a jobless recovery remains elevated with meaningful implications for inflation and corporate profits.
In our view, the stock market can still perform well if AI permanently impairs the labor market. Much like globalization and the federal tax code which codifies egregiously preferential treatment to capital income over labor income, AI is simply another tool engineered to consolidate wealth and power. History has already proven that such consolidation is not bearish.
Make no mistake, understanding how these dynamics differ from past cycles is critical for navigating what comes next.
In Case You Missed It
Is Crowded Positioning the Real Driver of AI Volatility?
On Fox Business, Darius joined Maria Bartiromo to discuss why recent volatility surrounding fears of AI disruption are more a function of historically crowded bullish positioning than a deterioration in the structural growth outlook.
Widespread AI adoption is likely to drive a sustained uptrend in productivity, corporate profits, and disinflation, but markets must first work through positioning imbalances.
Could Bank Deregulation Reshape Market Liquidity?
The announcement of Kevin Warsh signals a potential shift in liquidity provisioning from the Federal Reserve back to the commercial banking sector.
We believe that substantial bank deregulation would be required to reduce the Fed’s footprint without destabilizing markets—thus rendering bank deregulation as the only logical choice.
Chart of the Month
The True Promise Of AI Isn’t Mere Efficiency; AI Is An Effective Tool To Cut What Is Still Most Companies’ Biggest Cost — Labor
This chart highlights the long-term tug-of-war between labor’s share of income and capital’s share of income in the U.S. economy. As AI proliferation accelerates, companies are increasingly using technology to compress labor costs, reinforcing a regime of rising margins and productivity gains that supports corporate profitability over the medium term.
Successful Signals From Dr. Mo
On November 29th, 2025, our Discretionary Risk Management Overlay signaled a bullish breakout in Commodity Producers $GNR. Since the pivot, $GNR has appreciated 25%.
Community Spotlight
This month, we’re excited to share feedback from a member of our global investor community regarding the immense value of our risk management signals, which allow them to make high-quality investment decisions in a fraction of the time.
It’s always rewarding to see KISS and Dr. Mo deliver meaningful outcomes for investors around the world. We truly appreciate your feedback.
EXPLORE 42 MACRO RESEARCHWhat Matters More, AI Disruption or Bank Deregulation?
Welcome to The Weekly!
Recent divergence in global equity markets reflects mounting scrutiny of corporate AI capex trajectories, as market participants parse both escalating investment commitments and the deflationary risk AI poses to non-technology industry profits.
From this starting point, bank deregulation appears to be a greater upside risk than AI disruption is a downside risk, as (1) regulators broadly align on a deregulatory trajectory tied to the recalibration of the US Basel III Endgame framework, and (2) Paradigm C—the growth phase of the cut → grow → print sequence required to address the geopolitically driven supply-demand imbalance in the Treasury bond market continues to be the dominant driver of the economy and asset markets.
Elsewhere, the Q4 GDP and December PCE data supports our Resilient US Economy, U-Shaped Economy, and Sticky Inflation themes, broadly aligning with the latest FOMC projections of a ~2% real growth and 2.5–3.0% inflation US economy.
In Case You Missed It
This Is What Kevin Warsh Will Say About the Labor Market to Fix the Fed’s Broken Reaction Function
Enjoy this excerpt from our February 14, 2026 | Around the Horn webcast breaking down the declining dynamism of the US labor market as indicated across dozens of key high- and low-frequency economic statistics.
Our research continues to view the Fed’s reluctance to return the policy rate to a neutral setting as perpetuating a likely jobless recovery. Additionally, we project a structural uptrend in productivity growth, which will likely cause an even greater bifurcation between the outlooks for GDP and corporate profitability and the outlooks for employment, consumer confidence, and incumbent politicians.
Chart of the Week
The Diffusion of AI Throughout The Global Economy Favors International Stocks Over US Stocks As Productivity Converges
As AI adoption spreads across the global economy, productivity gains are broadening beyond the U.S. While U.S. firms have led in recent years, the convergence of global productivity trends suggests international equities may be positioned to benefit as AI-driven efficiency gains become more evenly distributed across developed and emerging markets.
Successful Signals From Dr. Mo
On November 29th, 2025, our Discretionary Risk Management Overlay signaled a bullish breakout in Energy $XLE. Since the pivot, $XLE has appreciated 21%.
Community Spotlight
This week, we’re excited to share feedback from a member of our global investor community. Specifically, the data-driven discipline that 42 Macro provides to our community.
It’s always rewarding to see KISS and Dr. Mo deliver meaningful outcomes for investors around the world. We truly appreciate your feedback.
Parting Shot | Factor Risk
Market risk is one thing. Factor risk is another.
Staying on the right side of the cycle is difficult. Staying on the right side of growth vs. value, U.S. vs. international, quality vs. beta, across multiple rotations, is exponentially harder.
Factor rotations occur more frequently than market cycles. The probability of stacking consistent wins declines dramatically.
Most investors don’t need factor alpha. They need disciplined exposure to beta and systematic risk management.
Explore 42 Macro’s KISS and Dr. Mo and discover the frameworks and signals that underpin our systematic approach to managing risk.
EXPLORE 42 MACRO RESEARCHWill Inflation Cause Asset Markets to Devolve From Violent Chop Into a Violent Drawdown?
It’s the Valentine’s Day & President’s Weekend’s Edition of the The Weekly!
In answer to the question:
No, this bearish scenario is unlikely according to our cyclical and structural research views related to the inflation cycle. The just released softer-than-feared inflation print spurred incremental conviction around prospective Fed easing, driving rates lower and leaving equities marginally changed as investors closed out a volatile trading week with a sigh of relief.
The recent correction instead likely signals an acceleration in AI diffusion. As we have detailed, a wider adoption of AI technology represents a durable positive shock to productivity, which represents a positive shock to corporate profitability and negative shock to trend inflation.
Related, the Resilient US Economy is recovering from its U-shaped slowdown, but the upturn is being propelled by fiscal expansion and government employment while private-sector hiring stagnates—setting up a jobless, AI-accelerated recovery with historic implications for inflation and corporate profits.
Make no mistake, understanding how these dynamics differ from past cycles is critical for navigating what comes next.
As always, members of 42 Macro’s global investor community will have deeper insights into our views and how our institutional-grade risk management overlays, KISS and Dr. Mo, help investors maximize gains in bull markets and minimize losses in bear markets.
In Case You Missed It
If Your Stomach Is Dropping From Market Ups And Downs, Here’s Why
Enjoy Forbes‘ recent piece (read here) examining the surge in cross-asset volatility as stocks, metals, and crypto all sold off in tandem.
As Darius highlights in the article, there is a key structural shift underway: a growing inverse relationship between dollar and currency volatility, driven by the growing geopolitical supply-demand imbalance in the Treasury market.
Chart of the Week
The Dramatic Underperformance Of Employment Growth Relative To The Growth Of Labor Supply Supports Our Jobless Recovery Thesis
Employment growth is dramatically underperforming relative to labor supply growth, supporting 42 Macro’s Jobless Recovery thesis. AI diffusion and capital deepening are boosting output and productivity without a commensurate rise in hiring.
Successful Signals From Dr. Mo
On November 29th, 2025, our Discretionary Risk Management Overlay signaled a bullish breakout in Global Commodity Producers $GNR. Since the pivot, $GNR has appreciated 21%.
Community Spotlight
This week, we’re glad to share a Valentine from a member of our global investor community. Specifically, the unmatched value that 42 Macro provides.
It’s always fulfilling to see KISS and Dr. Mo create positive outcomes for investors around the world. Thank you.
Parting Shot | The Cantillon Effect
Money is never neutral. It enters the system somewhere, and the first recipients benefit most.
The Cantillon Effect explains why new liquidity often lifts asset prices and government-supported sectors before it shows up in wages or broad consumer prices. The sequence matters.
In cycles shaped by fiscal expansion and shifting liquidity flows, identifying where capital is moving can be as, or even more important than reacting to headline data.
Explore 42 Macro’s KISS and Dr. Mo and discover the frameworks and signals that underpin our systematic approach to managing risk.
EXPLORE 42 MACRO RESEARCHHas the Crypto Collapse Concluded?
Welcome to The Weekly!
This past week’s market action reinforced just how much uncertainty there remains surrounding U.S. monetary policy. Cross-asset volatility surged following the nomination of Kevin Warsh for Fed Chair, a development that boosted the dollar and reversed crowded positioning in precious metals and levered bets on cryptocurrencies predicated on expectations of durable Fed debt monetization.
Warsh’s reputation as an aggressive inflation hawk — and his long-standing criticism of quantitative easing — has intensified speculation around balance sheet contraction and the durability of liquidity support. Warsh has vocally criticized his former colleagues at the Fed for allowing asset holdings to swell, fueling market speculation that a Warsh Fed would oversee a substantial shrinking of the balance sheet.
Meanwhile, Treasury Secretary Scott Bessent’s incremental endorsement of dovish net financing policy remains a key pillar supporting the 42 Macro Paradigm C bull market, even as uncertainty around the Fed’s role in supporting fiscal dominance reaches an all-time high.
All the same, growing cracks in legacy software stocks added further evidence in support of our Jobless Recovery thesis, as AI-driven efficiency gains and competitive pressures continue to disrupt labor demand. Crypto markets likely marked a capitulation low, but Warsh’s nomination may represent a durable headwind to non-Bayesian narratives underpinning the asset class.
In an environment this uncertain, now is not the time to be a hero. This is the moment to trust your risk management process or partner with a team that can meaningfully enhance it.
In Case You Missed It
What Does The Breakdown in Legacy Software Stocks Signal About the US Labor Market?
Enjoy Tuesday’s Macro Minute in which we explain why the breakdown in legacy software stocks is reinforcing 42 Macro’s Jobless Recovery thesis, as AI-driven disruption erodes once-defensible business models and pressures labor demand.
While firms continue to hoard experienced workers, hiring for younger and less-tenured cohorts is deteriorating, masking underlying labor market weakness.
Charts of the Week
“HODL’ing” Is Not Effective Risk Management
We hope this latest halving in the price — not supply — of Bitcoin highlights why “HODL’ing” is not a substitute for an effective risk management strategy.
Volatility is part of the journey for any investment, but navigating it successfully requires process and discipline.
Successful Signals From Dr. Mo
On October 30th, 2025, our Discretionary Risk Management Overlay signaled a bearish breakdown in Bitcoin. Since the pivot, Bitcoin has depreciated -36%, with a max drawdown of -50%.
Community Spotlight
This week, we’re excited to share feedback from a member of our global investor community. Specifically, the results that come from incorporating 42 Macro’s risk management overlay to your investment process.
It’s gratifying to see KISS and Dr. Mo create so many positive outcomes for investors around the world. Thank you!
Parting Shot | Bounded Rationality
Markets don’t overwhelm investors because the data is unknowable. They do because time, attention, and certainty are limited.
Behavioral economists call this bounded rationality: even smart decision-makers can’t process everything at once. When volatility rises and narratives collide, judgment shortcuts creep in and risk management breaks down.
Learn how our Discretionary Risk Management Overlay aka Dr. Mo helps investors stay systematic when it matters most.
EXPLORE 42 MACRO RESEARCHIs Fiscal Policy Still the Defining Feature of This Cycle?
Welcome to The Monthly!
Markets entered 2026 grappling with another wave of geopolitical stress and policy uncertainty. Efforts to revive Venezuela’s energy output, the Fed being issued subpoenas by the DOJ, and tariff threats on an assortment of European countries by the Trump administration all heightened short-term volatility.
As we have emphasized consistently, investors should stop overreacting to geopolitical noise and return to the disciplined work of measuring and mapping the six key macro cycles that determine momentum and dispersion within and across asset markets—growth, inflation, monetary policy, fiscal policy, liquidity, and positioning.
Growth, inflation, and liquidity are already acting as tailwinds, while fiscal policy is highly likely to turn supportive in 2026—potentially helping markets navigate elevated volatility stemming from historically crowded bullish positioning.
Monetary policy remains a wild card, especially with the nomination of Kevin Warsh—a known hawk—as Fed Chair. Our research was already calling for no change in monetary policy this year based solely on our economic outlook and the latest forward guidance from members of the FOMC.
Warsh’s contentious nature and strong desire for dramatic reforms at the institution may derail the outlook for monetary easing altogether if the incumbents at the Fed dig in to defend their broken models and legacy of policy mistakes. Stay tuned.
In Case You Missed It
Are Portfolios Prepared for a Productivity Boom?
On Fox Business, Darius joined Maria Bartiromo to explain why a structural uptrend in U.S. productivity is becoming the dominant macro force for markets.
The US economy is likely transitioning from a trend 2% productivity regime toward a trend 3% productivity regime—a shift that historically has coincided with stronger equity returns and faster corporate profit growth.
Should Investors Stay Overweight Equities Into 2026?
On BNN Bloomberg, Darius joined Merella Fernandez to explain how markets remain supported by an alignment of key macro cycles.
Chart of the Month
FYI, We Keep Saying “Perceived Independence” Because The Fed Is Not Independent As Evidenced By Their Clear Left-Leaning Bias; Recall That The FOMC’s Revised Interpretation Of Its Congressional Mandate To Seek “Maximum And Inclusive Employment” Was Causal To This Historic Policy Error In 2020–21
The narrative in the media and across global Wall Street that the Fed is a politically independent institution and the victim of politicized attacks is just that—a narrative. Sure, the Fed is currently a victim of politicized attacks, attacks that we strongly disagree with. Central bank independence is non-negotiable for any advanced society to function well.
But the aforementioned narrative still represents a convenient story concocted by the incumbent US monetary policymaking cabal to distract the public from its legacy of policy errors; most notably the error that contributed to the ongoing nationwide affordability crisis and K-shaped economy.
The lack of accountability (e.g., blaming the pandemic and Russia’s invasion of Ukraine for the 40-year high in inflation) and unwillingness to explore meaningful reforms (e.g., abandoning the broken Phillips curve framework, backward-looking “data dependency”, and noisy overcommunication) among members of this cabal is simply un-American.
Trust The Process: Successful Signals From Dr. Mo
Discretionary Investment Ideas Summary: Tuesday, October 31, 2023
On October 31, 2023, our Discretionary Risk Management Overlay signaled a bullish breakout in Gold $GLD. Since the pivot, $GLD has appreciated 142%.
As always, we’ll be back next month with updated insights on all things 42 Macro.
— Team 42