Here\u2019s what rose to the top, and what we said about each theme along the way:<\/p>\n\n\n\n
No. 5: Recession risk<\/h2>\n\n\n\n
Macro signals, including tight credit spreads2<\/a><\/sup> and loose lending standards,3<\/a><\/sup> point to low near\u2011term recession risk.<\/p>\n\n\n\n A moderating US dollar4<\/a><\/sup> and shifting global cycles favor diversification into non\u2011US assets, with Europe and emerging markets offering relative value.5<\/a><\/sup><\/p>\n\n\n\n Tariffs and policy uncertainty could create a one\u2011time price shock and dampen sentiment and business investment, but are unlikely to trigger a recession in our view. Trade policy clarity plus US Federal Reserve (Fed) easing may be the remedy.<\/p>\n\n\n\n Anchored inflation expectations6<\/a><\/sup> and the Fed\u2019s easing bias provide a supportive backdrop for risk assets.<\/p>\n\n\n\n Should we pause for a long-distance dedication?<\/p>\n\n\n\n Finally, the biggest focus for Above the Noise in 2025 (drum roll):<\/p>\n\n\n\n Artificial intelligence (AI) spending is substantial, in our view, but not a dot\u2011com replay;7<\/a><\/sup> valuations are elevated, yet poor timing tools,8<\/a><\/sup> and market breadth is broadening beyond megacaps.9<\/a><\/sup><\/p>\n\n\n\n Not bad. To paraphrase Casey Kasem, we\u2019ll keep our feet on the ground and keep reaching for the stars.<\/p>\n\n\n\n \u2026the market doesn\u2019t appear particularly concerned about the next Fed chair. Investors have been told to worry about Kevin Hassett stepping into the role. After all, he would be the first to come directly from a senior White House position without prior service as a Fed governor. That sounds unprecedented, but remember that Ben Bernanke and Janet Yellen both chaired the Council of Economic Advisers before serving as Fed governors and then chairs.<\/p>\n\n\n\n So, is the market worried? Stocks are near record highs.10<\/a><\/sup> Inflation expectations have remained contained.11<\/a><\/sup> The dollar stabilized months ago.12<\/a><\/sup> In short, there\u2019s not much anxiety.<\/p>\n\n\n\n Why? <\/p>\n\n\n\n This isn\u2019t to say that Fed independence isn\u2019t critical. It is. But this may end up being little more than a tempest in a teapot.<\/p>\n\n\n\n Much has been made of a recent MIT study claiming AI can replace 12% of US jobs.14<\/a><\/sup> Sounds terrifying, right? But it doesn\u2019t mean AI is about to wipe out 12% of the workforce tomorrow. What it really means is that AI has the capability to perform roughly 12% of the tasks in your job. That\u2019s not doom and gloom. That\u2019s efficiency. AI can help me write paragraphs, edit my work, and even run analysis. But it doesn\u2019t share my opinions or replicate my incredible wit (my mom swears I have it). It doesn\u2019t hop on planes to meet clients. It certainly doesn\u2019t flash my dazzling smile on TV (again, mom\u2019s words). So, does AI have the skills to do 12% of my job? Sure. But that headline was way scarier than reality.<\/p>\n\n\n\n Investors often view the Magnificent 7 stocks as a single, unified force, assuming they move in lockstep and that the broader market\u2019s success depends on their leadership. This perception is understandable given their outsized weight in major indexes,15<\/a><\/sup> but it oversimplifies reality. In fact, the narrative doesn\u2019t match the numbers. Most of these stocks are underperforming the S&P 500 this year.16<\/a><\/sup> Meanwhile, the Bloomberg S&P 500 ex-Magnificent 7 Index has gained more than 16%,17<\/a><\/sup> underscoring that market strength has been far broader than the story suggests.<\/p>\n\n\n\n <\/p>\n\n\n\n \u201cThe word \u2018affordability\u2019 is a con job by the Democrats.\u201d18<\/a><\/sup><\/p>\n\n\n\n \u2013 President Donald Trump<\/p>\n\n\n\n \u201cA lot of that is not the current rate of inflation. A lot of that is just embedded higher costs due to higher inflation in 2022 and \u201923\u201d19<\/a> <\/sup><\/p>\n\n\n\n \u2013 Fed Chairman Jerome Powell<\/p>\n\n\n\n I think they\u2019re saying the same thing. President Trump would be right to remind voters that inflation spiked during the Biden administration, though in fairness, both parties contributed by pumping money into the system during and after the pandemic. Powell is also correct that inflation peaked in 2022.20<\/a><\/sup> It\u2019s the embedded higher costs that are the crux of the issue.<\/p>\n\n\n\n Policymakers focus on the inflation rate, while American consumers tend to focus on actual prices. And prices have remained elevated, about 10% higher than when inflation peaked.21<\/a><\/sup> That translates to roughly 3% a year, which the nation\u2019s central bankers are considering, for the most part, to be price stability. The challenge for politicians is that driving prices lower can\u2019t be the goal. Deflation would be disastrous, triggering falling wages, collapsing demand, and further declines in prices. That\u2019s a vicious cycle. Instead, what we need is for wages to keep pace. The data suggests they have, at least in aggregate,22<\/a><\/sup> but many Americans clearly don\u2019t feel it.<\/p>\n\n\n\n A: The demand for AI intelligence is accelerating at an unprecedented pace. Consider this: ChatGPT reached 100 million users in just two months, far faster than platforms like Facebook, which took four and a half years to hit that milestone.23<\/a><\/sup><\/p>\n\n\n\n Businesses, including hyperscalers such as Amazon, Alphabet, and Meta, are pouring capital into building the computing power needed to fuel AI innovation. Fortunately, most of these companies, Oracle being a notable exception, maintain net debt (cash minus debt) to EBITDA ratios close to zero.24<\/a><\/sup> In short, they have the capacity to borrow to fund investment.<\/p>\n\n\n\n The challenge, over time, will be balancing massive capital expenditure against the uncertain timing of revenue. That challenge will likely be even greater for businesses without the cash reserves hyperscalers enjoy. Timing will matter. Ultimately, it\u2019s a race to command the most computing power.<\/p>\n\n\n\n A: Unfortunately, I wouldn\u2019t count on it. Let\u2019s do the math.<\/p>\n\n\n\n That math still puts mortgage rates north of 6%, give or take a few basis points. And be careful about wishing for the fed funds rate and 10-year US Treasury rate to plunge, because that would likely suggest a significantly worse economic outcome than is currently expected.<\/p>\n\n\n\n How concerned should investors be about the amount borrowed by US businesses? I posed the question to Matt Brill, Head of US Investment Grade Credit at Invesco. His response:<\/p>\n\n\n\n \u201cWe\u2019re starting from a position of strength. Banks remain fundamentally sound and continue to improve their balance sheets,29<\/a><\/sup> and the US economy is on a solid footing.30<\/a><\/sup> That\u2019s an encouraging backdrop. Most businesses in the post-COVID-19 period have been cautious. They\u2019ve been holding back on borrowing amid waves of uncertainty, including the pandemic, the inflation surge, and higher rates in 2022, the Silicon Valley Bank failure in 2023, and tariffs in 2025. In each case, recession fears never truly materialized, but prudence prevailed. Today, companies are feeling more confident. Some are even increasing leverage to pursue acquisitions and strategic growth. Still, a general sense of caution persists when it comes to borrowing.\u201d<\/p>\n\n\n\n Above the Noise is heading about 1,250 miles south, where it\u2019s about 60 degrees warmer, to celebrate the holidays. Wishing you all a joyful season, and here\u2019s to a healthy, happy, and prosperous 2026!<\/p>\n\n\n\n —<\/p>\n\n\n\n Originally Posted on December 23, 2025<\/p>\n\n\n\nNo. 4: US dollar and international diversification<\/h2>\n\n\n\n
No. 3: Tariffs and policy uncertainty<\/h2>\n\n\n\n
No. 2: Fed policy and inflation expectations<\/h2>\n\n\n\n
No. 1: AI boom and market breadth<\/h2>\n\n\n\n
It may be confirmation bias, but\u2026<\/h2>\n\n\n\n
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If it bleeds, it leads<\/h2>\n\n\n\n
Chartered territory<\/h2>\n\n\n\n
![\"Five](\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/12\/five-of-the-magnificent.png\")
<\/figure>\n\n\n\nIt was said<\/h2>\n\n\n\n
Since you asked (part 1)<\/h2>\n\n\n\n
Q: How do you rationalize the amount of business investment that\u2019s related to AI?<\/strong><\/h3>\n\n\n\n
![\"Hyperscalers\u2019](\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/12\/hyperscalers-debt-levels.png\")
<\/figure>\n\n\n\nSince you asked (part 2)<\/h2>\n\n\n\n
Q: If the Fed continues to cut interest rates, should we expect mortgage rates to fall?<\/h3>\n\n\n\n
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Phone a friend<\/h2>\n\n\n\n
On the road again<\/h2>\n\n\n\n