Several things can be true at once.

Intro
Times are good… and they are bad.  Stocks are up but bonds are falling, causing interest rates to rise, because inflation persists.  Employment and corporate earnings have been durable.  But the wars grind on, which could add to inflationary pressures, which could eventually derail the US economy, but haven’t, as yet.  Headlines tracking all of this contradict one another as bad news gets offset by good news which is then again tempered by the bad.  If you find all of this confusing, you are not alone.

For many investors, accounts are up nicely.  But the outlook calls for skepticism.  Investments have risen across a variety of categories: technology, international, emerging markets, commodities, precious metals.  But how, you might ask, can markets continue to thrive in the midst of so much uncertainty?

Different Themes, Different Impacts
In my view, what we are seeing is how separate narratives or themes have impact upon different areas of the global economy.  Related investments move response.  For some, the story is one of optimism; for others, not so much. 

Is one narrative more correct than the rest?  Are some people living in a fool’s paradise while others know the true story?  It is more likely that each of the dominant narratives is correct, within its own context.  And related investments are behaving rationally.  Several things can be true at once: growth stocks can have reason to surge while global conflict drives up commodity prices.  Some emerging market companies might thrive due to the same factors causing bond prices to fall. 

It would be nice to have one metric, one impetus, that drives it all (I’ll resist the Lord of the Rings metaphor here).  But that may never be the case, as nice as it might sound in a headline.  We’re in times of transformation, where several themes play out over decades.  What are these themes?  Let’s consider. 

Here are four dominant narratives, with positive and/or negative and/or ambiguous potential outcomes:

Tech Boom or Bust – Will the AI revolution ultimately be net generative or destructive? 

• Boom: Next industrial revolution: growth in productivity, new jobs & industries, solutions to some of society’s great problems, enabling us to address new challenges. 
• Bust: Devastation of workforce leads to reduction in household incomes and spending which leads to declines in corporate earnings and overall deterioration of economy.

State of the Union – A nation in decline or American dynamism?

• Nation in Decline: The shift from a unipolar to multipolar world order causes America’s stature to gradually diminish which leads to problems for the dollar, deficit, workforce, etc.  Global trade becomes clogged and inflation surges.
• Enduring Resilience:  The flexibility and dynamism of the American worker and economic system leads to diversified and continued growth in response to and taking advantage of rapid societal change.  Crisis brings opportunity.

The Future of Energy – Green revolution or entrenchment of legacy petroleum industry?

• Green Future: Decarbonization movement takes hold worldwide leading to transformation of energy production, priority of primary resources, transportation, production, etc.
• Entrenched Legacy Industry: Traditional petroleum industries entrench to protect their massive capital investments, seeking to sustain status quo as resources eventually tighten and geopolitics of scarce commodities dominates world order.

Demographics = Destiny – What happens as average ages continue to rise across the globe?

• Aging: As average age continues to climb, workforce erodes and demand for entitlement programs increases, putting great pressure on the government. 
• Solutions Exist: Without another baby boom, a shrinking workforce will have to be resolved through immigration and/or increases to productivity.  And, since people are living longer, retirement ages are likely rising which can help.

Conclusion
What should an investor do as these themes play out in real time?  Act in terms of most likely outcomes.  Of course we can’t know the future, but some things seem much more likely to happen than others.  Don’t get swept into a frenzy over some outcome that could happen but is highly improbable.  I refer here to the bell curve of potential outcomes.  The “tails” are probably not going to happen; they could happen but probably won’t.

Allocate investments so that they might take advantage of (or protect against) evolving themes.  If you knew exactly what was going to happen, in AI for example, you could concentrate all of your wealth into that area and watch it go.  But we don’t know the future, so we do the opposite: diversify.  And tilt toward what we see as more likely. 

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. 

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.  The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The Consumer Price Indexes (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services (Source: U.S. Department of Labor).

The PCE price index, or Personal Consumption Expenditures price index, is a measure of the prices of goods and services purchased by people in the United States.