Markets have spent the past six months absorbing tariffs, geopolitical shocks, central bank pivots, and sharp swings in both directions, yet equities have continued to grind higher. In Purpose Investments' latest Market Focus webinar, Chief Investment Strategist Craig Basinger argued that this resilience is itself a signal: the market has entered the late stage of the cycle, a phase that can still deliver strong returns but calls for a more deliberate approach to portfolio construction.
Key Takeaways
- The data points to late cycle. Global equity market cap has surged from roughly $100 trillion to $170 trillion in three years, bond yields remain structurally elevated, output gaps are near zero globally, and inflation is reaccelerating. All classic late-cycle signals.
- This isn't a bear-market call. Roughly 40 market-cycle indicators remain healthy overall. Late-cycle phases can persist for a long time and have historically produced above-average returns before eventually ending poorly.
- AI is real, but its dominance is a late-cycle hallmark too. Hyperscalers now make up nearly 30% of S&P 500 market cap, well above the ~14% the "dot-com darlings" reached in 2000, meaning a market wobble would carry outsized impact today.
- The most likely risk is earnings disappointment, not a single shock. Expectations for AI-related names are now so high that merely meeting estimates may not be enough.
- Late-cycle conditions argue against chasing equity risk. Above-average returns can persist for a while, but the risk-reward trade off for adding further equity exposure becomes less favorable as the cycle matures, and inflation risk warrants caution on bonds too.
- Diversification of defense matters more than usual. Recent corrections have had varied causes (COVID, tariffs, geopolitical conflict), and bond-equity correlations have risen, meaning a broader defensive toolkit (gold, tactical strategies, alternatives, cash) tends to serve portfolios better than bonds alone.
- Value, dividends, and international equities are worth watching as a counterbalance to AI/growth concentration. Historically these are the segments that lead when a late-cycle rotation occurs.
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