Tariffs: Absorbed Headwind Now Fading

In this episode of Excess Returns, we sit down with Paul Eitelman, Global Chief Investment Strategist at Russell Investments, to unpack their 2026 outlook and the idea of a “Great Inflection Point” for markets and the economy. Paul explains why the U.S. economy may be shifting from resilience to reacceleration, how artificial intelligence is moving from hype to measurable returns, and why market leadership could finally broaden beyond the Magnificent Seven. The conversation blends macroeconomic analysis, behavioral finance, and real-world portfolio implications, offering investors a framework for thinking about growth, risk, and diversification as we head into 2026.

Main topics covered
• The cycle, valuation, and sentiment framework and how it shapes investment decisions
• Why economic growth may reaccelerate in 2026 after navigating policy headwinds
• Accelerating AI adoption and what early signs of ROI mean for productivity and profits
• The J-curve of new technologies and where AI may sit today
• Capital spending, leverage, and profitability risks among hyperscalers and large tech firms
• Energy demand, labor market impacts, and other societal risks tied to AI
• Tariffs, immigration, and uncertainty as fading or manageable economic headwinds
• Financial conditions, fiscal stimulus, and deregulation as emerging tailwinds
• The gap between hard economic data and weak consumer sentiment
• Why recession forecasts have been wrong and how to think about recession risk going forward
• Inflation dynamics, the Federal Reserve’s priorities, and the outlook for rates
• The case for market broadening beyond the Magnificent Seven
• Global diversification, small caps, international equities, and emerging markets
• Behavioral finance, investor sentiment, and staying invested through volatility
• Portfolio construction implications, including real assets and alternatives

Timestamps
00:00 Introduction and the Great Inflection Point outlook
03:00 Cycle, valuation, and sentiment investing framework
05:50 From economic resilience to potential reacceleration
07:00 AI as a transformational technology and historical parallels
09:20 Measuring returns on AI investment and productivity gains
11:00 The AI J-curve and timing of benefits
13:00 Capital intensity, leverage, and risks for big tech
15:00 Energy demand, labor markets, and AI risks
19:00 How Paul uses AI in his own research workflow
20:30 The case for economic reacceleration into 2026
21:40 Tariffs and their real economic impact
23:20 Immigration and labor supply effects
24:10 Uncertainty, confidence, and business decision-making
26:10 Financial conditions and household wealth
28:00 Fiscal stimulus and the One Big Beautiful Bill Act
29:20 Deregulation as a potential growth tailwind
30:40 Hard data versus soft data in the economy
34:10 Why recession forecasts failed
37:10 Recession risk outlook for 2026
40:30 Inflation dynamics and the Fed’s focus
43:50 Broadening market leadership beyond the Magnificent Seven
46:10 Investor sentiment, panic, and opportunity
49:00 Translating macro views into portfolio strategy
51:30 Real assets, alternatives, and diversification
54:30 Investing lessons, compounding, and staying invested