Growth signals beneath the surface

Resilient growth outside the market headlines, China’s policy response and the AI investment boom suggest the economic cycle may be stronger but increasingly vulnerable to leverage and volatility.

• US and EU economic data have surprised to the upside, while China’s proposed “6 Networks” infrastructure project could support global growth if policymakers use it to address the country’s chronic demand shortfall.
• The Federal Reserve raised interest rates in September 2026, only nine months after cutting them in December 2025, marking the shortest shift from easing to tightening since the mid-1980s.
• AI investment has expanded beyond equities into international debt markets, with hyperscaler borrowing illustrating how credit growth can finance late-cycle technology spending while creating fixed repayment obligations.
• The 67% loss suffered by the AI-focused Situational Awareness hedge fund in July 2026 shows how quickly speculative enthusiasm can unwind when prices detach from cashflows and leverage rises.
• M&A activity was on track for its highest annual volume in the second quarter but slowed unexpectedly in the third, as the US 10-year Treasury yield rose almost 1% from the end of the second quarter.

Takeaway: Investors should remain constructive but sceptical: real growth and strong earnings can coexist with late-cycle risk, and greater stability in rates would help corporate dealmaking while excessive leverage and risk-taking remain warning signs.