Evan Brown and Ray Fuller explore how alternatives can help reinforce portfolios, manage risk and capture returns in this new world order.
Global markets are being reshaped by the return of supply shocks. From trade wars and labor constraints to the potential productivity gains of AI, supply is now setting the tempo for inflation, policy and portfolio risk. Evan Brown and Ray Fuller explore how alternatives can help reinforce portfolios and capture returns in this new world order.
For much of the past few decades, investors have operated in a world where demand-driven forces dominated economic cycles. But that world is shifting.
Today, supply-side dynamics exert far greater influence on growth, inflation and markets than many investors fully appreciate. Tariffs, reshoring, immigration policy, energy transitions and rapid AI deployment are reshaping the global economy. These forces don’t just move prices; they expand the range of potential macro outcomes. This makes it harder to rely on traditional diversification strategies rooted in stable correlations and predictable demand cycles.
Negative supply shocks – whether from trade barriers, energy disruptions or labor shortages – can push inflation higher even as growth slows, limiting central banks’ ability to respond. Consequently, both stocks and bonds can decline together, as seen in 2022, or bonds may simply offer less protection than they would in a pure demand shock. This stands in contrast to the negative demand shocks we have become used to, which allow central banks to lower rates, supporting bonds as stocks fall and providing natural diversification.
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