Tag: finance

Investing in Hype: Understanding Market Volatility in 2026

This June, Facebook (now officially Meta) will shut down Horizon Worlds. You’d be forgiven for not recognizing the name, but it was meant to be the flagship social platform of the “Metaverse” — Mark Zuckerberg’s much-heralded pivot into virtual reality, announced in October 2021 alongside the company’s rebrand.

The original announcement video is still on YouTube. In retrospect, three things stand out about that grand vision of a future that looked suspiciously like Ready Player One:

  1. Nobody came. The Metaverse was a dead mall — sparse, empty, and largely ignored.
  2. It cost $88 billion. In inflation-adjusted terms, more than the Saturn V rocket program, and nearly a third of Apollo.
  3. Financial experts were astonishingly credulous about its prospects.

Consider McKinsey, which estimated the Metaverse could generate up to $5 trillion in value by 2030. This wasn’t an offhand remark — it was supported by a 60-page report laying out the case in detail. They were hardly alone. Companies like Gucci and Disney lined up to invest, eager to establish a virtual brand presence.

Under normal conditions, being this wrong — a roughly 6,350% reversal of value — might prompt some reflection on how we evaluate technological hype. But there has been no reckoning. No serious questioning of the institutions that promoted it, nor any meaningful reassessment of Meta’s valuation, which still hovers around $1.6 trillion.

Instead, the cycle continues. In 2026, we are preparing for a wave of mega IPOs: SpaceX, expected to be valued between $1 trillion and $2 trillion; OpenAI; Anthropic — each priced at levels that assume enormous future success.

At the same time, investors are being asked to absorb the volatility generated by Trump’s war with Iran. Now in its seventh week, the conflict sits in a fragile ceasefire, with peace talks already having broken down. Markets have been repeatedly jolted by pre-market announcements from Trump, aimed at calming investors or pushing down oil prices. They work briefly — until reality reasserts itself and volatility returns.

And beneath it all, the line between investing and gambling continues to blur. You can now bet on almost anything: sports, elections, military strikes, even market movements. If you prefer your speculation dressed up as investment, there are cryptocurrencies — from meme coins promoted by social media personalities to those endorsed by political leaders.

Meanwhile, the Artemis II mission has just returned from the far side of the moon — the closest humans have come since the 1970s. It is a genuine technological achievement, built on decades of expertise and engineering discipline. Yet even here, the narrative is distorted. Elon Musk has publicly dismissed the program, despite ongoing struggles to safely launch his own super-heavy rocket. His public persona is built on compressing timelines, dismissing constraints, and projecting certainty where experts see complexity.

SpaceX, for all its accomplishments, is profitable primarily because of Starlink. Its core rocket business is not, nor are its adjacent ventures in AI, reportedly losing close to $1 billion per month. And yet, it is among the companies expected to command a trillion-dollar valuation.

This is the environment we are operating in: one of extraordinary hype. The current focal point is artificial intelligence — a technology with real promise, and real risks, that is increasingly being framed not as a tool, but as a wholesale replacement for human labor.

In practice, the results are far more mixed. AI systems are being deployed widely, and while there are genuine successes, they often fall short in complex, real-world applications. Signs are emerging that progress at the frontier may be slowing, and that integration into everyday workflows is proving more difficult than expected.

At the same time, the risks are becoming harder to ignore. Reports suggest that a recent Anthropic model was able to contact its researcher despite being tested in isolation, and identified tens of thousands of software vulnerabilities, prompting emergency responses across major institutions. Elsewhere, an AI system in China reportedly began mining cryptocurrency without explicit instruction — an example of emergent behaviour that remains poorly understood.

From a risk-reward perspective, the disconnect is striking. Investors are being asked to discount meaningful downside — including the possibility of systems behaving unpredictably — while accepting highly optimistic assumptions about their ability to replace large portions of the workforce. Structural issues, such as hallucinations, remain unresolved and may limit the technology’s long-term utility.

And yet the dominant narrative persists: spend aggressively, build relentlessly, and assume the future will justify the cost.

It’s no surprise that many people feel uneasy about the pace of change. Not long ago, the internet was slow and confined to desktops. Smartphones only became widespread after 2008, and within a few years had been refined into engines of constant engagement, capturing attention through endless notifications. Today, we are immersed in a media environment optimized for immediacy, amplification, and emotional response.

For investors, this creates a dangerous dynamic. The fear of missing out is immediate and visceral; the benefits of skepticism are slow and often invisible. But they are no less real.

2026 will likely bring a steady stream of dramatic headlines — each demanding attention, each tempting reaction. The discipline required is simple, but not easy: remain calm, examine the facts, and resist the urge to act on noise.

We are living in an era of exceptional credulity, reinforced by opaque flows of capital and influence. The responsibility, then, falls on investors themselves — to think critically, to question confidently, and to resist the pull of narratives designed to benefit from their belief.

Aligned Capital Partners Inc. (“ACPI”) is a full-service investment dealer and a member of the Canadian Investor Protection Fund (“CIPF”) and the Canadian Investment Regulatory Organization (“CIRO”).  Investment services are provided through Walker Wealth Management, an approved trade name of ACPI.  Only investment-related products and services are offered through ACPI/Walker Wealth Management and covered by the CIPF. Financial planning services are provided through Walker Wealth Management. Walker Wealth Management is an independent company separate and distinct from ACPI/Walker Wealth Management.

by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

A Watched Pot With A Frog In It

Back in the spring, markets reeled after Trump announced a new round of unilateral tariffs. The April 2nd announcement triggered a week of panic selling until the administration promised a temporary 90-day pause to pursue trade negotiations. Nine months later, the U.S. now has the highest tariff levels in over a century, economic data is showing signs of weakening, and discussions of a market bubble are widespread. Why, then, is the stock market still so high?

The most immediate reason is the concentration of market leadership. The “Magnificent Seven” tech giants now account for more than 35% of the S&P 500, while the top ten companies make up nearly 40%. The gap between the S&P 500 and its equal-weighted equivalent is just shy of 10%, while the Magnificent Seven themselves have delivered a combined return of roughly 27.6% year-to-date. The comparison to the dot-com era is easy to make, but the fundamental difference is profitability: Apple, Google, Microsoft, Amazon, Meta and others continue to generate substantial earnings and hold enormous balance-sheet reserves. This profitability has helped anchor market confidence.

Figure 1 Growth of the Magnificent Seven as a part of  the S&P 500

Another factor is the lag in how economic data reflects policy changes. Despite the risks tariffs pose, the full impact has not yet shown up in backward-looking data like GDP or employment reports. Investors expecting an immediate shock instead found resilient quarterly numbers, reinforcing confidence rather than shaking it.

Figure 2 Effective tariff rates over time, from the Yale Budget Lab

There is also a deeper structural issue: the increasing concentration of economic power and spending. As wealth inequality widens, a large share of U.S. households are contributing less to measured economic activity. Recent consumer expenditure data suggests that the top 10% of households now account for roughly 50% of all consumer spending, while the bottom 60% contribute less than 20%. This means that economic stress among the majority of households may not meaningfully register in the headline data that markets rely on. Meanwhile, AI-related capital investment makes up a growing share of the remainder of measured economic activity.

Figure 3 Widening wealth disparities between households and consumer spending

This combination — delayed data effects, high concentration of consumption, and sustained AI investment — has helped keep investor sentiment resilient, even as negative signals accumulate beneath the surface. It has also masked the risks of allowing speculative dynamics to develop largely unchecked.

Figure 4 Growth of Personal Consumption as a percentage of GDP

Concerns about an AI bubble are growing. Estimates of total AI investment now exceed $3 trillion when considering capital expenditures, valuations, and related infrastructure spending. Commercial use cases outside of a few sectors remain limited. Some firms have begun participating in “circular funding arrangements,” where they invest in each other’s AI initiatives to reinforce perceived valuations. Even industry leaders acknowledge the speculative environment: Sam Altman, the CEO of Open AI has said there is likely a bubble, while Jeff Bezos has called this a “good bubble” that will still produce transformative breakthroughs.

History suggests that speculative cycles are remarkably resistant to logic. They often convert skeptics into participants, including professional money managers who join in under client pressure. Market bubbles resemble the proverbial frog in a pot: the danger rises slowly enough to dull caution.

Yet they also resemble the “watched pot” that never seems to boil. As long as new capital continues to flow into AI-linked investments, momentum can persist. Predicting the end of a bubble is famously difficult — markets can remain irrational longer than investors can remain solvent.

So what should investors do? Awareness of rising risk is the starting point. We may not be able to time the end of the AI boom, but we can examine investor behavior for signs of speculative excess.

Consider Tesla. After the election, the stock surged nearly 98% in six weeks on enthusiasm linked to political alignment and narrative momentum. Since then, sales have weakened, profitability has declined, and competition has intensified — yet the stock remains 10% above its level on inauguration day and has more than doubled off its lows. Tesla’s valuation continues to reflect belief in future breakthroughs rather than current operational performance. It is a clear illustration of narrative overpowering fundamentals — a hallmark of speculative markets.

Figure 6 Tesla stock performance from November 4, 2024 to November 4, 2025

If this environment feels uncomfortable, it may be time to review portfolio risk exposure. Reducing equity risk comes with trade-offs — especially missing out on momentum-driven gains — but clarity on long-term goals can help prevent emotionally driven decision making.

Market manias are difficult to avoid and even harder to detach from when others are benefiting. The antidote is a disciplined investment plan that emphasizes long-term objectives over short-term excitement. In a world where the water may be warming around us, it is better to be a watcher than the frog.

by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

Why is Inflation So Hard to Beat?

April was a turbulent month for markets. Having begun 2024 with an abundance of enthusiasm about the prospect of (very near) interest rate cuts from central banks, an improving economy both domestically and abroad, and resilient employment, 2024 promised the fulfillment of a long-held dream; for the central banks of Canada and the United States to tackle inflation without causing a recession.

Though recessions seem to not be lurking in the immediate vicinity, the best-case scenario for the year is now fully off the table. Several months of higher-than-expected inflation numbers have caused markets to reconsider their earlier optimism and contemplate some of the more pessimistic predictions for economies.

In turn, US markets shed several percentage points through the first two weeks of April, not wiping out the year’s gains but reducing them by about half. Bond markets, having placed bets on rate cuts and longer duration bonds have retreated as well, wiping out gains for the year and forcing bond traders to retrench into safer, shorter duration positions.

Markets have steadied since then, and have been encouraged by Jerome Powell’s statements that the Fed still intends to cut rates, but the earlier optimism about many cuts totalling more than 1% for the year seem unlikely, and even now we will need more data in the coming months to trigger the first cut that had been anticipated for the early year.

Why is this, and why have markets been so easily convinced that rates were bound to fall so quickly?

There’s no obvious single answer. Like many issues surrounding complicated problems a multitude of events, including human bias and the best of intentions have formed the foundations for a great deal of misunderstanding. For the Fed’s part, it has remained committed that data will drive all interest rate decisions, a sensible argument but one that has tied their hands. Investors and analysts have shown a natural bias of optimism, and have assumed that with the bulk of inflation easily defeated through 2022 and 2023 that the final pieces would fall easily into place. This optimism has not learned from the recent past, as 2023 began in much a similar way, with anticipation of rate cuts happening in the second and third quarter of the year only to have rates start increasing in May.

But after these more human problems, what remains are a series of headwinds that will likely be with us for the foreseeable future. While prices of many commodities have fallen from their peaks, and “supply chain constraints” are no longer choking the global trade network, the world is fundamentally different than its was before 2020. China’s relationship with the West is now more openly antagonistic, and a combination of “reshoring” or “friend shoring” is ensuring that costs will be higher than they were in the past. Food prices have continued to rise, with sometimes opaque reasons. In some instances there are clear justifications for higher costs, like bird flu affecting American egg prices or higher gas charges pushing up the cost of shipping. But other times it seems that prices have risen because grocery stores simply can. Finally, commodity prices, while lower than they were in 2021/2022, remain above pre-covid levels. This applies especially to the price of energy, which seems set to stay elevated for the near term.

Performance of the 1 year WTI contract – Source: Bloomberg

Underlying this remains some larger issues about inflation’s presence in our lives before 2020. As I’ve previously written, many parts of our society were experiencing inflation long before CPI began to worry economists and other experts. Prices of physical goods had been falling for decades, but price of homes, child care, education, and food had all been climbing over that same period. The price of housing might be better if governments took a more active role in getting the cost of development down, but permits and other government fees now account for anywhere between 20% (CMHC estimates) to 60% when all taxes, red tape, permit costs and development charges are accounted for, a lucrative source of funds for municipal budgets.

From blog Carpe Diem by Mark Perry:
Source: https://www.aei.org/carpe-diem/chart-of-the-day-or-century-8/

 Additionally, since 2008 interest rates had been at “emergency levels”, the lowest borrowing costs of any time in history. Those near zero rates, which were intended to help remove slack from the economy and encourage large capital expenditure instead stimulated enormous share buybacks among major corporations. Instead of new jobs and a hotter economy we got increasing share prices and more corporate debt.

Problems that take a long time to form do not get fixed quickly. Repeatedly markets have shown an impatience for corrections and are quick to assume that pauses in inflation must mean that the trend of higher prices has both been beaten and that interest rates can fall back to previous emergency levels. Even if interest rates are at sufficient levels to regain control over the direction of inflation, it still doesn’t mean that rates can fall quickly, and the longer rates stay elevated above the emergency levels of the past, the deeper and more costly current interest rates become to the economy.

In Canada low interest rates helped stimulate an enormous increase in property values through the 2010s and into the pandemic. Higher interest rates threaten those gains and as we go through 2024, almost 60% of mortgages will have renewed into more expensive loans since rates began climbing. Even if interest rates begin to fall, homeowners can expect that the cost of borrowing will be much higher than they’ve been for many years. Between the desire of home owners to keep house values high, municipalities to keep their tax bases stable, and banks to ensure that the value of properties they’ve underwritten don’t move too much, the pressure to get inflation down runs squarely into our own self interest.

The urgency and desire for lower interest rates are real, but so are the headwinds that keeps inflation pressure high.

Walker Wealth Management is a trade name of Aligned Capital Partners Inc. (ACPI)* – if applicable ACPI is regulated by the Investment Industry Regulatory Organization of Canada (http://www.iiroc.ca) and a Member of the Canadian Investor Protection Fund (http://www.cipf.ca). (Advisor Name) is registered to advise in (securities and/or mutual funds) to clients residing in (List Provinces).

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by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc