This month’s Strategic Asset Allocation Special cuts through the noise: AI stocks are in a classic price bubble—but the bigger risk is the runaway expectations bubble around AI’s macro revolution. We pit the optimists against the sceptics, stress-test the productivity miracle against unrelenting structural drags (ageing populations, geopolitical fragmentation, and trillions in climate capex), and map what this regime shift really means for returns and inflation. If the economic payoff arrives later—or smaller—than the market has priced, the coming correction won’t stop at Big Tech.

High public debt, an aging population, increased geopolitical risks, and rising interest rates have led to a bleak outlook for public finances. There is a lack of political will to do anything about this. In fact, pressure to further relax fiscal policy is mounting. As a result, government bond investors are demanding higher interest rates. But governments still have a bag of tricks up their sleeves to postpone painful measures. Later in this report, we will discuss whether the Fed will cut interest rates next month.

AI-bubble fears are rising, yet current valuations remain well below dot-com levels. A bigger — and far less discussed — market driver for 2026 may be government policy. This month’s Tactical Asset Allocation explains why, and what it means for investors.