My Favorite Industry Group Is On Fire
Investors,
I’m in London, for the first time in my life.
And I can’t help but feel the remnants of a fallen empire.
Worse yet, there’s a glumness in the attitude here, as if people have accepted the slow and inevitable decline. These are just my first impressions and perhaps my sense of this is completely off the mark… but as someone who’s traveled as much as I have, I’ve developed a knack for these intuitive reactions. It’s a stark contrast vs. what I’ve experienced throughout Eastern Europe — an area of the world which feels distinctly on the rise with a clear trend of improving living standards in the past 30 years post-communism.
This trip to London has forced me to think, in some capacity, about the United States.
Particularly in the context of my country’s 250th birthday.
Doubly particularly in the context of financial markets, given my area of expertise.
If you asked Caleb from 10 years ago, I’d wax poetically about unfunded government liabilities, the Federal Reserve’s balance sheet, the ever-weakening labor market, a stock market that was destined to implode, elevated Shiller-CAPE ratios, an impending currency crisis, and irrational exuberance in various pockets of the market in order to justify a negative and pessimistic outlook on the U.S. currency, economy, and financial market.
But you’re hearing from Caleb in 2026 — an economist and investor who learned from the flaws in my prior worldview and was forced to adapt a more nuanced view.
Even in the face of London’s reminder about how the mighty can fall, I remain completely optimistic about the U.S. economy and its financial markets.
Recessions and bear markets will come.
They will pass.
Thankfully, I don’t even think we need to worry about that right now… not in the midst of a raging bull market with an economy that continues to be resilient and dynamic.
Not “strong”.
Not “perfect”.
Not “bulletproof”.
Just resilient and dynamic.
These are the two adjectives that I’ve used to describe the economy for 3+ years.
In 2022, I looked at the macro environment and the fastest rate hike cycle in modern economic history and I proposed that two things would take place:
Something was going to break
A recession would come in its aftermath
I called this The Earthquake Effect, in which an earthquake (financial market failure) would produce a tsunami that would rock the shores of the U.S. economy (recession).
FTX happened in Nov.’22, which was contained within the crypto ecosystem…
But then the banking “crisis” hit with the failures of Silicon Valley Bank, Signature Bank, First Republic, Credit Suisse, and Silvergate Bank that started in Q1 2023.
Something — in fact, many things — broke.
I used that initially as a way to validate my recession prediction and it only emboldened my view that the U.S. economy would teeter into a contraction in 2023.
But then I watched closely…
Yields went up, not down.
Stocks went up, not down.
And there was only one way to interpret this…
It was the opposite of a recession signal!
At that point, the S&P 500 had been rising for ~4 months.
The Russell 2000 had been rising for ~8 months.
Stocks had stopped falling… and only kept going up in the aftermath of this news.
That didn’t seem recessionary to me, particularly in the context of 2022’s bear market.
And in that context, I had to look at the data and be objective about my conclusions!
The labor market hadn’t cracked.
Inflation was decelerating (aka “disinflation”).
Real GDP growth was positive.
The point was, despite continued fears of a recession, there was practically zero sign of one at a broad-based level. So why live in fear of that potential recession if stocks were going up and there was money to be made as an investor?
And that’s exactly why I analyzed the data, listened to the objective conclusions, and simply trusted the market’s signal.
Being here in London has reminded me that empires are fragile.
But it hasn’t not, even in the slightest, created a ripple of concern about what I can actually control in this current market environment — my ability to participate in the uptrend and manage risk.
Recessions are possible, always.
To pretend that there isn’t a non-zero chance of a recession is ludicrous.
But what can we do… or what should we do about that non-zero chance?
Should I sell all of my stocks?
Should I short the market?
Should I buy Treasuries?
Should I bury my cash?
I’d rather just keep accepting risk and hunt for opportunities.
What kind of opportunities?
How about my favorite theme in the stock market…