Global slowdown, U.S. shutdown and the AI bubble

Global slowdown, U.S. shutdown and the AI bubble: which asset allocation?

With equity markets under pressure and AI euphoria echoing the dot-com era, here’s where to position

In recent months, the combination of rising geopolitical tensions, a prolonged shutdown of the U.S. federal government, and growing financial excitement around Artificial Intelligence has created a climate of high uncertainty for global equity markets.
In this environment, 4FT Invest’s proprietary models indicate that we are entering the slowdown phase of the economic cycle, calling for a repositioning of portfolios toward more defensive and selective assets.

Geopolitical situation and the U.S. “shutdown”

Geopolitical tension spans many fronts — strategic rivals, critical supply chains, fragmentation of trade flows, and rising idiosyncratic risks.
At the same time, the U.S. government has been in shutdown since October 1, 2025, following the failure to reach an agreement on budget continuity.

The prolonged standoff has revived macroeconomic risks: potentially weaker consumption (as federal workers face delayed pay), contraction in government orders, and delays in key public statistics.
For equity markets, this translates into a less favorable environment — reduced visibility on public spending, pressure on corporate earnings, and a more fragile business cycle backdrop.

The economic cycle context: slowdown

According to 4FT Invest’s MacroMetrics model — based on more than 20 macroeconomic indicators drawn from the Federal Reserve Bank of St. Louis (FRED) database — the U.S. economy appears to be moving from expansion into slowdown.
FRED provides extensive historical datasets: https://fred.stlouisfed.org/.

Examples of weakening indicators:

• The Leading Economic Index (LEI) has fallen several times in recent months, signaling a growing likelihood of slowdown.
• The institutional financial conditions index shows that tighter conditions are expected to restrain growth over the next year.

4FT Invest interprets this as the onset of a period in which growth remains positive but significantly weaker — a typical “late-cycle / pre-recession” stage.
In such a context, equity markets tend to experience higher volatility and a greater risk of drawdowns; companies with high operating leverage and cyclical sensitivity become more vulnerable.

The AI bubble risk and its impact on equities

Meanwhile, enthusiasm around Artificial Intelligence has raised fears of a new bubble reminiscent of the 1990s internet boom.
Analysts and studies suggest that the current AI surge mirrors the pre-bubble phase of the dot-com era — elevated valuations and expectations of radical transformation.

As OpenAI CEO Sam Altman put it: “Investors are getting too excited, even though the technology is truly important.”
Reports indicate that the top 10 companies in the S&P 500 now trade at forward EPS multiples higher than those at the peak of the dot-com bubble.

For equity investors, this implies two key takeaways:

• The “AI hype” components of portfolios face a serious correction risk if the narrative of revolutionary business transformation fails to materialize.
• However, not all technology stocks are the same: firms with resilient business models, expanding profits, and structural competitive advantages may continue to grow even during a slowdown.

4FT Invest’s strategic asset allocation guidance

Given the above, 4FT Invest proposes the following medium-term asset mix, focused on equities but with a broad defensive balance:

a) Short-term government bonds (3–5 years):
With slowing growth and the likelihood of more accommodative monetary policies, short-duration sovereign bonds offer equity protection and moderate yield potential.

b) Investment-grade corporate bonds and covered bonds:
While they cannot match equity-level returns, these instruments provide a better risk-return profile than sovereigns, aligning with a phase of weak but positive growth.

c) Gold, silver, and safe-haven currencies (e.g., Swiss franc):
In a climate of geopolitical uncertainty, shock risk, and potential market volatility, safe-haven assets serve as a stabilizer within diversified portfolios.

d) Equities — selective exposure to resilient technology and innovation:
Rather than favoring broad equity exposure, investors should focus on technological and innovative companies that:

• have resilient business models (e.g., strong cash flow, profitability, market leadership)
• can thrive even in a low-growth environment.
  Avoid the speculative extremes of the “AI hype” narrative — prudence and selectivity are key.

Practical investor guidelines

• Rebalance portfolios toward a greater share of fixed income (government + corporate) and safe-haven assets, trimming under-analyzed core equities.
• Within equities, prioritize firms with high competitiveness, low leverage, and exposure to structural trends (cloud, cybersecurity, industrial automation) over unprofitable or speculative ventures.
• Monitor the yield curve (inversions, spreads) and macro indicators (available on FRED) to confirm the transition out of expansion.
• Maintain a tactical stance on safe havens: increase exposure to gold/silver/CHF in case of geopolitical escalation or market shocks.
• Avoid being swept up by “everything AI will rise” enthusiasm — embrace technology, but stay mindful that narratives often precede reality.

In summary

The combination of a late-cycle slowdown, persistent geopolitical tension, and a potential AI bubble places equity markets in a more fragile position than in recent years.
In this context, 4FT Invest recommends a prudent asset mix: short- to medium-term fixed income, corporate credit, safe-haven assets, and selective exposure to resilient technology and innovation.

Such positioning allows investors to protect capital while preserving sustainable growth potential should equity markets enter a more selective recovery phase.

The information provided is for informational purposes only and does not constitute financial advice, an offer, or an investment recommendation.
Data and opinions reflect the situation as of the publication date and may change over time. Past performance does not guarantee future results.
Each investment decision should be made independently, considering personal financial circumstances and objectives.