Episode summary
This $1.5 Trillion Manager Expects More Fed Hikes. So Why Is He Still Bullish?
Excess Returns
· · 1 hr 1 min · Hosts: Jack Forehand, Justin Carbonneau · Guests: Mike Hunstad
Summary
Mike Hunstad argues that the market is sending a stronger signal than the headlines. He sees resilient U.S. growth, tight credit spreads, and strong expected S&P 500 earnings into 2027, and says Northern Trust is positioned risk-on despite geopolitical noise, higher rates, and Fed uncertainty. He also thinks the wealth effect has become a major macro force: wealthy households now account for a disproportionate share of consumption, and a large equity drawdown could quickly slow spending and the economy.
On rates, Hunstad expects two or three hikes over the next 12 months and says the Fed still matters for bonds, but less for the real economy than it used to. He is more worried about rising term premium from U.S. debt levels than about a 5% 10-year Treasury yield itself. On AI, he argues that the main payoff should first show up in margins and productivity, not GDP statistics, and that AI is best understood as a massive positive supply shock. He also says the biggest companies are increasingly the market itself, so investors need to think differently about index risk, value exposure, and diversification.
Key takeaways
- Hunstad expects two or three Fed hikes over the next 12 months, but says monetary policy has a diminishing effect on the real economy.
- Hunstad says the biggest macro risk is a 20% equity drawdown because wealthy households are spending more out of their stock gains.
- Hunstad calls AI the biggest positive supply shock in U.S. history and says margin expansion is the first place to watch for ROI.
- Hunstad says AI is now a huge part of S&P 500 risk, making traditional market exposure effectively an AI bet.
- Hunstad argues that value investing has to evolve because many technology leaders now sit inside value indexes and classic price-to-book signals are less useful.
Notable quotes
“I would say the most significant risk for the US economy is you get a 20% draw down in equity prices”
“AI is the new beta, the biggest positive supply shock to the US economy that we've ever seen”
“if the rhetoric that we hear out of these companies is even close to true uh yeah this will have a very material impact on productivity”
“I often joke that beta is AI. AI is the new beta”
“You have to get paid for every basis point of risk that you take”
How the episode opens
The the market, I think, from a data perspective, is saying one thing. The headline narrative is saying something else. Your biggest spenders are wealthier than they have ever been, and they're spending more out of their wealth than they've ever spent.
There's a lot of gas in that tank. Um, I would say the most significant risk for the US economy is you get a 20% draw down in equity prices. Uh, I I often joke that beta is AI.
AI is the new beta, the biggest positive supply shock to the US economy that we've ever seen. You have to get paid for every basis point of risk that you take.
Mike, welcome to Excess Returns. Thank you very much for joining us this morning. — Oh, thanks for having me.
You are president of Northern Trust Asset Management, where I think the firm oversees approximately or over 1.5 trillion in assets. you spent much of your earlier career focused on quantitative investing, factor investing, and portfolio construction. So, I think today's conversation, you know, you're going to bring a unique perspective of someone who's been in the trenches, been practitioner, but now is at a a level where you're helping the advisors and the professionals at Northern Trust sort of navigate markets and advise clients in the best long-term way possible.
Um, there's a lot of uncertainty in the markets right now. I think both individual investors and professionals are trying to navigate an environment where we're we're seeing this global conflict conflict with Iran, higher interest rates. There's maybe some uncertainty around what the Fed's going to do, which we're going to talk about.
And then obviously the big uh the big 300 lb gorilla in the room is AI and the AI capex spend and you know where things go from here in terms of the return on this incredible amount of spending that's happening.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed hikes
- ai productivity
- 10-year treasury yields
- profit margins
- equity drawdowns and consumer spending
Companies and tickers mentioned
- NTRS
- Northern Trust
Watch the episode
Watch “This $1.5 Trillion Manager Expects More Fed Hikes. So Why Is He Still Bullish?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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