As August begins, the economy continues to move forward, but the path has become more demanding. The broad backdrop is one of slower, more fragile progress: inflation appears to have a higher floor, interest rates are no longer anchored near zero, fiscal flexibility is thinner, and global shocks now move more quickly through an economy with fewer shock absorbers.
That does not mean the economy is on the verge of collapse. It does mean that the margin for error is smaller. For investors, this is an environment that rewards discipline, diversification, liquidity, and selectivity rather than broad complacency.
The economic backdrop
The base case still points to modest growth, with real GDP expected to rise 2.0% in 2026 and 1.9% in 2027, while unemployment remains relatively low at 4.2% in both years. At the same time, inflation is not fully back in the bottle: CPI is projected at 3.2% for 2026 and 2.6% for 2027, core CPI at 2.8% in 2026 and 3.0% in 2027, and the 10-year Treasury yield is forecast to move from 4.6% in 2026 to 5.0% in 2027.
In plain English, the likely path is not recession by default, but neither is it a clean return to the low-rate, low-inflation world investors enjoyed for much of the last decade. Growth may continue, but it is more vulnerable to policy error, supply disruptions, geopolitical flare-ups, and financial market repricing than it was when capital was cheaper and inflation was less sticky.
The risks that matter now
Several structural risks stand out. First, uncertainty has become persistent enough to alter behavior: businesses delay hiring and investment, households postpone major decisions, and those cumulative delays can weaken growth before traditional data fully capture the slowdown.
Second, inflation pressures now come from supply-side frictions as much as from excess demand. Lean supply chains are being replaced by more resilient but costlier systems, climate and energy disruptions can keep prices elevated, and AI-related infrastructure spending is adding pressure to electricity, electronics, and capital costs.
Third, higher public debt and rising interest expense reduce the government’s room to respond forcefully to the next downturn. Debt held by the public exceeded the
size of the economy in early 2026, and net interest on the debt surpassed $1 trillion in fiscal 2025, limiting future fiscal flexibility.
Fourth, geopolitical and trade chokepoints matter more than they used to. Tariffs, export controls, retaliation, and vulnerabilities in energy and industrial inputs can transmit local disruptions into broader inflation and market volatility more quickly than in the past.
Finally, the market itself may be more exposed to disappointment in highly valued growth themes. AI remains potentially transformative, but the infrastructure costs are arriving before the full productivity dividend, which raises the risk that valuations could run ahead of fundamentals in parts of the market.
The opportunities in this environment
Periods like this still create meaningful opportunities. A world of positive nominal growth, healthy business investment, and elevated but not runaway inflation can support quality companies with durable cash flows, pricing power, and balance-sheet strength.
Higher starting yields also improve the prospective return profile for fixed income compared with much of the post-2008 era. With the federal funds rate projected around 3.7% in 2026 and 4.0% in 2027, and BAA corporate bond yields forecast at 6.3% and 7.0%, investors are being paid more to own liquidity, duration, and credit than they were when rates were pinned near zero.
On the equity side, selectivity matters more than index-level enthusiasm. Businesses tied to productive capital spending, infrastructure, power demand, automation, and mission-critical technology may benefit even if the market becomes less forgiving toward speculative segments of the AI trade.
For long-term investors, volatility can also become an ally. Market pullbacks, sector rotations, and style reversals often create opportunities to rebalance, harvest losses where appropriate, and add to favored assets at more attractive expected returns.
Portfolio implications
In a regime of slower growth, higher real-world frictions, and a potentially higher inflation floor, portfolios may need to do more than they did in the prior cycle. That generally argues for balancing growth exposure with ballast, emphasizing quality across asset classes, and maintaining enough liquidity to respond when dislocations create opportunity.
It also argues for humility about forecasting. If uncertainty is endemic and the economy is more shock-prone, then resilient portfolio construction becomes at least as important as making the perfect macro call. Diversification across equities, fixed income, and real assets remains valuable precisely because the distribution of outcomes is wider.
Tax-aware rebalancing, disciplined income management, and careful review of concentrated exposures may be especially important in this kind of market. When return streams are less uniform and volatility is higher, execution and risk management can add more value than heroic predictions.
Closing thoughts
The central message is straightforward: the economy is still growing, but the climb is steeper. Investors should take seriously the risks of sticky inflation, higher-for-longer rates, fiscal constraints, geopolitical chokepoints, and valuation resets in crowded trades, while also recognizing that these same conditions can create better entry points and a healthier opportunity set for patient capital.
This is a time to stay grounded in process. Portfolios built for resilience, tax efficiency, and selective offense are better suited to a world in which growth continues, but cushions are thinner and surprises matter more.
Thank you, as always, for your continued confidence and the opportunity to serve you.
Sincerely,
Eric Boyce, CFA
President & CEO
Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
Risks: All investments, including stocks, bonds, commodities, alternative investments and real assets, should be considered speculative in nature and could involve risk of loss. All investors are advised to fully understand all risks associated with any kind of investment they choose to make. Hypothetical or simulated performance is not indicative of future results.
Additional Source Reference: Diane C. Swonk, “Economic Compass: Rolling a Boulder Uphill, Structural Change Watchlist,” July 2026.
Investment advisory services offered through Boyce & Associates Wealth Consulting, Inc., a registered investment adviser. Boyce & Associates Wealth Consulting, Inc. has Representatives Licensed to sell Life Insurance in TX and other states.
