By Randy Myers
The U.S. economy proved remarkably resilient through the first nine months of 2026 despite higher energy prices, rising interest rates, and geopolitical uncertainty. While the outlook remains positive, Sarah Hirsch, global market strategist at New York Life Investment Management, says the path to continued strong growth is narrowing.
Speaking at the 2026 Stable Value Investment Association Fall Forum, Hirsch said her firm’s outlook rests on three themes: continued U.S. economic exceptionalism, growing investment in artificial intelligence, and a less supportive monetary policy environment.
U.S. Exceptionalism Persists
The United States continues to outperform other developed economies, supported by strong corporate earnings, energy independence, impressive economic fundamentals, and investment in new technologies, Hirsch said. Since the pandemic, the U.S. economy has grown at an average annual rate of approximately 2.5%, compared with about 1.5% in the euro area.
Hirsch noted that S&P 500 companies have collectively reported more than 10 consecutive quarters of double-digit profit growth, including year-over-year gains exceeding 25% in the first and second quarters of 2026. Those earnings help justify recent stock market highs.
Foreign investors also continue to demonstrate strong demand for U.S. equities and corporate bonds, largely negating earlier concerns about a global movement away from American assets.
AI Investment Drives Growth—and Concentration Risks
Artificial intelligence (AI) has become a powerful catalyst for economic growth, Hirsch said, with U.S. private-sector investment approaching $250 billion annually. That far exceeds private AI investment in Europe or China, even allowing for Chinese investment through state-owned enterprises.
Many companies benefiting most from the AI boom are suppliers of its building blocks: semiconductor manufacturers, energy producers, and businesses providing materials for data centers.
“We are really bullish on the AI theme,” Hirsch said. “We think that it is a very important investment trend that is going to impact investing for the next decade plus.”
Nevertheless, she cautioned that recent stock market gains have been concentrated in semiconductors, a historically cyclical and volatile industry.
“When you see equity market performance that is concentrated in a really volatile, really cyclical industry, it makes you a little bit worried about whether or not equity market performance is going to be able to keep pace with what we’ve seen over the past nine months or so.”
AI is also reshaping fixed-income markets. Major technology companies have increasingly issued investment-grade debt to finance capital expenditures, with issuance approaching $250 billion, Hirsch said. Including off-balance-sheet commitments, their total financing could be approximately $500 billion.
Such borrowing could affect Treasury demand if investors opt to steer money into highly rated corporate securities rather than government debt. Hirsch also sees opportunities in commodities, energy, and other AI infrastructure inputs that don’t require investors to predict which AI developers will ultimately prevail.
Higher Rates, Less Monetary Policy Support
A less supportive interest-rate environment is tempering the outlook, Hirsch said. The Iran conflict has disrupted energy markets and increased the prices of many goods, complicating the inflation picture. Oil has generally traded between $75 and $100 a barrel during the conflict, but a sustained move above $100 could materially increase recession risks.
The Federal Reserve raised short-term interest rates in September, reversing earlier expectations for monetary easing. While market pricing points to additional increases this year and next, Hirsch expects just one more hike before policymakers pause to assess economic conditions.
“We do think that there are significant impacts to the U.S. economy that might cause the Fed to be a little bit reluctant to have a robust tightening cycle,” she said, noting specifically that unemployment has not risen meaningfully.
Longer-term rates pose a separate challenge. Treasury yields have climbed across the maturity spectrum, reflecting uncertainty about monetary policy, government borrowing, and investor demand.
Hirsch highlighted the term premium—the additional compensation investors demand for holding longer-maturity bonds—as an indicator worth watching. With inflation expectations relatively stable, rising real yields and the term premium have been important drivers of higher long-term rates. Still, the term premium remains below historical extremes, leaving room for further increases. As a result, long-term yields might stay elevated even if the Fed changes course.
“If and when the Fed stops hiking, or if and when the Fed eases, you might not see rates at the long end come down in a meaningful way,” Hirsch said.
Fiscal Pressures Compound the Challenge
Federal debt and borrowing costs add further uncertainty to the economic and investment outlook. Annual interest payments on the national debt now exceed $1 trillion, or approximately 3.3% of gross domestic product, Hirsch said.
Meanwhile, Hirsch expects the November midterm elections to produce a divided government, potentially complicating negotiations over federal spending and the debt ceiling. Congress may need to address the ceiling in 2027, and drawn-out negotiations could unsettle Treasury markets and raise borrowing costs.
“I think the bond market is going to be a really strong arbiter of fiscal health over the next two years,” she said.
Similar concerns in Europe and Japan are contributing to elevated and potentially volatile global bond yields.
Despite these concerns, Hirsch concluded on an optimistic note. U.S. GDP growth averaged approximately 2% in the first half of 2026, with third-quarter growth expected to exceed 3%. Strong global demand for manufactured goods, capital investment, and loans also points to economic resilience.
“Every time we take a look under the hood, we’re constantly surprised,” she said. “So, while you have this less supportive rate environment, while you have these higher energy prices, we remain quite constructive on the outlook.”