The Late-Cycle Landscape: What Ecos Wealth Advisors Are Watching Now
We’re writing this newsletter from the vantage point of the late stage of the U.S. business cycle. A time when economic momentum slows, volatility rises, and selective opportunities appear across equities and fixed income. Recent Fed action in late October, corporate capital spending on artificial intelligence, and shifting Treasury yields are the three forces shaping markets today. 1 Where we are in the cycle
Late-cycle dynamics are showing in cooling labor market signals and a central bank that has begun to pivot. The Federal Reserve’s October decision to trim the policy rate modestly reflects growing concern about labor-market softness even as inflation remains above target, which is a classic late-cycle balancing act between supporting growth and containing inflation risks. That pivot changes the backdrop for both risk assets and bonds.
Why equities have momentum, and why it’s so concentrated
A major boost for equities this year has come from the “AI trade.” Large-cap tech and firms investing heavily in AI infrastructure have driven much of the market’s gains as investors price the prospect of productivity improvements and new revenue streams from AI adoption. However, this rally is concentrated: it’s driven by companies with the scale to invest in data centers, semiconductors, cloud services, and AI talent. That concentration rewards selectivity — not broad market complacency. 2
The risk side of AI spending
Capital spending on AI is real and substantial, but history warns us about cycles of overinvestment. Rapid, large-scale capital expenditures can compress near-term margins (as costs are incurred today for benefits that arrive later), and the potential for diminishing incremental returns means investors should be wary of chasing unloved names solely on AI chatter. From a portfolio standpoint, it’s prudent to differentiate between companies with durable competitive advantages in AI and those riding headline momentum. 3
What to expect in the bond market
Treasury yields have come off recent highs as the market prices the Fed’s pivot, with 10-year yields trading in the low-4% area — a level that offers decent income compared with the past decade while still reflecting uncertainty about the cycle’s depth. The yield curve dynamics (and any residual inversion) continue to be a valuable recession signal, but they also create tactical opportunities: extending duration after a meaningful move down in yields, adding high-quality corporates where spreads compensate for late-cycle credit risk, and deploying laddered strategies to capture attractive coupon income while preserving liquidity. 4
Practical moves for clients (firm perspective)
Revisit risk tolerance profiles through our risk tolerance questionnaire as well as the different buckets of money you have for each goal: late-cycle means higher dispersion. We continue to trim concentrated positions that lack clear earnings visibility and use proceeds to buy quality names benefiting from AI capital expenditures or other sectors entirely to reduce concentration risk and that offer stable cash flows.
Capture income opportunistically: higher real yields offer an attractive entry point for laddered Treasury or high-quality corporate allocations. We will consider a modest duration extension in core fixed income if inflation shows sustained improvement.
Favor active credit selection: credit spreads can widen if growth falters; active managers or direct credit selection can add value over a passive index in some holdings exposure.
We are stress-testing plans: running downside scenarios such as slower growth, tightening credit, or a sharper-than-expected slowdown to ensure clients’ liquidity and time horizons are robust.
Bottom line
We are in a late-cycle environment that rewards discipline. Interest-rate dynamics are loosening the fixed-income opportunity set even as AI-driven corporate spending concentrates equity returns. For clients, that means leaning into selective equity themes backed by real earnings potential, while using higher yields to rebuild balance-sheet resilience and generate dependable income. As always, client objectives and time horizons should govern tactical shifts, not headlines.
Ecos Wealth Advisors is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
2. Reuters+1
4. Greystone+1