Growth vs. the Cost of Capital

The message coming out of the G20 was increasingly centered on growth.

The equity market responded accordingly.

At the same time, crypto extended its gains as investors continued to interpret Treasury's expanded long-end Treasury buyback program as evidence that policymakers have a strong incentive to prevent long-term yields from moving materially higher. Treasury has announced that it plans to increase long-term debt buybacks to $4 billion per operation beginning in September, while Bessent has emphasized the goal of maintaining orderly Treasury markets.

The market appears to be making a rather important assumption:

Growth can accelerate even while rates remain high—and eventually, stronger growth and productivity will offset the negative effects of elevated debt and borrowing costs.

That is a very different investment regime from the zero-rate world of the 2010s.

Q: Given the administration's pro-growth policy direction and its potential impact on the economy, the momentum trade appears to be back on. Which sectors are showing signs of price acceleration and could outperform through year-end?

Our answer: follow the sectors where growth, liquidity, and structural change are intersecting.

The G20 Innovation Ministerial explicitly emphasized innovation as a driver of economic growth, with Commerce Secretary Howard Lutnick highlighting investment, domestic manufacturing, and innovation as central themes.

This fits a broader message that has been emerging from Washington: rather than trying to solve the higher-rate environment primarily by suppressing economic activity, the policy objective appears increasingly focused on generating enough growth to absorb the higher cost of capital.

That is an important distinction.

The equation the market is currently betting on looks something like this:

Higher rates → pressure on the economy

but

Higher growth + AI productivity → stronger earnings + lower unit costs

and eventually:

Higher productivity → stronger nominal growth → easier absorption of debt and higher interest expense.

Whether this equation ultimately works remains an open question.

But the market is clearly willing to trade on it.

The next couple of quarters could become particularly interesting because we should begin seeing more tangible evidence of AI adoption across industries.

The first phase of the AI cycle was largely about building the infrastructure.

The next phase is about using it.

That distinction matters.

If companies begin demonstrating measurable productivity gains, lower operating costs, faster revenue growth, or entirely new revenue streams, the market may become more comfortable with the enormous capital investment behind AI.

In other words, the market needs to see the return on AI.

If that happens, the current combination of high rates and high equity valuations becomes much easier to justify.

If it doesn't, the long-term yield could eventually become a much bigger problem.

For now, we believe the market is giving the growth argument the benefit of the doubt.

Crypto may be one of the clearest beneficiaries of this environment.

Treasury's expanded buyback program is not conventional Federal Reserve QE, but it is nevertheless an important signal that policymakers are paying close attention to conditions in the long end of the Treasury market.

And the market has already responded.

Bitcoin has rallied strongly alongside the Treasury developments, with analysts describing the move partly as a "debasement trade"—the idea that investors seek scarce or alternative assets when they become concerned about fiscal expansion, currency purchasing power, or intervention in bond markets.

Our view remains that the structural setup for crypto is favorable as long as policymakers continue to prioritize financial stability and growth while fiscal demands remain large.

The key risk, of course, is that long-term yields eventually become too high for policymakers to contain without creating another problem elsewhere.

But for now, the liquidity and policy backdrop remains supportive.

This week's momentum picture is particularly interesting because leadership is broadening.

Financial services have re-entered the momentum conversation.

The important distinction is that we are not necessarily talking about traditional banking alone.

The stronger opportunity may be in asset managers, brokerage platforms, investment services, exchanges, and fintech—businesses that benefit directly from higher market activity and increased participation.

Robinhood(HOOD) is a good example. The stock broke through its recent $120 resistance, reflecting renewed investor enthusiasm toward the financial-services ecosystem.

This is an important change from our earlier observation that momentum was diverging within financials.

The market appears to be moving back toward financial services—but selectively.

Software is another sector worth watching closely.

The AI scare initially created a simple narrative:

AI can write software → therefore software companies are threatened.

The market appears to be increasingly questioning that assumption.

Instead, investors are beginning to recognize another possibility:

AI can make software dramatically more powerful.

Enterprise software becomes more capable when AI is embedded into workflows, development environments, customer-service platforms, analytics, and automation.

Companies such as ServiceNow(NOW) and other enterprise software platforms are recovering much of the ground lost during the previous AI scare. ServiceTitan(TTAN) is another name worth mentioning, they are due to report earning next week.

The recovery in this sector is significant.

It suggests that investors are beginning to distinguish between AI replacing software and AI becoming the next major feature of software.

We believe the second scenario may prove much more important.

Crypto remains another area where momentum could persist.

The combination of Treasury intervention in the long-end market, fiscal expansion, persistent geopolitical uncertainty, and investor demand for alternative stores of value creates a favorable backdrop.

But this is also one of the most policy-sensitive trades in the market.

If the Treasury succeeds in stabilizing long-term yields without creating a renewed inflation problem, crypto could continue benefiting from abundant risk appetite.

If the long end breaks substantially higher, the equation changes.

So for crypto, watch the 10-year as closely as you watch Bitcoin.

Agriculture and fertilizer are different from the momentum trades above.

They are less about immediate liquidity and more about structural scarcity.

Climate volatility, geopolitical fragmentation, trade restrictions, energy costs, and food-security concerns all point toward a world in which agricultural productivity becomes increasingly important.

We don't necessarily expect agriculture and fertilizer to lead every risk-on rally.

Instead, we view them as a potential hedge against the very policy and geopolitical uncertainties that could eventually disrupt the broader growth trade.

That makes the sector particularly interesting.

Companies such as Nutrien, Mosaic, and CF Industries therefore deserve a place on the longer-term investment horizon.

The market is increasingly trading on a simple proposition:

Growth can outrun the cost of capital.

The administration's economic messaging is strongly focused on growth and innovation, while Treasury is simultaneously attempting to maintain orderly conditions in the long end of the Treasury market.

If AI delivers meaningful productivity gains, the strategy could work.

Higher productivity can increase corporate earnings, reduce unit costs, and potentially allow the economy to sustain higher interest rates without triggering a major contraction.

That is the bullish scenario.

And right now, the market is betting on it.

We therefore remain constructive on the risk trade going into the final quarter of 2026.

The sectors we are watching most closely are:

Financial services → Software → Crypto → Agriculture/Fertilizer

But we would make one distinction.

The first three are increasingly momentum trades.

Agriculture and fertilizer are more of a structural hedge.

There is also one major uncertainty investors cannot ignore as we approach the end of the year: the U.S. midterm election. The extent to which the election affects the administration's domestic economic policy and fiscal priorities remains uncertain.

For now, however, the message from markets is remarkably clear:

Growth is back in charge.

The question is whether productivity can grow fast enough to make the higher-rate world sustainable.

That is the experiment we are watching unfold.