'The fiscal stimulus side is rather strong': Ladner

Key Concepts

• AI Diffusion: The shift from building AI infrastructure to integrating and applying AI capabilities across various industries and work processes.
• Fiscal Stimulus: Government spending and tax policies designed to stimulate economic activity.
• Monetary Stimulus: Actions taken by central banks to increase the money supply and lower interest rates to encourage economic growth.
• Creative Destruction: The process by which new innovations displace older technologies and industries, leading to economic progress.
• Tailwinds & Headwinds: Factors that positively (tailwinds) or negatively (headwinds) influence economic or market performance.
• Deregulation: The removal of government rules and restrictions in a particular industry.

Earning Season & Economic Outlook – Scott Ladner Interview

I. January Earnings Performance & AI Market Reaction

The January earnings season has been “good but not great,” characterized by solid reports without significant macro-level shifts. While companies like Palantir highlighted continued AI integration, the market reacted with some concern regarding equity instruments related to AI investment. Specifically, the emergence of an AI tool for legal work from Anthropic caused a downturn in tech stocks. Ladner frames this as part of a necessary “creative destruction” process, acknowledging the disruptive aspect while emphasizing the long-term productivity gains AI promises. He notes the market is transitioning from focusing on building AI infrastructure (data centers, power) to understanding how AI is being utilized and “diffused” throughout companies and work processes. He stated, “The thing the market is going to care about and the thing the economy is going to end up caring about more is like how are we actually using this stuff.”

II. Macroeconomic Tailwinds for 2026

Ladner identifies several strong economic tailwinds expected to support growth in 2026. These are categorized as fiscal and monetary stimulus.

• Fiscal Stimulus: This includes the impact of recent US government legislation, specifically tax breaks resulting in increased refunds starting in February, providing consumers with more disposable income. He also cites the infrastructure build related to AI implementation as a form of “private fiscal stimulus.”
• Monetary Stimulus: The lagged effects of rate cuts implemented by the Federal Reserve and other global central banks over the past year and a half are beginning to materialize, particularly in small and mid-cap earnings. He notes an “inflection higher” in these earnings as a result.
• Productivity Enhancements: AI-driven productivity gains are also considered a significant tailwind, though he acknowledges this is a broader topic.

He emphasizes the confluence of these factors, stating, “There’s just a lot of tailwinds simultaneously hitting the global economy…getting this all together all at the same time, I think going to end up being pretty powerful.”

III. Potential Headwinds in 2026

Despite the positive outlook, Ladner outlines several potential risks.

• Political Risk (Mitigated): The appointment of Kevin Worsh as a Federal Reserve official alleviated concerns about potential political interference and artificially low interest rates under a second Trump administration. He stated that the previous risk of Trump “bullying the Fed around” has been “taken off the table.”
• Midterm Election Cycle: Historically, US midterm election years tend to be less favorable for equity markets.
• Geopolitical Risk: Specifically, the potential for conflict involving China and Taiwan is a significant concern. He highlights the importance of monitoring China’s ten-year rate as an indicator of its economic health and potential for destabilizing action, noting, “look leaders haveed of wars for sillier reasons.” He points to China’s continued economic struggles and deflationary pressures as contributing factors to this risk.

IV. Sector Preference: Financials

Ladner expresses a positive outlook on the financial sector, particularly smaller and mid-cap financials. This is predicated on the expectation of increased deregulation under the current administration, a stronger US economy, and rising corporate demand for loans. He notes that the previous administration prioritized tariffs and the “big beautiful bill” over deregulation, but anticipates a shift in focus this year. He also points to recent Senior Loan Officer Opinion on Bank Lending Surveys (SLOOH) indicating banks are becoming more willing to lend. He believes this setup has “some legs” and could continue throughout the year. He stated, “this is the setup for financials has been pretty good and we’ve been involved for a few months but we think actually this one’s got some legs.”

V. Technical Terms & Concepts

• SLOOH Surveys (Senior Loan Officer Opinion on Bank Lending Surveys): Surveys conducted by the Federal Reserve to gauge banks’ lending standards and credit availability.
• Deflationary Trap: A situation where a country experiences sustained deflation (falling prices), which can discourage spending and investment, leading to economic stagnation.
• Ten-Year Rate: The yield on a ten-year government bond, often used as a benchmark for long-term interest rates and economic expectations.

Conclusion

Scott Ladner presents a cautiously optimistic economic outlook for 2026, highlighting the convergence of fiscal and monetary stimulus alongside AI-driven productivity gains. While acknowledging geopolitical and political risks, he believes the current environment presents significant opportunities, particularly in the financial sector, driven by anticipated deregulation and a strengthening economy. The key takeaway is a shift in focus from building AI infrastructure to realizing its practical applications and the resulting economic benefits.