Markets are moving into unusual territory. Over the next 6-12 months, I expect US interest rates will be cut significantly, probably more than they should be, on the back of political pressure. Jerome Powell’s speech at Jackson Hole a couple of weeks ago seems to demonstrate a more dovish Fed. These rate cuts will support equity markets if not drive them higher. For investors, it's a clear tailwind for the AI theme and growth stocks more broadly.

My concern is the combination of tariffs and artificially lower interest rates. On their own, either might be absorbed, but together they risk sparking a return of inflation. I do think this is a serious problem ahead, although it will take time for these indicators to flow through the system. At the same time, we need to overlay the deflationary effect of both AI rapidly lowering prices and reducing jobs and many countries now with declining populations. However, that deflationary effect is a longer-term story in my opinion.

The American consumer sits at the crossroads of these forces. For years, US households have surprised economists with their resilience, continuing to spend despite higher interest rates and tighter conditions. But the recent reporting results from big retailers are starting to tell a different story, that all is not well for the consumer. Rising costs from tariffs and increased uncertainty across the board are beginning to weigh on sentiment. This can easily lead to weaker business conditions.

That leads us to the labour market. Any weakening in business conditions elevates the risk that the jobs market deteriorates more quickly than people expect. If that is the case, it's plausible that the potential cuts in interest rates are in fact warranted. Interest rates may be cut to accommodate Trump's heavy-handed approach to the Federal Reserve. Though there is a potential scenario where they end up being needed, and the move will be seen as a pre-emptive stroke of genius.

So, at this point, I am alert to the prospect of inflation in the future, but I am not yet positioning our client portfolios for it. I think that would be premature. There are many forces at play that will influence the outcome. That said, the massive budget deficit and increased spending from the US government, combined with tariffs and much lower interest rates, really are all the fuel inflation needs to run away.

Although the continued rise of the share market would have you believe all is well, there is a clue for what may lie ahead in the long end of the bond market. Despite rates almost certainly coming down in the short term and Fed Chair Jerome Powell bending to pressure on rates with his dovish rhetoric, long term 30-year US bond yields are creeping up closer to 5%. That tells us that the longer-term direction of inflation and, in turn, interest rates may well be higher.

Long term bond yields are rising to multi-decade highs in many parts of the world. The US 30-year is 4.90%, the UK 30-year bonds are at 5.6%, France and Germany are at 4.49% and 3.4% respectively. Even Japan is at 3.3%. With many of these countries all facing massive deficits, the prospect of raising money to fund their budgets not only becomes more expensive, but the competition between nations for funds will push bond yields higher too. That is a discussion for another day.

So, while central banks are likely to cut interest rates over the next 6-12 months, I don’t think it will be long before inflation resurfaces. The bigger risk then isn’t simply an overheated economy with higher prices, that's painful but manageable. The real danger is inflation reemerging as the economy weakens. That’s stagflation, and it leaves government and central banks with no good options.

So, while the prospects for interest rates at Central Banks across the world are lower in the next 6-12 months, I don’t think it will be long after that inflation does rear its head again. The biggest risk I see ahead is not an overheated economy with inflation, which is painful but manageable. Rather, a far worse outcome would be for inflation to rear its head at a time when the economy is weakening despite the rate cuts. Stagflation leaves governments and central banks with no good options.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

We’ve all heard of first mover advantage, the prime position earned by the company that innovated before the others. Whether it’s launching a product, claiming market share, or pioneering a new technology, being early is often equated with being better. It's what everyone aims for from company founders through to investors. But history tells a more complex story. There are plenty of examples where being first has effectively been a disadvantage. Understanding this is important for companies, but even more so for investors as they allocate capital for the long term.

What people often forget is that many new technologies, especially those that transform or create new industries, require huge amounts of capital simply to build the underlying infrastructure for the technology to scale and reach the mass market. It means that along the way many of the most exciting companies building towards the vision of mass adoption of a technology fall by the wayside, make too many mistakes or run out of money along the way.

One of the best examples of this in recent times is the rise of the internet. I remember in early 2000, as the massive hype was building, it became clear that this technology was going to be transformative. It was, but the amount of capital needed to get the industry to where it needed to go in those early days was massive. Of course, the dot-com boom helped to ensure that the capital and total investment in aggregate needed to build out the foundations of the industry were raised.

In many of the most transformative industries, from airlines to automobiles, there is a similar pattern. Where the biggest rewards often go to the later entrants. Being first means more risk, more uncertainty, and more cost. It means making many mistakes with no guarantee of a path forward. Meanwhile, fast followers are sitting back, watching, learning, and preparing to strike with better timing, better economics, and fewer mistakes.

This isn’t to say that the first movers never win. They do. But surprisingly, the success stories are the exception, not the rule. Amazon, for example, was an early mover in online retail. By the time traditional retailers caught on, Amazon had already established dominance in infrastructure, logistics, and customer trust. Similarly, Netflix made the leap from DVD rentals to streaming before anyone else was even thinking about it seriously. These companies gained scale, users, and built moats that others struggled to create.

However, there is a much longer list of first movers who never made it. Friendster came before Facebook. AltaVista came before Google. Netscape came before Chrome. Myspace came before Instagram, and Palm Pilots and Blackberry came before the iPhone. First movers have to spend more on R&D and infrastructure, educate the market at their own cost, and make the big mistakes others can learn from as part of building towards mass adoption. Conversely, fast followers can analyse what worked, avoid what didn’t, and capitalise on a more informed and receptive market.

This dynamic is even more pronounced in industries with large capital requirements and slow adoption curves. When the Wright brothers took flight at the turn of the century, they changed the course of history. But it wasn’t until decades later that air travel became a commercial business. Hundreds of airline startups burned through capital before a few major carriers found sustainable models. The same was true with automobiles. Dozens of early manufacturers came and went before Ford revolutionised production with the Model T.

Technologies like the internet, mobile networks, and AI are no different. Being first to market often means bearing the costs of infrastructure, educating consumers, navigating regulatory grey zones, and building products that may not yet have viable markets. Fast followers will have more data, more capital, and the benefit of watching early failures. In many cases, the third or fourth wave of players win by building for a world that’s finally ready.

For investors, the key takeaway is that you don’t have to find the next big thing first. You don't have to rush. You have time. Take that time to understand the industry and where it will be best to invest in the long term. While there will always be companies that garner hype and headlines as new technology emerges, you don't need to rush.

There will always be opportunities throughout the adoption cycle of a new technology. Early-stage companies may deliver great returns when they win, but they also carry immense risk. The middle of the cycle, where demand is more certain and adoption is accelerating, can be just as lucrative with less downside.

AI is a great current example. Dozens of companies are rushing to launch models, tools, and applications. Some are burning through cash just to claim a spot in the conversation. But many of the future winners may not yet exist or will emerge as the business case is clearer and the infrastructure is more robust. Investors need to be patient and remember that being early is not the same as being right.

Long End of the Curve

First Mover Disadvantage