SI424: Can Your Portfolio Survive the AI Hangover? ft. Alan Dunne

Global markets currently face significant shifts in bond-equity correlations, moving from negative to positive, which complicates traditional 60-40 portfolio strategies. While historical averages suggest a 0.3 correlation since 2020, this figure masks substantial volatility and diverse sub-regimes driven by supply shocks and fiscal policy. Portfolio resilience requires moving beyond simple risk-return metrics to incorporate independent sources of return, such as trend following and commodities, to mitigate tail risks. The ongoing AI capital expenditure boom, characterized by reflexive financing flows, risks an eventual unwind that could exacerbate debt levels and fiscal dominance. Investors must balance growth exposure with adaptive strategies to withstand potential economic downturns, as relying solely on equity beta leaves portfolios vulnerable to systemic shocks and inflationary pressures that challenge conventional diversification.