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Co-CIO Andrew Krei shared with Barron's Crescent Grove Advisor’s bear and bull cases for the coming year. Here he outlines how inflation, interest rates, Fed policy, and AI-driven concentration could shape returns and market leadership in the year ahead.
"In the bear case, the economy doesn’t crater but markets are finally forced to take rates and concentration risk seriously. Inflation stays sticky, pressuring the long end of the yield curve and handcuffing the Fed’s reaction function. This compresses equity multiples and tightens financial conditions even without a classic recession. At the same time, the “AI capex” trade stops getting a free pass. Spending remains heavy without any payoff to show for it. The market’s narrow leadership becomes a vulnerability, leading to a modest down year for the S&P 500, with bigger drawdowns in the most crowded megacap winners.
In the bull case, we see a combination of reaccelerating growth and inflation cooling faster than expected, giving the Fed room to cut meaningfully. Long rates stabilize or fall, liquidity improves, and risk appetite stays strong even with elevated starting valuations. AI names grow into their valuations as profitability and productivity gains become evident. Investors remain enthusiastic about the AI theme, but the rally broadens beyond just the biggest names. The result is a strong year for equities, with more balanced leadership.
Our base case is constructive on growth but realistic on markets. The economy keeps growing thanks to loose fiscal policy and a dovish Fed, yet returns are moderate because the good news is largely in the price. Inflation cools only gradually, so the Fed opts to pause its cutting cycle despite political pressure to be more dovish. That leaves us in a choppy, late-cycle environment with elevated volatility. Leadership continues to broaden away from a handful of megacaps toward more traditional industries and non-U.S. markets, with gains driven more by earnings than by higher valuations.
Read more at Barron's here.
Barron’s: Krei Lays Out 2026 Bull and Bear Scenarios
Dec 17, 2025 | Newsroom
"In the bear case, the economy doesn’t crater but markets are finally forced to take rates and concentration risk seriously. Inflation stays sticky, pressuring the long end of the yield curve and handcuffing the Fed’s reaction function. This compresses equity multiples and tightens financial conditions even without a classic recession. At the same time, the “AI capex” trade stops getting a free pass. Spending remains heavy without any payoff to show for it. The market’s narrow leadership becomes a vulnerability, leading to a modest down year for the S&P 500, with bigger drawdowns in the most crowded megacap winners.
In the bull case, we see a combination of reaccelerating growth and inflation cooling faster than expected, giving the Fed room to cut meaningfully. Long rates stabilize or fall, liquidity improves, and risk appetite stays strong even with elevated starting valuations. AI names grow into their valuations as profitability and productivity gains become evident. Investors remain enthusiastic about the AI theme, but the rally broadens beyond just the biggest names. The result is a strong year for equities, with more balanced leadership.
Our base case is constructive on growth but realistic on markets. The economy keeps growing thanks to loose fiscal policy and a dovish Fed, yet returns are moderate because the good news is largely in the price. Inflation cools only gradually, so the Fed opts to pause its cutting cycle despite political pressure to be more dovish. That leaves us in a choppy, late-cycle environment with elevated volatility. Leadership continues to broaden away from a handful of megacaps toward more traditional industries and non-U.S. markets, with gains driven more by earnings than by higher valuations.
Read more at Barron's here.