The world has changed so much that even the rhythm of the year is no longer what it used to be. Summer vacation is no longer a real break: a good summer these days is one that takes place without a major global crisis.
But there’s always a lot going on, and our hyperconnected world makes it impossible not to pay attention. Since the start of the year, we have all been relentlessly focused on a series of important issues: tariff negotiations, inflation and employment data, concerns about the independence of the Fed, geopolitical tensions both acute and latent, and ever-increasing progress and investment in AI.
As we enter the latter part of the year, it is the perfect time for a reset, the natural time to refocus on the business challenges ahead and how we intend to address them.
For business leaders, the biggest challenge today comes from increased and pervasive uncertainty. The US administration has undertaken to reshape the global trading system; the acceleration of digital innovation continues to transform the global economy; stricter immigration policy caused a sudden shock to the American labor market; And to make matters worse, falling survey response rates have affected the quality of economic statistics, making it more difficult to assess macroeconomic developments in real time.
To manage this multi-faceted uncertainty, I find it helpful to rely on four principles.
Four principles
First, focus on the fundamentals to cut through the noise. In the incessant flow of information and opinions to which we are exposed, the information-to-noise ratio has deteriorated considerably – exacerbated by polarization. It can be difficult to isolate what matters, but eventually the fundamentals prevail. This is true for economic policies: excess monetary and fiscal stimulus triggered the high inflation of 2021-2023; Unsustainable public debt trajectories in advanced economies will maintain upward pressure on bond yields and will need to be corrected through tax and spending adjustments. This is true for industries and businesses: companies that invest in well-targeted innovation, including AI, stand to reap greater efficiencies and market growth. Fundamentals still matter. This is why, in our investment strategies, we place great importance on fundamental research, combined with cutting-edge quantitative analysis.
Second, keep an open mind. Sometimes we confuse the way things have always been done with fundamental laws. This is a convenient shortcut, but it can be misleading. This is part of the reason the proposed tariffs did not have the immediate disastrous impact that many predicted. Free trade has never been truly free, and remaking the existing complex web of trade and non-trade barriers has a more complex progressive impact. And this is why some classic recession signals have failed in recent years, from the inverted yield curve to the so-called Sahm rule on the evolution of unemployment. They were treated as fundamental laws, whereas they were only empirical regularities already overtaken by a rapidly evolving economic structure. Keeping an open mind and examining the nuances is more difficult, but it can pay off.
Third, keep an eye on the long-term situation. Combined with a focus on fundamentals, this helps distinguish cyclical changes from structural turning points. The last decade, marked by near-zero policy interest rates and extremely low bond yields, was interpreted by many as a structural change: proof that we had entered an era where inflation would no longer be a danger and bond yields would remain depressed. In 2020, the Fed changed its monetary policy framework to emphasize that below-target inflation had become the biggest challenge. It now seems clear that these abnormally low inflation rates and bond yields were a cyclical phenomenon. Current yield levels are much more in line with the multi-decade historical average, and the Fed this summer adjusted its policy framework accordingly. Taking a long-term view may seem counterintuitive given that innovation is evolving so quickly, but it’s more important than ever.
Fourth, keep moving forward. Operating in an uncertain environment requires agility, and developing agility requires exercising different muscles, developing new capabilities, and developing a wider range of options. In finance, this means creating and testing new solutions in our own operations and for our clients’ investment strategies, including through the use of AI; experiment with new strategies to increase efficiency and expand access to investment opportunities, for example with crypto- and blockchain-based technologies; and expanding alternative asset offerings to provide greater opportunities for borrowers and investors. All of these steps are designed to create immediate value for customers and shareholders, but they also serve to create an option, to expand the set of tools that will allow us, as a company and the industry as a whole, to manage new, unforeseen developments that lie ahead.
This volatile environment is both intimidating and exciting. The uncertainty around us means we have a lot to learn. But these four principles can help us manage the risks and take advantage of the opportunities that this rapidly changing macroeconomic environment will present.
The opinions expressed in comments on Fortune.com are solely the opinions of the authors and do not necessarily reflect the opinions and beliefs of Fortune.
