This $1.5 Trillion Manager Expects More Fed Hikes. So Why Is He Still Bullish?

Space Exploration Technologies

Across the shows: 52 speakers in other episodes, 68 bullish and 24 bearish calls, past 30 days

• Mike Hunstad · Northern Trust Asset ManagementNeutral

  SpaceX's IPO caused no major index disruption; its benchmark weight stays small, but more tranches will raise it.

  The IPO float was a small fraction of SpaceX's roughly $1.85 trillion valuation, so few shares were issued. MSCI and FTSE Russell added it first and S&P is staggered later, but no major disruptions followed. SpaceX's weight in large-cap benchmarks is still small. Hunstad expects further tranches to be released, which will raise its weight and influence on benchmarks, though he says he does not know the timing. He calls this unusual but not a problem. Northern Trust was an early private-market investor in SpaceX and earned a strong return, so he also questions whether the company's growth has already been captured by private investors.

  “But we didn't see any major disruptions as a result of that. The overall weight of SpaceX in these large cap benchmarks is still pretty small.”at 36:18

US stock market outlook

• Mike Hunstad · Northern Trust Asset Management

  Northern Trust is risk-on going into 2027, citing resilient growth, tight spreads and 30%+ expected earnings growth.

  Hunstad's data view is that US GDP growth for 2027 is about 2.5%, five-year breakeven inflation is still below 2.5%, and high yield and investment grade spreads are very tight. The best sign of resilience is consensus S&P 500 earnings growth above 30% into 2027. Equity markets are near all-time highs after a strong year to date. From this he concludes the firm is risk-on in its portfolios going into 2027.

  “We actually have a lot of optimism on markets in general, but The US macroeconomic backdrop as well. So we are risk on in our portfolios going into 2027.”at 3:45

• Mike Hunstad · Northern Trust Asset Management

  AI is about half or more of S&P 500 risk, so equity exposure is effectively an AI bet.

  Hunstad says AI accounts for probably more than 50% of the total risk in the S&P 500, and it is also a large part of MSCI World. He calls AI the new beta. Equity exposure is therefore essentially an AI bet, so investors who want diversification have to manage their AI exposure deliberately rather than relying on equal-weight benchmarks.

  “I often joke that beta is AI. AI is the new beta. I would say it's probably even a little bit higher than 50% of the total risk in the S and P 500.”at 32:46

• Mike Hunstad · Northern Trust Asset Management

  Quality, value and low-volatility factors diversify AI exposure while still generating strong returns.

  Hunstad's approach is to underweight AI modestly and reinvest the freed-up active share in higher-quality, better-value and lower-volatility stocks. That diversifies AI risk while keeping return potential. He says these factor strategies have been an extraordinarily potent approach over the last couple of years, and value has also outperformed in recent years because of dispersion beyond AI.

  “buying stocks that are higher quality or better value, lower volatility. That has been an extraordinarily potent approach over the last couple of years. Our factor strategies are knocking the cover off the ball,”at 34:04

• Mike Hunstad · Northern Trust Asset Management

  Growth stocks are reclassifying into value indexes; Russell 1000 Value's tech weight rose from 12% to 18%.

  Using the Russell 1000 Value chart, Hunstad says the allocation to some sectors has grown counterintuitively. Some firms that are classically seen as growth have turned out to be value stocks, and vice versa. Information technology was 18% of the index in June 2026, up from about 12% a few months earlier. A value fund can therefore carry a lot more technology and AI exposure than its name suggests.

  “June 2026, 18% of the allocation was to Infotech. Just a few months prior, what was it, 12%.”at 43:55

• Mike Hunstad · Northern Trust Asset Management

  Price-to-book is now a terrible value indicator; value should be judged within cohorts of similar growth.

  A valuation multiple is a point-in-time estimate and captures only one part of value, the price. Intrinsic value also depends on the growth path being paid for, and price-to-book and P/E capture little of that, especially for intangible-heavy firms. Hunstad says value now means comparing multiples within groups of stocks that share growth expectations, such as AI stocks. Ranking the S&P 500 by P/E is the old style of value investing. Finding those cohorts is hard, and Northern Trust uses AI tools to do it.

  “Is that a good value indicator today? No. It's a terrible value indicator today.”at 48:15

• Mike Hunstad · Northern Trust Asset Management

  Network-based momentum across suppliers, customers and peers earns excess returns and avoids momentum crashes.

  Hunstad says GICS sector and industry classifications are almost meaningless for grouping stocks. Natural language processing lets managers map which firms are related through suppliers, customers, peers, regulators and countries of operation. Momentum within these networks is strong: if customers do well they pull suppliers along. Hunstad says this has generated significant excess returns or alpha. Network momentum also tends to persist and avoids the momentum crashes that traditional 12-minus-1 momentum suffers.

  “momentum within networks tend to persist and are not susceptible to that momentum crash.”at 50:42

• Mike Hunstad · Northern Trust Asset Management

  Factor timing now works: value, quality and low-volatility run multi-year cycles, and timing adds return and risk control.

  Hunstad was strongly negative on factor timing ten years ago and now largely reverses that view. Richer data and AI tools give a better read on macro and sentiment sensitivities of factors. Northern Trust research suggests timing has potency in both return generation and risk mitigation. Value, quality and low volatility cycles are often multi-year, so knowing where you are in a cycle and where macro is heading in a year can help. He says the timing has to be granular by country, region and factor, not just growth versus value.

  “I would say ten years ago, I was emphatically on the negative side. Today, my view is almost completely reversed.”at 51:45

US rates & the Fed

• Mike Hunstad · Northern Trust Asset Management

  Expects two or three Fed rate hikes over the next twelve months, possibly a 50bp hike at the next meeting.

  Hunstad expects two or three hikes over the next year, with a 50 basis point increase at the next meeting possible. He says this matters for bond markets but not much for the macro economy, because the Fed's ability to influence aggregate demand is now small.

  “Yes. I think there's two or three rate hikes over the next twelve months. I think, you know, the the next meeting, we could get a 50 basis point hike. I I see that in the cards.”at 7:27

• Mike Hunstad · Northern Trust Asset Management

  Fed policy now has much less influence on the real economy, so it should hold steady against the AI supply shock.

  Monetary policy works by influencing aggregate demand, but AI is a positive supply shock, and matching it with demand policy does not work. Hunstad says the Fed's influence on real variables has diminished over the last twenty years. Equity markets look almost dislocated from rates because much of tech's revenue and profit is not financed with debt. He argues the best course is for the Fed to hold tight and give markets stability, even though he expects it to hike over the next few meetings.

  “monetary policy has a diminishing return or influence, if you will, on real variables overall. Twenty years ago, they had a much bigger impact. Today, it's much less significant.”at 16:44

AI: overall outlook

• Mike Hunstad · Northern Trust Asset Management

  AI is likely the biggest positive supply shock to the US economy ever, though timing and size are uncertain.

  Productivity estimates from AI range from zero to 40% or more. About 75% of companies' CEOs and CFOs talked about AI on their most recent earnings calls. Even if only half of the productivity claims are right, AI would be a bigger positive supply shock than past technologies such as the PC. Margins on the S&P 500 are already rising, which is an early sign. Hunstad admits the timing and size are unknown, which makes monetary policy harder to set.

  “I would say if even half of that is correct, this will manifest as being, as you pointed out, and I've said this before in the media, the biggest positive supply shock to The US economy that we've ever seen.”at 12:42

• Mike Hunstad · Northern Trust Asset Management

  AI productivity gains could be a huge force multiplier for public equity returns, outweighing the private premium.

  Hunstad argues that productivity benefits from AI are significant and could potentially outweigh the premium earned from early-stage private investing. He describes AI as a potential force multiplier in public markets, which he calls huge. He still sees value in holding public and private assets together, but the public-market AI upside is the bigger story for him.

  “the productivity benefits, we've been talking about, are significant and potentially outweigh even that that premium that you're earning on the private side. So the potential for AI to be a force multiplier in the public markets is huge.”at 41:47

Asset managers, brokers & exchanges

• Mike Hunstad · Northern Trust Asset Management

  ETFs and direct indexing will both grow at double-digit rates over the next few years.

  Hunstad says ETFs will only grow in asset gathering. They are transparent, liquid and tax efficient, and he calls them unambiguously the right vehicle for clients who don't need bespoke implementation. He also sees direct indexing as early in its growth. Custom portfolios for tax, ESG or geographic exposure are growing. Investors are also moving into long-short tax-loss harvesting vehicles and custom muni portfolios, so the direct indexing approach is spreading beyond equities.

  “my bet is that both direct indexing and ETFs are gonna see double digit growth over the next few years.”at 55:17

• Mike Hunstad · Northern Trust Asset Management

  Most active managers lag benchmarks because of what they underweight or omit, not weak stock picks.

  Citing S&P SPIVA research, Hunstad says most active equity managers underperformed their benchmarks, roughly 80% over one, three and five years by his rough estimate. He argues this was mostly not due to a lack of conviction or bad picks. It was because what they didn't pick or underweighted went against them significantly. Overweighting a stock usually requires underweighting something else, and that downside side is what causes most of the pain in active portfolios.

  “By and large, it was because what they didn't pick or what they underweighted went against them significantly.”at 1:01:25

US consumer

• Mike Hunstad · Northern Trust Asset Management

  Wealthy households' spending out of equity gains is propping up the US economy; a 20% drawdown is the main risk.

  The top 20% of US households account for about 40% of consumption, and that group is wealthier than ever after several years of double-digit equity returns, higher real estate prices and higher interest income. Their marginal propensity to consume out of wealth has more than doubled since COVID. Hunstad argues this wealth effect, not the headlines, drives the economy, and the biggest risk is a sustained 20% equity drawdown that would eventually hit that spending.

  “Your biggest spenders are wealthier than they have ever been, and they're spending more out of their wealth than they've ever spent. There's a lot of gas in that tank,”at 0:00

US Treasuries & yields

• Mike Hunstad · Northern Trust Asset Management

  Rising US debt-to-GDP could add 50bp or more of term premium to the yield curve over ten years.

  US debt-to-GDP is about 125% and a conservative path takes it to about 175% over the next ten years. Hunstad argues this would add a meaningful credit premium to the curve, around 50 basis points or more, because it reflects doubts about the issuer's creditworthiness, not growth or inflation. He says a question mark over the safe asset matters more than the absolute yield level, and that France is already showing a smaller version of this.

  “I'd say even a conservative expectation is we're gonna grow to maybe about a 175% over the next ten years. That could put a significant credit premium on the yield curve overall to the tune of, you know, maybe 50 basis points, maybe even higher.”at 10:07

US growth & recession risk

• Mike Hunstad · Northern Trust Asset Management

  Traditional recession leading indicators like delinquencies have lost predictive power for the economy.

  Economists used to rely on credit card, auto and mortgage delinquencies as leading indicators. Hunstad says these have become increasingly disconnected from real economic outcomes over the last several years, which he can show empirically. Delinquencies concentrate in the lower-income end of the consumer base, which now contributes less to overall output than the wealthy top of the spectrum that drives spending.

  “I think that those kinds of things, and you can prove this out empirically, over the last several years have been... Become more and more dislocated from what real variables actually manifest.”at 18:37

Enterprise AI adoption & AI software

• Mike Hunstad · Northern Trust Asset Management

  Real AI productivity comes from reengineering processes around AI; most current projects are marginal.

  Most AI projects so far have been marginal, like automating Excel work or building PowerPoint decks, and Hunstad estimates about 70% of projects fall into that bucket with small output effects. The real gains come from the other roughly 30%, where firms rethink processes around AI. That is hard because it means changing technology, processes and mindset, but Hunstad says it is extraordinarily potent and is only starting now.

  “Going forward is going to be process reengineering or rethinking completely how we do things around that AI centerpiece rather than just do them at the margins.”at 22:00

AI infrastructure & data centers

• Mike Hunstad · Northern Trust Asset Management

  AI capex will earn returns because it is industry-wide, not empire-building; Northern Trust is more bullish than the Street.

  High-capex firms have historically earned lower subsequent returns, but that was empire-building against peers. Today the whole industry is investing together, and not all of that capital will be used well. Hunstad is confident the direction is right, pointing to AI solving a Millennium Prize math problem. He expects these investments to generate cash flow and profits after a capex peak, and says his firm's expectations are more optimistic than the Street's.

  “we are, as a firm, very bullish on AI stocks and technology even more... A little bit more than the street is in the sense that we think that the, you know, the return generating capability of those capital investments.”at 26:04

AI bubble & tech valuations

• Mike Hunstad · Northern Trust Asset Management

  AI is not a bubble: returns came from earnings, and forward multiples sit near ten-year averages.

  Over the last year, equity returns came almost entirely from earnings growth, not multiple expansion. Multiples have been stable for twelve to eighteen months, and forward multiples are around their ten-year average based on earnings expectations. Hunstad also says the dot-com comparison fails: those firms had no revenue, tiny balance sheets and absurd multiples, while today's AI leaders are the highest free-cash-flow, most profitable companies with strong balance sheets, even as capex is now a concern.

  “I have a real hard time with that for a couple of reasons. One is if you look at the last year, equity returns were almost all earnings generated, not multiple expansion.”at 29:11

Earnings & corporate profits

• Mike Hunstad · Northern Trust Asset Management

  Profit margin expansion is the first place AI productivity should show, and it should appear quickly.

  Hunstad's first test of whether AI productivity is real is margin expansion, which should appear before aggregate economic output or GDP picks it up. He notes margins have been rising in recent years, so he is cautious about separating AI from that trend. He says that if AI productivity is real, it should show up in margins relatively quickly.

  “if the first stop of AI productivity is margin expansion, we should be able to recognize that, you know, relatively quickly.”at 31:39

Private equity

• Mike Hunstad · Northern Trust Asset Management

  Early-stage investing in firms that later IPO offers a premium, now bigger than in the past.

  Hunstad says there is a premium to be earned from early-stage investing in companies that will eventually go public, and that the premium is probably bigger than in the past. He qualifies this by noting wide dispersion in private equity returns: SpaceX is a standout, but many private firms do not do well. He also says public-market AI productivity gains could potentially outweigh that private premium.

  “So I do think there is a premium to be made for early stage investing in firms that will eventually go IPO, and there... That premium is probably bigger than it used to be in the past.”at 41:27

Market sentiment, positioning & volatility

• Mike Hunstad · Northern Trust Asset Management

  Investors are more risk-seeking and sentiment-driven than a decade ago, so behavioral anomalies persist.

  Hunstad says investors bid up highly volatile stocks as lottery tickets, and that this behavior has been amplified. Markets today are less tied to fundamentals and information, with much more sentiment and animal spirits than ten years ago. He argues that the behavioral anomalies behind factors such as value and momentum are therefore alive and well. Those anomalies can be potent alpha sources if captured appropriately, even though the methods for capturing them have changed.

  “a lot more sentiment, a lot more animal spirits in the market today than there was just ten years ago, which means that these anomalies are alive and well.”at 47:40

Stablecoins & crypto policy

• Mike Hunstad · Northern Trust Asset Management

  Tokenization is coming; the use case is obvious, but timing, form and legal structure remain uncertain.

  Hunstad is confident tokenization is coming, just as he is confident about AI productivity. Northern Trust launched a tokenized share class of a money market fund earlier in 2026, which can be used as collateral for derivatives. For other asset classes, the utility is obvious but the path is harder. Open questions include how token trades feed into price discovery on exchanges and how the legal structure built around mutual funds and commingled products must change. The timing and form depend on those details.

  “So it's coming. I'm very confident about that. Just like I'm confident about AI productivity, it's coming. But when and in what form...”at 57:28