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Aahan Menon: latest market views
Prometheus Research
Summary
Founder and CEO of Prometheus Research, a systematic macro research firm that provides quantitative macroeconomic research and a rules-based ETF portfolio, previously at Light Sky Macro and FXDD.
Chorus has 17 views from Aahan Menon across 2 episodes on Excess Returns since November 5, 2026.
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Newest first. Every quote is checked against the episode's transcript.
Elections rarely matter for markets unless fiscal policy stance materially changes.
Menon says his team's usual conclusion is that elections do not matter much for markets unless there is a very material change in fiscal policy. The argument rests on the expectation that spending and fiscal policy stay on course after a midterm, so the election itself should not change the economic outlook. The cold-open remark gives no further evidence, so the view is a stated framework rather than a detailed case.
“We generally come to the conclusion unless that there's a very material change in the fiscal policy stance, elections don't really matter that much.”at 1:47
Excess Returns: Last Call | Breaking Down the Post Election Decline ·
US fiscal stance is unlikely to change under either party, so elections matter little for markets.
Menon's framework, developed after studying whether elections generally matter for markets, concludes they only matter if there is a very material change in fiscal policy stance. He argues the US fiscal dynamic is unlikely to change regardless of which party wins, so the election does not change how Prometheus runs its framework. The only major channel the election could affect is the Iran war, which he says will not change until later next year.
“unless there's a very material change in the fiscal policy stance, elections don't really matter that much... the fiscal dynamic in The United States is unlikely to change regardless of party.”at 43:15
Excess Returns: Last Call | Breaking Down the Post Election Decline ·
Oil supply disruption through the Strait of Hormuz will persist; the election won't quickly change Iran dynamics.
Menon says the only real major change the election could bring is to the Iran war dynamic, and even that will not happen until later next year. Since geopolitical risk is already largely priced in and operating through the Strait of Hormuz has become risky, supply problems in oil markets will continue. Combined with fiscal policy that is not going to change, he sees little change in the war or in oil from the election.
“the only real major change that you can get out of election is a change to the Iran war dynamic... the changes won't happen until later next year... you're going to continue to have supply problems in oil markets.”at 43:33
Excess Returns: Last Call | Breaking Down the Post Election Decline ·
AI-driven equity gains, not income growth, are funding US consumer spending through household wealth.
Menon says the consumer is the biggest driver of the economy, while tech investment is only about 1% of normal GDP growth. AI supports the economy indirectly through the wealth effect. Household income has grown slowly over the past year, but household balance sheets, boosted by equity holdings, have grown very strongly. So the total funds available for consumer spending have kept rising. Household sensitivity to equity markets is now at a peak relative to past decades, because the economy has become more financialized and households own more assets, so a fall in AI shares could reach consumer spending.
“there is an indirect channel through which AI is supporting the economy, which is through the wealth effect... the household balance sheet, because of equity holdings, has been growing very, very strongly.”at 45:11
Excess Returns: Last Call | Breaking Down the Post Election Decline ·
AI infrastructure & data centers
AI capex momentum has started to crest; profits now need either more capex or record household saving.
Menon describes a capex-funded profit cycle: capex lifts corporate profits today because its costs fall in the future. For that profit cycle to continue, either capex must keep growing at the same or higher rates, or consumers must save their incomes at a historical pace almost never seen in sixty years. Both depend on the AI story: capex depends on AI conditions being good, and the saving is driven by the wealth effect from AI-linked equity gains. He says the capex momentum has started to crest and equity markets have begun to slow, which is natural at these extremes. The concern is about profits and expectations of profits, not spending alone.
“for the current profit party to continue, you need one of two things. You need either ongoing CapEx to continue at the same rate or higher rates, or you need consumers to continue to save their incomes at a historical pace that we've almost never seen”at 49:05
Excess Returns: Last Call | Breaking Down the Post Election Decline ·
Oil shock plus strong nominal demand drive US inflation more than data center buildout does.
Menon argues the more important inflation driver is oil, not data centers. Oil prices have risen between 50% and 60% over the past year, even after a couple of weeks of selloffs, and that pressure passes through the whole economy. The AI capex story may have a marginal effect. The two drivers he emphasizes are very strong nominal demand, which he sees across the board, and the oil supply shock. Together they keep the economy in an inflationary backdrop.
“the CapEx story might be marginally impactful to the inflation dynamic, I think that the real underlying story is that one, you have really, really strong nominal demand in the economy... And two, you have this oil supply shock.”at 51:27
Excess Returns: Last Call | Breaking Down the Post Election Decline ·
Nowcast below 2% reflects oil volatility; core stickiness means reduced bond pressure may not persist.
Menon's inflation nowcast has fallen to around 2%, but he explains that the model forecasts month-on-month inflation, which is very sensitive to energy when oil volatility is this high. The core components are sticky, so the lower reading is mostly energy-driven. He says the nowcast is signaling less pressure on fixed income markets. The question is whether that relief can persist, and it can only if oil keeps falling. He declined to say bonds are the best, though he has been known for calling them the worst.
“So month on month inflation, when you have oil volatility as high as it is today, is very, very sensitive to what happens to the energy complex... for that reduction of pressure to persist, you have to have oil continuing to fall the way it is.”at 52:17
Excess Returns: Last Call | Breaking Down the Post Election Decline ·
Fiscal policy won't change materially under either party; current stance reflects automatic stabilizers.
After the midterms, Menon argues fiscal policy will not shift much regardless of party. He says the current fiscal stance is mostly a function of automatic stabilizers and non-discretionary spending, so the election does not change the fiscal picture materially. He does note a possible faster resolution of the Iran war, but says oil remains driven by supply shortage and a geopolitical premium.
“I think fiscal policy, regardless of party, is not gonna change very materially. A lot of the fiscal policy stance that we have is just a function of automatic stabilizers”at 2:43
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Oil prices face persistent supply shortage and a geopolitical premium, pushing them higher.
Menon says the market outcome of the election is pressure on oil prices higher. He attributes that pressure to a shortage of supply that will likely stay persistent, plus a geopolitical premium already baked into prices from the situation in the Middle East. He sees little that changed in the 24 hours after the election, so oil remains the key macro driver feeding headline inflation.
“And our pressure on oil prices higher is driven by shortage of supply, which will probably likely stay persistent.”at 3:21
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Dissaving and surging household wealth are propping up consumption; the savings contribution is unusually large.
Menon estimates nominal growth of roughly 6-8%, with consumption about 70% or more of GDP. About 2 points of consumption growth come from households dissaving, a contribution he says has not been seen consistently in most of macro history. Wage growth is anemic, but a very large increase in household wealth from real estate and equities has been a major source of funds for households. That combination sustains the dissaving impulse, so consumption would be about 2% lower without it.
“sans that that dissaving impulse, we would have consumption which is 2% lower, which is, you know... it is at levels that we have just not seen on a consistent basis on... In most of macro history.”at 18:38
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Labor drag comes from falling immigration and participation, not weak hiring; this weighs on wages.
Menon splits the labor market into population growth, participation, and hiring. Hiring is fairly strong and unemployment is low. The real drags are a population decline driven by lower immigration and a sharp fall in participation, which is partly immigration-driven and partly demographic as the workforce ages. Those secular forces weigh on wages, which combined with a relatively tight cycle produces weak income growth alongside strong balance sheets.
“What's really dragging on the labor market today is a decline in population, which is driven by a decline in immigration, and a very dramatic decline in participation”at 20:30
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
The Fed is behind the curve, likely for political reasons, and its policy is too loose for the inflation problem.
Menon largely agrees with Bob that central banks are behind. He asks whether they are behind because they don't see inflation or for political motives, and says the answer is increasingly the latter. History suggests about 200bp of hikes are needed for every 100bp of disinflation, which requires a material drop in nominal GDP of around 2%. Central banks have prioritized recession avoidance at all costs, so today's policy looks inconsistent with what is needed. If policymakers don't go far enough, nominal activity keeps running hot and markets keep struggling with the pricing policymakers guide toward.
“Are they behind because they just don't see inflation? Or are they behind because of political motives? I think that, you know, the answer more and more is skewed towards the latter.”at 24:21
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Bonds look unattractive versus cash, since tightening risk could cost 7-10% for a 1% expected cash edge.
Menon frames a 10-year bond yield as compensation for taking on the risk of monetary policy tightening. He thinks the Fed may need a full tightening cycle, historically around 200bp. Even if only half of that happens, bonds would lose roughly 7-10% against an expected return only about 1% above cash. On that basis, bonds are not very appealing versus cash for anyone who shares his view.
“Even if we achieve half of that tightening, that is, you know, somewhere between a seven to 10% loss for a 1% expected return over cash.”at 30:25
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Forward growth pricing assumes AI firms absorb nearly all revenue and earnings, an unlikely outcome.
Menon sees Bob as focused on the forward pricing baked into growth expectations. Looking at that pricing, it assumes AI companies and hyperscalers will absorb everyone's revenue and earnings. Menon calls that a pretty unlikely outcome, even by his own reckoning. Growth momentum is strong today, but there is less room for it to keep rising as it runs further.
“it basically kind of assumes that these AI companies and hyperscalers are gonna absorb everyone's revenue and everyone's earnings, which seems like a pretty unlikely outcome even to me.”at 32:07
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Inflation-nowcast rule says avoid bonds above 2%, own them below; currently around 1.7-1.9%.
Menon's simple template uses his inflation nowcast. Above 2% you avoid bonds, and below 2% you own them. Since the late nineties the rule has captured most of the fixed-income upside while avoiding most of the downside. For most of this episode it has pointed to avoiding fixed income. A recent brief window, starting about three weeks before recording, flipped it to owning bonds, but that change was driven almost entirely by oil selling off. The core inflation problem has not gone away, and the nowcast is currently around 1.7-1.9%.
“If our inflation now cost was above 2%, you would avoid bonds. If it was below 2%, you would own bonds.”at 34:09
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Profit growth depends on business capex or household dissaving, and both look unsustainable over 6-12 months as tightening bites.
Following Kalecki-Levy logic, profits are built on savings. Corporate profits today split roughly evenly between business investment and household dissaving. Dissaving is at its highest contribution to GDP on a medium-term trend in decades. To keep profit growth at its current pace, businesses would have to double down on capex, or consumers would have to dissave even further. Over six to twelve months, both look questionable. Tightening monetary policy slows equity returns, and since the sources of funds for household dissaving and corporate investment depend on rising equity prices, the support for profits becomes more at risk.
“as you start to look out over six to twelve months, it becomes really questionable whether you can continue to have business to just do CapEx at this ongoing pace, or consumers continue to just [dissave] at this ongoing pace”at 45:11
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Growth is not funded by credit or debt, so any blowup would be isolated rather than systemic.
Menon agrees with Bob Elliott's view that credit has been restructured. Economic growth today is not funded by credit or debt, so even if a particular exposure blows up, the damage stays contained and does not become systemic. Menon restates the point in different language rather than adding new evidence.
“when you look at the composition of economic growth today, it is just not funded by credit or by debt. And so as a result, even if you have something just blow up, it's going to be kind of isolated and not systemic.”at 50:38
Excess Returns: Spending Is Up 7%. Paychecks Are Up 3%. What Happens When Stocks Stop Paying the Difference? ·
Shows
- Excess Returns · 2 episodes
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