Opinion Flash | September 2026

The Economy

Stagflation?

• The economic growth profile fits the concept of “stagflation” (see Table 1).

“Stagflation” Profile
 

Table 1
Source: OECD, June 2026

• Consumer spending in the U.S. remains relatively resilient, although with a particular profile:
  • It is concentrated among higher-income consumers, driven by the “wealth effect” (equity markets), but suggests fragility among lower-income segments.
  • Investment in AI and, to a lesser extent, defence, is the most significant growth driver.
• Within the EU, different growth rates coexist. These range from weaker economies (Germany), affected by competition from China in industrial sectors, to stronger performers where services play a dominant role (Spain).
• It is difficult to take a definitive view on China's surprisingly steady and resilient official growth figures. Traditional sectors are undoubtedly still in recession, while the country's industrial technology sector is increasingly catching up with the U.S.

The Markets

Equities vs. Bonds

2.1 Equities: Do Market Indices Reflect Reality?

• The positive earnings season for the second quarter continues to support the performance of equity market indices.
• However, the indices conceal significant divergences:
  • The currently popular “momentum” style is driving AI-related companies higher, but with elevated volatility and significant negative impacts on stocks viewed as losers.
  • Large, high-quality companies (high profitability and low debt levels) are not participating in this trend and are trading at attractive valuations.
  • As a result, concentration risk within market indices has reached extreme levels (Table 2).

Table 2
Source: Bloomberg

2.2 Fixed Income: Financial Repression?

• Rising sovereign bond yields across all G7 countries have become a central focus of attention, as well as debate regarding the future direction of monetary policy (Central Banks) and fiscal policy (Treasuries).
• There are several reasons behind this trend. On the one hand, inflation remains above target levels. On the other hand, concerns persist regarding the trajectory of public indebtedness (government debt) and its refinancing needs. This is arguably the most concerning medium to long-term issue.
• The Opinion Flash has repeatedly highlighted this issue. In January, we published the chart reproduced in Appendix 1.
• The term “financial repression” refers to policies designed to compel or encourage the purchase of government bonds at yields below market rates. Such policies tend to erode the real value of creditors' investments (bondholders). This approach was implemented in the U.S. after World War II.
• Private high-yield fixed income offers very limited compensation for credit risk, yet continues to provide attractive total returns (EDM Credit Portfolio yield to maturity: 7.17% USD).

2.3 Gold and Currencies

• Gold has resumed its upward trend amid ongoing geopolitical uncertainty. It remains the asset class of choice for those who distrust political and economic institutions.
• The U.S. dollar reflects concerns about the institutional trajectory of the United States and appears to be experiencing a period of structural weakness.

Investment Policy

Diversification

• There can be no return without risk. The challenge lies in making a reasoned assessment of both.
• Markets are subject to considerable tensions during a period characterised by the breakdown of the global economic model and a profound technological revolution.
• As a result, visibility regarding the economic and financial outlook for many investments has been substantially reduced.
• We continue to believe that the concentration risk embedded in major indices is unacceptable and does not accurately represent the broader equity market.
• Consequently, we remain committed to a fundamental analysis-based investment approach, selecting outstanding companies at what we believe are highly attractive valuations today. We do not believe the disconnect between index performance and the valuation of the best companies will persist indefinitely (Appendix 2).
• The debate over whether or not a valuation bubble exists is inherent to financial markets. Bubbles can only be identified with certainty in hindsight.
• Given the impossibility of accurately anticipating a market correction, we have introduced both geographic diversification (Asia and Latin America) and conceptual diversification (small caps) into portfolios, where valuation risk is virtually non-existent.

Appendix 1
Options to Reduce the Debt Burden

Appendix 2
“Momentum” vs. Fundamentals

Source: EDM Gestión SAU, SGIIC
Data obtained from the Investment Company Institute
Barron's magazine cover, December 1999

LEGAL DISCLAIMER

1) This information is provided for advertising and informational purposes only. It does not constitute, and should not be considered, investment advice or legal advice. It is not intended to replace the professional advice required in these matters and does not constitute an offer to sell or a solicitation of an offer to buy.

2) All opinions and estimates provided herein are based on sources considered reliable. However, EDM Gestión, SAU, SGIIC cannot guarantee their accuracy or completeness and assumes no responsibility for any direct or indirect loss arising from the use of the information contained in this document.

3) EDM Gestión, SAU, SGIIC warns that past performance is not a reliable indicator of future results.

4) EDM Gestión, SAU, SGIIC is a Spanish public limited company registered with the CNMV's Special Register of Collective Investment Scheme Management Companies under number 49 and with the Madrid Mercantile Registry under volume 36,739, folio 52, sheet M-658,326, tax identification number (CIF) A-58.217.175. Its activities include, among others, the representation, management and administration of Spanish-domiciled investment funds and investment companies, as well as discretionary portfolio management.