Ep. 377: Jay Pelosky on the Tripolar World, the Spending…

PodcastMacro Hive ConversationsJay PeloskySep 25

Jay Pelosky’s outlook centers on a shift toward regional integration and a spending cycle spanning AI, defense, and climate, which he believes can sustain global growth and earnings through the end of the decade. He sees opportunities beyond the U.S., including in emerging markets, Europe, and China, while pointing to relatively modest valuations and broad earnings growth. His market outlook also weighs rate scenarios and the possibility of further equity gains driven by earnings rather than multiple expansion.

Equities Emerging Markets Corporate Earnings Market Valuations Economic Growth Geopolitical Risk

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Key Takeaways

Pelosky’s tripolar-world thesis pairs regional integration across Asia, Europe, and the Americas with ongoing public and private spending on AI, defense, and climate. He argues that this spending could sustain the global growth long cycle through the end of the decade and is driving a global earnings boom.

Pelosky points to distinct growth supports across regions: Spain’s cheaper renewable power and immigration are attracting investment, while he says China may be defeating deflation and identifies Chinese biotech as an opportunity. He also cites Morgan Stanley’s 2.3% U.S. GDP growth projection for 2027, 4% to 5% growth in China, and reasonably good growth in Japan and Europe.

Pelosky sees earnings—not higher valuation multiples—as the potential driver of further equity gains: he cites a 25% year-over-year forecast for U.S. Q3 earnings and says stocks could rise 5% to 10% through the first half of the following year if earnings grow 20% to 25%. That outlook sits alongside his view that the S&P 500 trades at 18 times forward earnings, below its five- and ten-year averages, and JPMorgan’s estimate that 80% of ACWI could post positive earnings growth in 2026.

Pelosky expects global equity leadership to shift away from the U.S. and says emerging markets, trading at a 50% discount to the U.S. and remaining under-owned, could outperform for another two to five years. He also highlights Poland’s discounted valuation and potential benefit from Ukraine reconstruction, while saying Brazil could cut rates by 200 to 300 basis points and its currency could appreciate.

Pelosky links AI investment to both physical inputs and potential semiconductor gains: he wants exposure to copper, silicon, silver, and lithium, and says semiconductors could do well if Q3 and Q4 confirm AI returns on investment. He also argues that China dominates physical AI, while its industrial-policy mix gives it a competitive advantage.

GEO-POLITICS

Tripolar World — Jay Pelosky’s tripolar-world thesis sees regional integration across Asia, Europe, and the Americas as a path forward after globalization weakened and nationalism proved ineffective.

“Over the last fifteen years or so, I've focused on what I call the tripolar world, which is a thesis arguing that regional deepening or regional integration in the three…”—

Ceasefire Outlook — Jay Pelosky expects ceasefires in both the Russia-Ukraine conflict and the U.S.-Iran conflict, with Europe a major beneficiary. He says he would add to Europe on weakness.

“Our view is that much as we expect a ceasefire in Russia, Ukraine, we expect one in The US Iran conflict and Europe will be the big beneficiary…”—

TECHNOLOGY

Physical AI — Pelosky argues that China’s industrial-policy mix gives it a competitive advantage and says the country dominates physical AI.

“And to win today, you need to have industrial policy working well to be competitive. And so China has that in spades, it dominates the physical AI space.”—

ECONOMY

Tripolar Spending — Pelosky describes unprecedented, ongoing public and private spending on AI, defense, and climate across Asia, Europe, and the Americas. He argues that it can sustain the global growth long cycle through the end of the decade and is driving a global earnings boom.

“The most recent kind of iteration, not iteration, but addition to this tripolar world is what we call the tripolar world spending super cycle, which we introduced in April, where…”—

Growth And Rates — Pelosky argues that rates are higher, but nominal growth is higher still. In his view, the economy should be okay as long as nominal growth remains above interest rates.

“So yes, you know, rates are higher, but nominal growth is higher still…”—

Spain Growth — Pelosky says Spain’s growth model combines renewable resources that enable cheaper power and attract foreign investment with labor-force growth through immigration. He cites Chinese investment in Spain.

“We've called it our new global growth model country, renewable resources leading to power, cheaper power, leading to foreign investment…”—

MARKETS

S&P Valuation — Pelosky says the S&P 500 trades at 18 times forward earnings, based on roughly $420 in 2027 earnings expectations and an index level of 7,600. That is below its five- and ten-year averages; South Korea trades at five times forward earnings.

“If you look at the forward PE of The US, for example, if you take the 2027 forward earnings expectations around $420, you divide 7,600 on the S and P…”—

Market Discounting — Pelosky says markets have absorbed uncertainty without a meaningful index-level decline, despite weakness beneath the indexes. More than 80% of daily market action is algorithmically driven, he says, contributing to more short, sharp corrections and fewer prolonged bear markets.

“Stocks have digested, started the year off strong and have spent the last three months or so in US and globally, basically digesting all of this uncertainty and refusing to…”—

Broad Earnings — Pelosky cites JPMorgan’s estimate that 80% of ACWI is expected to post positive earnings growth in 2026, the highest share since coming out of COVID.

“It's quite widely spread out…”—

FORECASTS

Global Equity Shift — Pelosky expects a secular shift in global equity leadership away from the United States toward the rest of the world. He says emerging markets trade at a 50% discount to the U.S., remain under-owned, and could outperform for another two to five years as U.S. valuations face pressure, financing costs rise, and the dollar weakens.

“And therefore, we argue that this supports a secular leadership change in global equities away from The US, which was the, you know, the leader from the bottom in '9…”—

Poland Growth — Pelosky describes Poland as one of Europe’s best-growing stories, trading at a discount to Europe. He expects it to benefit substantially when Ukraine reconstruction starts.

“Similarly, Poland, one of the best growing stories in Europe…”—

Rate Scenarios — Pelosky frames the Fed outlook as either a one- or two-hike cycle like 1997 or a multi-hike cycle like 2022–2023, which he says would lead to recession. He expects one more hike, while noting that markets have priced in three and may need to remove one or two.

“And, you know, the Fed is gonna raise rates…”—

MacroHive Introduction

Bilal introduces the podcast, notes MacroHive’s new BGC Group-related service offering, and welcomes Jay Pelosky to discuss his market outlook.

Tripolar Spending Super Cycle

Pelosky argues that regional integration across Asia, Europe, and the Americas, paired with spending on AI, defense, and climate, can sustain global growth and earnings through 2030.

Earnings Boom Versus Bearishness

Despite concerns about debt, geopolitics, rates, and AI valuations, Pelosky says earnings growth and relatively modest multiples support equities, while markets quickly absorb negative narratives.

Rates, Growth, and Credit

Pelosky sees strong nominal growth and resilient high-yield credit as evidence that current rates are manageable, while distinguishing a limited rate move from a recessionary hiking cycle.

Global Earnings Broadening

Pelosky says earnings growth is broad across regions and sectors because public and private spending on AI, defense, and climate is lifting profits beyond U.S. technology.

Europe and Regional Leaders

Pelosky favors non-U.S. equities, particularly European banks, Spain, and Poland, citing financial-sector consolidation, growth potential, and possible benefits from Ukraine reconstruction.

Emerging Markets and China

Pelosky highlights selective exposure to Chinese technology, biotech, and robotics, alongside Latin America, arguing that industrial policy, commodities, and potential rate cuts create opportunities.

Energy Security and Clean Power

Pelosky expects Europe to benefit from a possible ceasefire and sees energy insecurity accelerating clean-power adoption, while favoring battery exposure and acknowledging weak returns in several thematic investments.

Midterms and Rate Expectations

Pelosky believes much U.S. political risk is already priced in and says markets may be overestimating future Fed hikes, with bond sentiment shifting quickly as yields rise.

Earnings-Led Equity Rally

Pelosky sees scope for further equity gains driven by earnings rather than valuation expansion, particularly if AI investment returns become clearer and investors increase technology exposure.

Duke Football and NIL

Pelosky discusses Duke football’s success despite a comparatively small NIL budget and argues that investment, recruiting, and team cohesion could strengthen the program.

Pelosky Research and Sign-Off

Pelosky shares where to find his newsletter and model portfolios, while the hosts thank him and close with subscription reminders and standard usage and investment disclaimers.