By Chris Combs, Chief Investment Officer, Silicon Valley Capital Partners
The US economy is being shaped by three powerful feedback loops moving at different speeds and in different directions. One is quietly constructive, rooted in supply‑side expansion and capital formation. Two are destabilizing, driven by labor market anxiety and a fading monetary policy anchor. Understanding the cycle requires separating these loops, because while they interact, they do not carry equal weight or credibility.
Positive Feedback Loop #1
A Supply‑Side Expansion Hiding in Plain Sight
The strongest and least discussed force in the current cycle is a positive supply‑side feedback loop that is gaining momentum beneath the surface of the economy. At the micro level, the evidence is increasingly difficult to ignore. Revenues across the S&P 500 have stabilized and improved on a year‑over‑year basis. Earnings expectations have been revised higher rather than lower, a pattern more consistent with early‑cycle dynamics than late‑cycle fatigue. Balance sheets remain resilient, and operating leverage is re‑emerging as cost pressures normalize.
What distinguishes this phase is the role of capital expenditure. Investment is no longer narrowly financial or defensive. It is physical, long‑dated and capacity expanding. The build‑out of data centers, semiconductor fabrication, energy infrastructure, automation systems and advanced manufacturing is reshaping the productive base of the economy. These projects raise potential output, diffuse technology across sectors and improve efficiency without relying solely on labor compression.
This is a classic supply‑side boom, albeit one that lacks the speculative excess typically associated with the term. It is slow, capital‑intensive and compounding. Productivity improvements feed margin expansion. Margin expansion supports reinvestment. Reinvestment further raises productive capacity. That loop is now visible in corporate guidance, backlog growth and capex commitments. It is not loud, but it is durable.
Artificial intelligence fits into this loop less as a disruptive shock and more as an enabling layer. Software gains require hardware, power, integration and governance. Systems must be built, maintained and adapted. The result is not a frictionless, labor‑free economy, but one in which productivity gains are paired with sustained demand for specialized labor and capital.
Negative Feedback Loop #2
Labor Attrition and the AI Displacement Narrative
Running directly against this constructive backdrop is a negative narrative feedback loop centered on labor attrition. Advances in AI software have become a proxy for broader economic anxiety. Each improvement reinforces the belief that human labor is becoming structurally less valuable. That belief feeds on itself. Corporate leaders highlight efficiency gains. Media coverage amplifies displacement risk. Workers internalize the message and respond with caution, disengagement or resistance.
If the most pessimistic version of this story proves accurate, it is workers who absorb the adjustment costs. Productivity rises, profitability improves and returns accrue to capital, while hiring slows and wage growth weakens. Even if headline employment remains stable, the underlying churn increases. White‑collar roles once considered secure face compression. Skills obsolescence accelerates. Bargaining power shifts further away from labor.
The danger of this loop is not limited to job loss. Persistent insecurity alters behavior. Consumption softens at the margin. Risk‑taking declines. Investment in reskilling becomes reactive rather than proactive. In this way, the narrative itself becomes economically active, shaping outcomes before the technology fully does.
Crucially, this loop risks overstating near‑term impact while understating adaptation. AI adoption is uneven, costly and constrained by organizational friction. Software does not deploy itself. Productivity gains do not translate instantly into labor displacement, particularly in an economy simultaneously expanding its productive base. Yet narrative moves faster than data, and markets are increasingly trading the story rather than the transition path.
Negative Feedback Loop #3
A Monetary Policy Vacuum and Investor Disorientation
Above both labor and earnings sits the largest negative loop of all: a growing vacuum around monetary policy. The Federal Reserve remains institutionally central but economically less directive. Traditional policy transmission relies on stable relationships between growth, inflation, employment, and financial conditions. Those relationships are now distorted by rapid productivity shifts and supply‑side expansion that suppresses costs even as nominal growth persists.
As a result, monetary policy narrative has become reactive rather than orienting. Forward guidance carries less weight when investors cannot determine whether labor market strength reflects durable demand or temporary resilience ahead of technological restructuring. Inflation signals are blurred by efficiency gains that mask underlying momentum. The Fed is present in every conversation, yet increasingly detached from the forces driving corporate behavior and capital allocation.
For global investors, this creates a loss of direction. When earnings data, capex cycles and productivity trends point one way while policy signals point another, capital lacks a coherent macro anchor. Risk premia become unstable. Volatility shifts from rates to narratives. Markets oscillate not because fundamentals are collapsing or accelerating, but because the framework used to interpret them keeps changing.
Conclusion
Markets Overreact, Labor Adjusts, Leadership Matters
History suggests that markets tend to overreact at narrative inflection points, particularly when technological change collides with late‑cycle policy uncertainty. Artificial intelligence will reshape the labor market, but it is unlikely to do so evenly or all at once. The initial impact will be felt most acutely at the entry level, where tasks are more easily automated and career pathways less established. Over time, the adjustment will broaden, but so will the opportunities created by productivity‑led growth and sustained capital investment.
The risk for investors is extrapolating near‑term disruption into permanent impairment, and in the process missing the compounding effects of a supply‑side expansion already under way. The economy is adapting faster than the narrative allows, even as the policy framework struggles to keep pace.
Markets are forward‑looking, and periods of uncertainty around leadership and policy clarity have historically given way to re‑anchoring moments. When clearer guidance ultimately emerges and productivity gains are allowed to translate into confidence rather than caution, risk assets tend to respond. The challenge now is not the absence of growth, but the excess of narrative. The opportunity lies in recognizing that beneath the noise, the data continue to do the work.