Jason Schenker's 2026 Risk Framework: Navigating Cold War Two, AI, and Structural Stagnation

The biggest risk for investors in 2026 isn't a sudden market crash or a deep recession. It's a prolonged period of "soft stagnation," where powerful structural forces constrain growth and policy effectiveness, making traditional macro signals less reliable. This is the central framework from Jason Schenker's analysis: the danger lies in misunderstanding these fundamental shifts rather than reacting to cyclical volatility.

Evidence points to a cooling underlying economy. While headline GDP growth remains robust, the trajectory is softening. The latest GDPNow model estimate for the fourth quarter of 2025 is 5.4 percent, a notable figure but one that masks a broader trend. More telling is the labor market. Net payroll gains have slowed to modest levels, and critically, the three-month average of total nonfarm payroll growth has turned negative. This cooling hiring momentum signals that the economy is not collapsing, but it is losing steam-a classic sign of stagnation pressure.

This environment is complicated by sticky inflation. The core CPI, which excludes food and energy, rose at a 2.6% annual rate in December. The immediate driver was a sharp 0.7% monthly jump in food prices, the largest monthly increase since late 2022. This volatility in essentials creates a persistent affordability crisis for households and a policy headache for the Fed, which targets a 2% annual inflation rate. The result is a constrained policy path: rate cuts are possible, but they are likely to be small and spaced out, as officials grapple with inflation that refuses to fall smoothly.

The bottom line is that investors must look beyond quarterly GDP prints and monthly employment reports. The structural forces of geopolitical friction, technological disruption, and demographic shifts are creating a new normal of subdued growth and elevated uncertainty. In this "soft stagnation," the primary risk is misreading the signals, mistaking a cyclical dip for a structural peak, or vice versa.

Cold War Two® as the New Structural Baseline

The geopolitical landscape is no longer a backdrop for economic analysis; it has become the primary structural force. Jason Schenker's "Cold War Two®" framework captures this shift, where systemic decoupling and supply chain reconfiguration define the new economic baseline. This isn't about isolated trade disputes. It's a persistent, high-stakes rivalry that makes the underlying economic outlook feel "not so good," even when positive data points emerge.

The most acute risk is over Taiwan. This flashpoint injects a constant, high-impact uncertainty into global markets and supply chains. It transforms what might otherwise be a cyclical economic concern into a structural vulnerability, where a single geopolitical event can trigger immediate and severe market repricing. This persistent risk is the new normal, a baseline condition that constrains investment and planning.

Adding legal uncertainty to this geopolitical tension is the Supreme Court's pending ruling on presidential tariff powers. The Court heard arguments in November on whether a president can use emergency authority under the International Emergency Economic Powers Act to impose sweeping tariffs without explicit congressional authorization. The justices' deep skepticism, with Chief Justice Roberts questioning whether major policy changes require major authorization, signals a potential curb on unilateral executive power. The outcome will determine the legal stability of a key trade policy tool, directly impacting the predictability of the global economic order.

The result of this dual pressure-geopolitical friction and policy uncertainty-is a global realignment of supply chains and industrial policy. Companies are actively reshoring production and diversifying suppliers to reduce exposure to conflict zones and policy shocks. This creates significant risks for businesses deeply integrated into global networks, but it also opens opportunities in domestic manufacturing and critical minerals. The "Cold War Two®" era is fundamentally reshaping industrial geography, turning economic security into a core competitive imperative.

AI as the Invisible Operating System

Artificial intelligence is no longer a futuristic concept; it is becoming the invisible but essential operating system for the global economy. This pervasive technology is quietly reshaping entire industries, from manufacturing and logistics to finance and healthcare. Its impact is structural, not cyclical. It is a fundamental driver that boosts productivity in some sectors while simultaneously introducing new financial and competitive risks.

This creates a classic "structural forces versus volatility" dynamic. On one hand, AI promises a long-term acceleration in economic output by automating tasks, optimizing processes, and enabling new products and services. This redefines the competitive landscape, where companies that master AI integration gain significant, durable advantages. On the other hand, this very promise fuels a dangerous concentration. The immense capital and talent required to build and deploy leading-edge AI systems are creating a winner-take-most dynamic, with a handful of tech giants capturing the lion's share of the value. This increases systemic risk, as the health of the broader economy becomes more dependent on a few dominant players.

The transition to this AI-driven baseline demands a massive reallocation of resources. It requires significant capital expenditure to build the necessary computing infrastructure and data centers. At the same time, it necessitates a profound shift in human capital, as workers need new skills to manage, interpret, and work alongside intelligent systems. This dual pressure can strain corporate balance sheets, diverting funds from other investments, while also creating labor market turbulence. The result is a simultaneous demand for heavy spending and a need for workforce transformation, a complex challenge that policymakers and business leaders must navigate.

The bottom line is that AI is a structural force that investors cannot afford to treat as a mere trend. Its integration is redefining productivity, competition, and risk. The opportunity lies in identifying businesses that are effectively leveraging AI as a core operating system. The risk is in overlooking the concentration it fosters and the substantial capital and skill shifts it demands. In 2026, understanding this invisible system is key to separating long-term advantage from fleeting hype.

Catalysts and Guardrails for the 2026 Thesis

The framework for 2026 is set, but its validity will be tested by a handful of forward-looking events. These are the catalysts and guardrails that will confirm whether the era of soft stagnation and structural risk is indeed unfolding, or if a more traditional cyclical path remains possible.

The most immediate source of uncertainty is the Supreme Court's pending ruling on presidential tariff powers. The justices heard arguments in November, and their deep skepticism-Chief Justice Roberts questioning whether major policy changes require major authorization-signals a potential curb on unilateral executive power. The Court's three liberal justices showed similar skepticism, with Justice Neil Gorsuch reminding the courtroom that tariffs are effectively taxes. The outcome will be a major test of policy predictability. A ruling that limits the president's ability to impose sweeping tariffs via emergency powers would likely force a more deliberate, legislative approach to trade policy. This could reduce the risk of sudden, disruptive trade shocks but also slow the pace of decoupling. For investors, the key is watching for any subsequent trade policy adjustments that reflect this new legal baseline.

On the inflation front, the focus must shift from headline CPI to the Fed's preferred gauge, the Personal Consumption Expenditures (PCE) index. While December's core CPI came in at a 2.6% annual rate, the PCE is the benchmark that guides monetary policy. Economists note that the "wedge" between monthly CPI and PCE inflation is widening, and the government shutdown has delayed the PCE release until February. A sustained breakout of PCE inflation above 2.5% would be a clear signal that disinflation is stalling. This would constrain the Federal Reserve's policy path, likely delaying rate cuts and putting upward pressure on bond yields. The current market expectation for a pause until June is a guardrail; any shift in that timeline would be a direct challenge to the soft stagnation thesis.

Finally, the depth of AI's real economic impact must be gauged by the divergence between leading tech sector performance and broader industrial productivity metrics. The tech sector, particularly AI-driven firms, is likely to continue its strong rally, reflecting the concentration of value in the winner-take-most dynamic. But for AI to be a true structural growth driver, its productivity gains must spill over into the wider economy. Investors should track metrics like business investment in capital equipment and broader manufacturing output. If these industrial productivity indicators remain muted while tech stocks soar, it would suggest AI is creating financial wealth without yet translating into widespread economic acceleration. This divergence would underscore the structural risk of a dual-speed economy, where a few dominant players benefit while the rest of the industrial base struggles.

The bottom line is that 2026 will be a year of testing. The Supreme Court's tariff ruling will test policy stability, the PCE gauge will test inflation's persistence, and the tech-industry divergence will test AI's real-world impact. These are the guardrails that will define whether the structural forces are indeed creating a new, constrained normal.