April 20, 2026
One Economy, Three Cycles
Investing Across a Multi-Speed World
Eric Souders, CFA
Managing Director
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At first glance, today's global economy appears deceptively straightforward. Growth has proven resilient, labor markets — while softening — remain intact, and risk assets continue to behave well. Yet beneath the surface, a more complex reality is unfolding.
We are not operating in a single, synchronized economic cycle. Instead, we are navigating one economy, but three distinct cycles, each moving at its own speed, driven by different forces, and carrying unique implications for investors.
Understanding this divergence is central to how portfolios should be constructed in a world where aggregate data obscures increasingly important dispersion.
The Three Cycles
Cycle One
The Early Cycle: Capex, AI & Industrial Policy
Accelerating
Catalyst
AI & Reshoring
Duration
Longer than typical
Policy Backing
High
Growth Profile
Targeted, uneven
The first cycle is unmistakably early-stage, driven by a surge in capital investment tied to artificial intelligence, infrastructure modernization, and reshoring. Governments and corporations are deploying capital at scale, catalyzed by geopolitical competition, supply chain realignment, and technological transformation.
This is not a traditional recovery. It is a structurally supported, capital-intensive cycle with longer duration and greater policy backing than a typical expansion.
The beneficiaries are clear and concentrated: industrials and capital goods tied to physical buildout, materials and energy-adjacent industries linked to electrification and domestic production, the digital infrastructure ecosystem, and transportation and logistics as supply chains shift toward resiliency. This cycle is defined by targeted capital flows rather than broad-based growth, resulting in increasingly uneven outcomes across sectors.
Cycle Two
The Mid Cycle: Resilient but Narrowing Growth
Moderating
Growth Leader
Tech & AI-linked
Consumer
Bifurcated
EM Role
Reasserting
Breadth
Narrowing
Overlaying this is a mid-cycle expansion characterized by positive but increasingly narrow growth. Technology and AI-linked sectors continue to outpace the broader economy, their outsized contribution masking a more uneven underlying landscape.
Consumer dynamics are increasingly segmented. Higher-income households remain supported by asset appreciation and stable employment. Lower- and middle-income cohorts face pressure from elevated borrowing costs and persistent price levels, driving softer discretionary spending. Within corporate sectors, companies with pricing power and strong balance sheets continue to perform well, while more leveraged issuers face margin pressure and refinancing risk.
Emerging markets are also reasserting themselves as a meaningful source of growth, supported by improving domestic fundamentals and exposure to global trade flows tied to the early-cycle capex dynamic.
Cycle Three
The Late Cycle: Policy Friction & Emerging Stress
Pressuring
Monetary Policy
Still restrictive
Labor Market
Diverging
Leveraged Finance
Deteriorating
Stress Type
Selective, not broad
At the same time, elements of a late-cycle dynamic are emerging, particularly in labor markets and more leveraged parts of the economy. Monetary policy remains restrictive, creating a lagged tightening effect that is increasingly visible beneath aggregate data.
More notably, stress is building within leveraged finance. Tighter financial conditions are weighing on interest coverage for lower-quality borrowers. In broadly syndicated loans, credit quality has deteriorated, while in private credit, exposure is often concentrated in more leveraged sectors. This is not yet a broad-based downturn — rather, a selective emergence of stress where leverage, financing needs, and weaker fundamentals intersect.
Traditional approaches that rely on broad exposure are less effective in a world defined by dispersion. The emphasis shifts toward precision.
– Payden & Rygel Investment Strategy, April 2026
The coexistence of these three cycles creates a fundamentally different investment landscape. Traditional approaches that rely on broad exposure are less effective in a world defined by dispersion. The emphasis shifts toward precision — and the question is not which cycle will dominate, but how to build a portfolio resilient across all three simultaneously.
Assess the Outlook
Answer both questions to reveal the investment implications:
Question 1 of 2
Which cycle concerns you most as an investor right now?
The Early Cycle
AI, capex and industrial buildout — moving fast, valuations stretched
The Mid Cycle
Narrowing growth, bifurcated consumers, dispersion widening below the surface.
The Late Cycle
Leverage stress, deteriorating credit quality, tighter financing conditions.
Question 2 of 2
What do you think is the most important portfolio shift for navigating all three cycles?
Increase broad index exposure
Capture all three cycles at once through market beta
Shift from beta to precision
Idiosyncratic selection, front-end rates, selective emerging market exposure
Move to cash and wait
Reduce risk entirely until three cycles converge into one
Investment Implications
From Beta to Precision
The coexistence of these three cycles creates a fundamentally different investment landscape. Traditional approaches that rely on broad exposure are less effective in a world defined by dispersion. The emphasis shifts toward precision.
Within credit, this favors idiosyncratic opportunities over broad beta. In high yield, widening dispersion supports selective exposure to early-cycle beneficiaries while avoiding rate-sensitive, challenged segments. In securitized markets, structural features and collateral quality provide differentiated exposure — commercial mortgages being one example — even as broader conditions tighten.
Credit Selection
Idiosyncratic opportunities over broad beta. Dispersion in high yield rewards selectively — favor early-cycle beneficiaries, avoid rate-sensitive segments.
Securitized Markets
Structural features and collateral quality provide differentiated exposure. Commercial mortgages offer select opportunities even as broader conditions tighten.
Emerging Markets
Select countries offer attractive real yields, improving policy credibility, and exposure to global growth dynamics across local rates and hard-currency sovereign markets.
Portfolio Construction
The objective is not to position for a single outcome, but to build portfolios resilient across multiple, coexisting realities.
Emerging markets play a more important role. Select countries offer attractive real yields, improving policy credibility, and exposure to global growth dynamics, creating opportunities across both local rates and hard-currency sovereign markets.
In a world of one economy and three cycles, the objective is not to position for a single outcome, but to build portfolios that are resilient across multiple, coexisting realities.
This material reflects the firm’s current opinion and is subject to change without notice. Sources for the material contained herein are deemed reliable but cannot be guaranteed. This material is for illustrative purposes only and does not constitute investment advice or an offer to sell or buy any security. Past performance is no guarantee of future results.
This material has been approved by Payden & Rygel Global Limited which is authorised and regulated by the Financial Conduct Authority. This material has been approved by Payden Global SIM S.p.A. which is authorised and regulated by CONSOB.
Investment in foreign securities entails certain risks from investing in domestic securities, including changes in exchange rates, political changes, differences in reporting standards, and, for emerging market securities, higher volatility. Investing in high-yield securities entails certain risks from investing in investment grade securities, including higher volatility, greater credit risk, and the issues’ more speculative nature.
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