Stephen Roach, a Yale faculty member and former chair of Morgan Stanley Asia, argues that the Democratic midterm results, often called a Blue Wave, may bring relief to Americans worried about Donald Trump's leadership. However, he warns that this relief need not translate into lasting gains for the economy or financial markets. Many distortions and imbalances that politicians have tolerated over the past decade could now be exposed.
A key reason is that the US business cycle is aging. Apart from the brief Covid shock of 2020, the economy has not faced a recession since the 2007-09 financial crisis. Since the Second World War, the US has seen 12 recessions, roughly one every seven years. Roach notes that politicians, investors, economists and even Federal Reserve chair Alan Greenspan have repeatedly underestimated these risks, as with the "new economy" talk during the late 1990s dotcom bubble.
Roach points to the AI boom as a further source of risk. Recent Brookings research estimates data centre investment of about $10tn over the seven years to 2032, equal to 3.6 per cent of GDP. That is more than three times the 1.1 per cent median of five earlier technological breakthroughs. The build-out is already supporting sluggish US growth, a support the midterm results may call into question.
Corporate finance is also under pressure. The major hyperscalers are moving from positive to negative cash flow, and with interest rates rising, a financial squeeze looks more likely than not. Alphabet may be the canary in the coal mine: its core search growth has slowed sharply, apparently cannibalised by AI-enabled queries, and its net debt issuance exceeded $75bn in the first nine months of 2026, against a little over $11bn a year earlier. Roach warns that such leverage, combined with investor fear of missing out, signals the final phase of a bubble.
Source: Financial Times Markets · Summarized by HeadlinesBriefing