Market leadership is broadening: Insights from Denise Chisholm - February 19, 2026

Disinflation alongside economic growth

Denise emphasized that inflation is one of the most personal economic statistics, as each household experiences price changes differently depending on spending patterns such as commuting, food, healthcare or education. While core inflation measures exclude food and energy, which can feel disconnected from lived experience, their value lies in consistency over time.

From a broader perspective, recent data continues to point to disinflation, even as parts of the economy show signs of stabilization and recovery. Denise noted that historically, growth and inflation do not move together in the way many assume. Looking back several decades, most periods of economic growth have coincided with decelerating inflation. Growth alone is typically not enough to generate sustained inflation, which helps explain why inflation has continued to cool despite ongoing economic activity.

Growth dynamics and the role of fiscal stimulus

A key theme in Denise’s outlook is that inflation is harder to generate than many expect. It tends to emerge not from organic growth, but from very large, targeted fiscal interventions. She pointed to the pandemic period as an example of stimulus that was large enough relative to the economy to drive inflation meaningfully, while noting that other historical stimulus episodes did not have the same effect.

She also described the current growth environment as bifurcated. Strength has been concentrated in certain areas, such as capital expenditures in parts of manufacturing and technology, while other areas, including small businesses and housing, have lagged. When combined, these forces have produced modest overall growth rather than a broad-based expansion. However, recent data suggest the economy may be emerging from this prolonged period of uneven activity, with signs that growth is becoming more durable and potentially more broadly distributed.

Tariffs as a tax, not a driver of sustained inflation

Denise characterizes tariffs as a form of consumption tax that reduces purchasing power but does not typically lead to sustained inflation. While companies often attempt to pass higher costs through to consumers, consumers can respond by reducing demand. In those cases, both consumers and producers can end up worse off, as higher prices lead to lower volumes and potentially weaker margins.

Because of this dynamic, the economic burden of tariffs tends to be spread across consumers, producers and importers rather than falling entirely on households. Denise pointed out that if tariffs were truly inflationary in a sustained way, it would be visible in the inflation data. Instead, inflation has continued to decelerate, suggesting that tariff-related price pressures have been absorbed and diffused across the economy rather than compounding over time.

Monetary policy and the distinction between “can cut” and “have to cut”

Turning to monetary policy, Denise cautioned against overinterpreting Federal Reserve rhetoric. While policy discussions and minutes may reflect a range of views, actual decisions ultimately depend on how the data evolves. She noted that earlier concerns that tariffs would lead to sustained inflation did not materialize and that the same historical patterns argue against growth automatically reigniting inflation today.

Labour market data reinforce this view. Initial jobless claims remain low relative to the population, indicating limited layoffs, while continuing claims have risen modestly, suggesting that rehiring has been slower. Overall, she sees signs of stabilization rather than deterioration. If inflation continues to decelerate while growth and employment stabilize, the Fed may be able to cut rates because conditions allow it, not because economic weakness forces it to act. That distinction is important for equity investors.

Why sectors may matter more than factors

Denise argued that sectors can offer clearer and more precise exposures than broad factors such as value or growth, particularly during periods of transition. Sector data tends to show more distinct patterns, wider dispersion and clearer valuation signals. This makes it easier to assess whether risks, including those tied to disruption or innovation, are already reflected in prices.

In an environment shaped by idiosyncratic forces like artificial intelligence, sector-level analysis can provide more actionable insights than factor labels that cut across very different industries.

Technology, AI and a valuation reset

Within technology, Denise pointed to a sharp sell-off in software stocks, noting that a decline of roughly 25 percent in a short period is rare for a major sub-sector. However, she framed this move as a valuation reset rather than a broad technology bubble bursting. When looking at the technology sector as a whole, including semiconductors, hardware and services, she highlighted sustained free cash flow generation and continued strength in operating margins.

From a historical valuation perspective, technology has moved back toward more typical levels, with relative valuations sitting well below recent peaks. At those levels, the odds of future outperformance have historically improved, even though outcomes are never guaranteed. Her view is that much of the risk and uncertainty around technology, including concerns related to AI, is already reflected in prices.

On AI specifically, Denise described it as a meaningful but still idiosyncratic force. Productivity gains are most visible in software, where developers are becoming significantly more efficient. However, she does not yet see AI as a systemic driver of productivity across the entire economy. Broader economic impacts are likely to take longer to materialize than market narratives sometimes suggest.

Manufacturing recovery and implications for industrials

One of the most notable shifts in Denise’s outlook is the improvement in manufacturing data. After several years of weak and inconsistent signals, indicators such as industrial production, capital goods orders and the ISM survey are beginning to align. A particularly strong signal has been a sharp jump in new orders, an event that has historically been rare and often associated with sustained manufacturing expansion.

Crucially, this improvement is occurring alongside continued disinflation, a combination that has historically supported durable manufacturing recoveries. In this environment, industrial stocks have tended to perform well, as earnings growth broadens beyond a narrow set of sectors. Denise also noted potential opportunities in areas that have lagged, such as transportation and building-related industries, as the cycle becomes more balanced.

Sector positioning: top and bottom groups according to Denise

Top three sectors:

1. Industrials, now her highest-ranked sector, supported by a more durable manufacturing recovery
2. Financials, where valuations remain supportive and regulatory changes could provide additional upside
3. Consumer discretionary, with particular interest in housing-related areas as economic activity broadens

Bottom three sectors

1. Consumer staples, which have benefited from a defensive rotation but appear less attractive in a recovering environment
2. Utilities, also part of the recent defensive bid and less compelling if growth stabilizes
3. Energy, where profitability remains elevated and the risk-reward profile appears less favourable unless commodity prices show sustained upside

Conclusion: potential positioning for a broadening cycle